Delhi High Court Awards Compensation for Delayed Release of Seized KVPs

The Delhi High Court on 13 May 2026 held that the Income Tax Department cannot unjustifiably retain seized Kisan Vikas Patras (KVPs) and Indira Vikas Patras (IVPs) after settlement dues are deposited and directed the Revenue to compensate the assessee for the loss of interest caused due to the delayed release of the instruments. A Division Bench comprising Justice Dinesh Mehta and Justice Om Prakash Shukla partly allowed the writ petitions filed by Pradeep Misra and Gyanwati Mishra.

The dispute arose from a search conducted under Section 132 of the Income Tax Act, 1961, on 21.01.1997, during which KVPs, IVPs, fixed deposits, cash and jewellery were seized from the petitioners. After completion of assessment proceedings and pendency of settlement proceedings before the Settlement Commission, the petitioners repeatedly requested the Department to either release the KVPs and IVPs, permit their renewal, or convert them into interest-bearing fixed deposits, as many of the instruments had matured or were nearing maturity.

Despite several representations, the Department neither released the instruments nor acted upon the requests. The petitioners contended that due to prolonged retention of the KVPs and IVPs, they suffered substantial loss of interest. The Court highlighted that

“Because of the indecisive approach of the Assessing Officer, the petitioner has been put to loss of opportunity cost of the interest, which he would have otherwise earned.”

The Revenue argued that the KVPs and IVPs could not be released due to outstanding tax demand and pointed out that the Settlement Commission had directed the release of the seized instruments only after payment of the settlement amount. The Department further contended that there was no substantial delay after compliance with the settlement order.

The High Court observed that once the settlement amount was deposited on 23.12.2003, the Assessing Officer was duty-bound to immediately release the seized KVPs and IVPs. The Court noted that despite judicial directions, the instruments were ultimately released only on 10.01.2005. “The Assessing Officer had defied the order of the Settlement Commission for no rhyme or reason.”

The Bench further remarked that the Department had unnecessarily retained the instruments despite having jewellery and other assets in its possession and held that the continued retention caused avoidable financial prejudice to the petitioners. Relying upon the Supreme Court decision in Sandvik Asia Ltd v. CIT, the Court held that where amounts or assets are wrongfully withheld without authority of law, the Revenue is liable to compensate the assessee.

Thus, the High Court directed the Department to pay interest at the prevailing KVP/IVP rates on the maturity value of the instruments for the period from 23.12.2003 till 10.01.2005. The Court further directed payment of simple interest at 4% per annum on such interest amount from 10.01.2005 until actual payment.

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