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Gujarat High Court Refers to a Larger Bench Whether Seized Assets Must Be Released After 120 Days

Writer: Kaustav Chowdhury
Kaustav Chowdhury
4 days ago
6 min read

Background and Facts

An assessee whose cash is taken in a search has thirty days to ask for it back and the statute says the seized assets shall be released within one hundred and twenty days. What happens when the Assessing Officer simply does not decide within that period has now been referred for authoritative answer. A Division Bench of the Gujarat High Court has referred to a larger bench the question whether assets seized under the Income-tax Act must be released once the one hundred and twenty day period expires. The reference was reported on September 25, 2026.

The dispute concerns cash of about Rs 5.68 crore taken in a search. The assessee applied for release, no decision was taken on the application, and the period of one hundred and twenty days ran out. The claim was that the second proviso to Section 132B(1)(i) of the Income-tax Act, 1961, which says that the asset shall be released within that period, left the department no choice.

The referring Bench doubted an earlier line of decisions of the same High Court which had proceeded on the footing that release becomes imminent once the period expires without a decision. Rather than follow or distinguish them, it referred the question on.

Key Legal Issue

Whether the second proviso to Section 132B(1)(i) of the Income-tax Act, 1961 is mandatory, so that assets seized in a search must be released once one hundred and twenty days have passed from the execution of the last authorisation, or whether it is directory, so that the Assessing Officer's power to decide the release application survives the period.

The High Court's Ruling

The Bench decided nothing. It formulated three questions and referred them for consideration by a larger bench, which is itself the significant part of the order: a proposition applied in Gujarat until now is open again.

The Three Questions Referred

The questions, in substance, are these. First, whether release becomes mandatory on the expiry of one hundred and twenty days where the application was filed within the thirty day window, reading the words shall be released as obligatory. Second, whether assets can be released after that period at all where no tax liability has yet been determined in assessment proceedings and the Assessing Officer has taken no decision on the application. Third, whether the Assessing Officer is obliged to deal with an application that does not disclose the nature and source of the asset, and whether a failure to respond to such an application triggers release.

The third question is the one most likely to matter in practice, because a great many applications are made without the explanation the first proviso requires.

Why the Bench Doubted the Settled View

The reasoning starts from the familiar proposition that the word shall does not carry the same force in every statute, and that its operation depends on the scheme in which it appears. On that footing the Bench took the preliminary view that release under the second proviso is not routine or automatic.

The structural argument is the interesting one. Section 132B(4) provides for simple interest to be paid to the assessee where money is retained beyond the one hundred and twenty day period, running until the assessment is completed. If the statute already compensates the assessee for retention beyond that period, the argument runs, the period cannot also operate as a deadline after which retention is unlawful. The Bench considered that the earlier decisions had not engaged with that interaction.

Against that is the plain text, and the practical consequence that an assessee who does everything the first proviso asks can be left with neither the asset nor a decision. Interest at a statutory rate is not the same thing as the use of one's own money, which is why the question is worth a larger bench.

The Competing Authority Outside Gujarat

The question has been answered elsewhere. In Dipak Kumar Agarwal v. Assessing Officer, Neutral Citation 2024:AHC:49600-DB, decided on March 19, 2024, a Division Bench of the Allahabad High Court comprising Justice Saumitra Dayal Singh and Justice Surendra Singh-I held the provision to be directory. The relevant finding is short:

"The provision in question [Section 132 B (1) (i)] being directory, the jurisdiction of the Assessing Authority to deal with the petitioner's application dated 15.09.2022 did not lapse or abate upon expiry of the period of 120 days". The relief granted there is worth noting as well. The Court did not release the money; it directed the Assessing Authority to decide the application within two weeks by a reasoned and speaking order after hearing the assessee.

That is the shape most of this litigation takes. The order an assessee realistically obtains is a direction to decide, not a direction to pay.

The Recodification Does Not Dispose of the Question

It would be convenient if the Income-tax Act, 2025 had settled the point, and it has not. Search and seizure is now Section 247, and the application of seized or requisitioned assets is Section 250, which reproduces the same architecture: an application for release within thirty days from the end of the month of seizure, an explanation of the nature and source of acquisition, the prior approval of a senior officer, release within one hundred and twenty days from the execution of the last authorisation, and interest where retention runs past that period.

Because the words are carried forward, whatever the larger bench decides about the 1961 provision will govern the 2025 provision too. Searches conducted before April 1, 2026 continue to be dealt with under the 1961 Act, so both sets of provisions will be in play for some years yet.

Practice Notes

In practice, the reference changes how a release application should be prepared and how relief should be framed:

  • Do not rest the application on the deadline: The one hundred and twenty day period is now contested in Gujarat and has been held directory in Allahabad. Build the application on the explanation of nature and source, which is the condition the statute actually imposes, and treat the period as a supplementary argument.

  • Explain nature and source with documents, not assertions: The third question referred turns on applications that omit the explanation. Bank statements, books of account, invoices, returns of earlier years and, for jewellery, earlier declarations, all annexed to the application, are what put the Assessing Officer in a position to release.

  • Ask for a direction to decide: Both the Allahabad decision and the general run of orders grant a direction to dispose of the application by a reasoned order within a fixed time. A prayer confined to release of the asset invites a dismissal that a prayer for a decision would not.

  • Quantify the existing liability yourself: Seized money can be applied to existing liability and to liability determined on assessment. An application that identifies the demands outstanding and asks for release of the excess is far harder to refuse than one that asks for the whole amount back.

  • Claim the interest: Where money is retained beyond the period, interest runs until the assessment is completed. It is frequently not paid unless it is asked for, and the claim should be made in the application itself rather than after the assessment.

Key Provisions Discussed

  • Section 132 of the Income-tax Act, 1961: Search and seizure, the authorisation under which assets are taken and from the execution of the last of which the one hundred and twenty day period runs.

  • Section 132B of the Income-tax Act, 1961: Application of seized or requisitioned assets, with the first proviso to sub-section (1)(i) allowing an application for release within thirty days from the end of the month in which the asset was seized where the nature and source of its acquisition is explained, the second proviso providing that the asset shall be released within one hundred and twenty days from the date on which the last of the authorisations for search or requisition was executed, and sub-section (4) providing for simple interest where money is retained beyond that period.

  • Section 247 of the Income-tax Act, 2025: Search and seizure under the recodified Act, corresponding to Section 132 of the 1961 Act.

  • Section 250 of the Income-tax Act, 2025: Application of seized or requisitioned assets, carrying forward the thirty day application, the explanation of nature and source, the prior approval of a senior officer, the one hundred and twenty day release period and the payment of interest.

Case Details

  • Matter: Writ petition concerning cash of about Rs 5.68 crore seized in a search and not released

  • Court: High Court of Gujarat, Division Bench

  • Reported: September 25, 2026

  • Amount Involved: Cash of about Rs 5.68 crore

  • Nature of Order: Reference of three questions on the second proviso to Section 132B(1)(i) to a larger bench

  • Competing Authority: Dipak Kumar Agarwal v. Assessing Officer, Allahabad High Court, March 19, 2024, holding the provision directory

  • Status: Awaiting consideration by the larger bench

Sources and References


Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers should consult a qualified legal professional for advice specific to their circumstances.

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