Search and seizure — Amounts lying in the bank account cannot be withdrawn and seized.

[K. C. C. Software Ltd. v. DIT (Inv), (2008) 298 ITR 1
(SC)]

During the course of search and seizure action, the
Department issued warrant of authorisation u/s.132 on 4-10-2005 in respect of
bank accounts (which were disclosed in the regular books of accounts) and
withdrew the cash by demand drafts. On 8-10-2005, the bank informed the assessee
about the search and seizure and the withdrawals made by the Department. On
28-10-2005, the assessee was supplied with copy of the Panchnama. On 29-10-2005,
the assessee requested the Department to adjust a sum of Rs.77,68,177 towards
self-assessment tax for the A.Y. 2005-06 from the seized amount of
Rs.1,81,91,982 and to release the balance. On 29-11-2005, an application was
made u/s.132B for release of the seized amount. On 16-2-2006, the assessee
requested that a further amount of Rs.40,00,000 be adjusted from the seized
amount against advance tax for A.Y. 2006-07 and to release the balance.

Since the Department failed to respond to the request of the
assessee, writ petitions were filed to release the amounts seized after the
adjustments as requested and to quash and set aside the warrants of
authorisation dated 4-10-2005. In reply filed by the Department, it was inter
alia contended that the application made u/s.132B was disposed of on
1-2-2006 and that the bank accounts in question were undisclosed.

In rejoinder the assessee pointed out that the said order
dated 1-2-2006 was not served upon them. The Delhi High Court dismissed the
petitions observing that the Department had taken a stand that there was
estimated tax liability of approx. Rs.10 crores and the satisfaction note dated
13-9-2005 of ADIT, Unit 1 and notings of the Director (Investigation) clearly
indicated that the stand of the assessee was without substance.

Before the Supreme Court, the assessee contended that the
seizure was without jurisdiction and that there was no power u/s.132B for
retaining any amount seized for the purpose of meeting estimated liability. The
stand of the Revenue was that as the assessee was unable to satisfactorily
explain the sources of fund lying in the bank account, the same were seized and
an authorised officer has full power and jurisdiction to seize cash balance
lying in bank account as these would come within the meaning of ‘money’ and/or
‘assets’ as provided u/s. 132(1)(iii). Further, the money had been withdrawn in
terms of ‘Search and Seizure Manual, 1989’, particularly paragraphs 5.01 and
5.02 thereof. Further, reference to S. 153A in S. 132B showed that the amount
could be retained for the estimated liability.

The Supreme Court, after referring to the ‘Search and Seizure
Manual’ held that it was clear that the same was relatable to cash seized and
cash in bank is conceptually different from cash in hand. The Supreme Court
referred to the authorities to conclude that the banker is not an agent or
factor but he is a debtor. The Supreme Court held that it is impermissible to
convert assets to cash and thereafter impound the same. However, the Supreme
Court did not go into the broader issue in view of the fact that there was no
challenge to the order passed u/s.132B and did not grant any relief to the
assessee and as there was time up to 31-3-2008 for completing the assessment,
the Supreme Court directed that the amount seized be kept in interest-bearing
fixed deposit, as in the event the assessee succeeds, it would be entitled to
interest as provided in statute.