Court holds ownership of Rs. 5.68 crore cash was established in benami proceedings, but says release under Income Tax Act is not automatic without disclosure of source and satisfaction of Assessing Officer.
The Gujarat High Court has referred to a Larger Bench important questions concerning the release of seized cash under Section 132B of the Income Tax Act, 1961, after observing that ownership of the money may have been established in benami proceedings, yet that by itself does not entitle a claimant to immediate release of the seized amount.
A Division Bench comprising Justice A.S. Supehia and Justice Vaibhavi D. Nanavati was hearing a writ petition filed by Dilavarsinh Harisinh Zala, who sought release of Rs. 5,68,37,500 seized by the Income Tax Department from the premises of an angadiya firm, M/s Prime Enterprise, in Ahmedabad. The cash was seized on 10 May 2024 during search proceedings under Section 132 of the Income Tax Act.
The petitioner argued that proceedings under the Prohibition of Benami Property Transactions Act, 1988 had been dropped on 30 December 2025 after the authority concluded that the cash belonged to him and was not benami property. He contended that this finding established his ownership and that the continued retention of the cash was illegal, especially since 120 days had long expired from the date of search authorization.
The Revenue, however, opposed the plea, submitting that the petitioner had failed to explain the nature and source of the cash in his application for release. It was also pointed out that assessment proceedings against M/s Prime Enterprise were pending, and proceedings against the petitioner were under contemplation. The Department said the petitioner’s request was cryptic, belated, and unsupported by documents such as bank records, loan agreements, or contemporaneous acknowledgments.
The Court held that the benami order did conclusively establish the petitioner’s ownership for the purposes of the Benami Act. However, it emphasized that ownership alone does not automatically justify release under the Income Tax Act, because Section 132B requires the person concerned to apply within 30 days and satisfactorily explain the nature and source of acquisition of the asset to the Assessing Officer.
The Bench noted that the petitioner’s application dated 28 January 2026 was filed beyond the 30-day period and did not explain the source of the cash. It also noted that no one from M/s Prime Enterprise or the petitioner appeared before the Department despite summons and notices. On these facts, the Court found that the Assessing Officer was not expected to act on such a deficient application.
Importantly, the Court examined earlier Gujarat High Court rulings, including Nadim Dilip Bhai Panjvani, Mitaben R. Shah, and Ashish Jayantilal Sanghavi, but observed that those decisions had not considered the effect of Section 132B(4), which provides for interest when seized money is retained beyond 120 days. The Bench said the issue of whether release after 120 days is mandatory, whether release can occur without assessment of tax liability, and whether failure to intimate rejection of a deficient application leads to automatic release, all require reconsideration.
Accordingly, the Court referred three key questions to a Larger Bench for authoritative determination. These questions concern whether seized assets must be released after 120 days, whether release can happen even when tax liability has not been determined, and whether an application lacking disclosure of source must still be formally rejected before the 120-day period expires.
Until the Larger Bench decides the issue, the petitioner’s request for immediate release of the seized cash does not succeed.
Bottom Line :
Income Tax Act, 1961 - Section 132B - Seized cash - Ownership of cash may stand established in proceedings under Prohibition of Benami Property Transactions Act, 1988, yet release of seized cash is not automatic - Person concerned, including third party claimant, can seek release under first proviso to Section 132B(1)(i), but must file application within prescribed period and explain nature and source of acquisition to satisfaction of Assessing Officer - Mere expiry of 120 days under second proviso does not by itself mandate release in every case - Effect of Section 132B(4) on retention and interest requires reconsideration - Questions referred to Larger Bench.
Statutory provision(s): Income Tax Act, 1961 Section 132, Income Tax Act, 1961 Section 132B, Income Tax Act, 1961 Section 132B(1)(i), Income Tax Act, 1961 Section 132B(4), Income Tax Act, 1961 Section 132(4A), Income Tax Act, 1961 Section 292C, Income Tax Act, 1961 Section 131, Income Tax Act, 1961 Section 133(6), Prohibition of Benami Property Transactions Act, 1988 Section 24(1), Prohibition of Benami Property Transactions Act, 1988 Section 24(4)(b)(ii)
