Judicial Analysis of Seized Cash Retention Under Section 132B: Gujarat High Court Refers 120-Day Rule to Larger Bench

The procedural dynamics surrounding the release of seized assets during income tax search operations have long been a subject of extensive litigation. A central point of contention often revolves around the statutory time limits imposed on the revenue department for retaining such assets. In a significant judicial development, the Gujarat High Court, in the case of Dilavarsinh Harisinh Zala Vs PCIT (Gujarat High Court), has referred the interpretation of the 120-day asset release rule under Section 132B of the Income Tax Act 1961 to a Larger Bench.

This reference order departs from earlier precedents that mandated the automatic release of seized cash if the Assessing Officer failed to decide on a release application within 120 days. By highlighting the statutory requirement to explain the nature and source of funds, as well as the interest provisions embedded in Section 132B(4), the Division Bench has opened the door for a comprehensive re-evaluation of search and seizure jurisprudence.

Factual Matrix of the Search and Seizure

The genesis of the dispute traces back to an intelligence input received by the Income Tax Department from the Additional Director General (Crime), Gandhinagar. Acting on this information, the department initiated an inquiry under Section 131 of the Income Tax Act 1961. Subsequently, a warrant of authorization was issued under Section 132 of the Income Tax Act 1961, leading to a search operation on 10 May 2024 at the Ahmedabad premises of M/s Prime Enterprise, an Angadiya (courier) firm.

During the execution of this search, the department seized cash amounting to ₹5,68,37,500. The employee present at the premises expressed an inability to explain the source of these funds in a statement recorded under Section 132(4) of the Income Tax Act 1961.

Following the seizure, the authorities initiated parallel proceedings under the Prohibition of Benami Property Transactions Act, 1988. During these proceedings, the assessee, Dilavarsinh Harisinh Zala, came forward claiming ownership of the seized cash. He asserted that the funds were generated from his agricultural produce trading business and were temporarily parked with M/s Prime Enterprise for safe custody and to facilitate payments to farmers.

Resolution of Benami Proceedings

On 30 December 2025, the Benami authority concluded its investigation. The authority issued an order under Section 24(4)(b)(ii) of the Prohibition of Benami Property Transactions Act, 1988, determining that the ownership of the cash was sufficiently established in the name of the assessee. Consequently, the Benami proceedings were formally dropped, confirming that the seized amount was not a benami property.

Armed with this favorable order, the assessee filed an application on 28 January 2026, seeking the immediate release of the ₹5,68,37,500 under Section 132B of the Income Tax Act 1961. When the department did not act upon this request, the assessee submitted a reminder on 01 April 2026 and eventually approached the High Court, citing the expiration of the statutory 120-day period on 07 September 2024.

The Assessee's Plea for Immediate Release

Before the High Court, the assessee argued that the continued retention of the seized cash was arbitrary and lacked jurisdictional backing. The core arguments presented by the assessee included: