Assessee Entitled to Interest on Wrongfully Retained KVPs and IVPs

Case Details: Pradeep Misra vs. Union of India - [2026] 186 taxmann.com 914 (Delhi)

Judiciary and Counsel Details

• Dinesh Mehta & Om Prakash Shukla, JJ.
• Aseem Chawla, Sr. Adv., Ms Mukti Chaudhary, Ms Pratishtha Chaudhary, Sai Dhanush, Ms Ishika Sharma & Saksham Arya, Advs. for the Petitioner. 
• Ruchir Bhatia, SSC & Anant Mann, JSC for the Respondent.

Facts of the Case

The assessee’s premises were searched by the Income Tax Department. During the search, the department seized Kisan Vikas Patras (KVPs) and Indira Vikas Patras (IVPs) along with cash and jewellery. The assessee’s assessment was completed, and a demand was raised against him. The assessee moved an application before the Settlement Commission for the settlement of his case.
During the pendency of the matter before the Settlement Commission, many of the KVP/IVPs were about to mature or had matured. The assessee wrote various letters and representations to the Assessing Officer (AO) requesting the release of the KVPs & IVPs or permission to renew them. However, the AO neither paid any heed to the assessee’s request nor gave any response, including a denial.
Aggrieved-assessee filed a writ petition before the Delhi High Court seeking a direction to the AO to pay the interest he has lost due to the non-handover of the KVPs and IVPs.

High Court Held

The High Court held as follows:
(a) The AO ought to have considered the assessee’s request either by directing him to deposit the amount equal to the face value of the KVPs & IVPs or by ensuring renewal of the subject KVPs & IVPs, so that the assessee would not lose interest on their maturity.
(b) Because of the indecisive approach of the AO, the assessee has suffered a loss of the opportunity cost of the interest, which he would have otherwise earned.
(c) The assessee is entitled to interest on the maturity value of the KVPs & IVPs at the prevailing rate of interest as on 01.01.2004, for the period from 23.12.2003 up to 10.01.2005 (i.e. from the date of deposition of the demand/settlement amount up to the date of release of the KVPs & IVPs) and not from the date of maturity as prayed.
(d) If the interest rates of KVPs & IVPs as on 01.01.2004 are not available, the AO shall use the corresponding rates for the National Savings Certificate (NSC). The interest shall obviously be calculated on the maturity value of KVP (not on the face value).
(e) The assessee is entitled to simple interest at a moderate rate of 4% on the amount of interest determined by the AO.

List of Cases Reviewed

• Sandvik Asia Ltd. v. CIT (2006)150 Taxman 591/ 280 ITR 643 (SC) (para 33) followed
• CIT v. Gujarat Fluoro Chemicals [2014] 42 taxmann.com 1 /222 Taxman 349 (SC)/[2013] 358 ITR 291 (SC) (para 30) distinguished

List of Cases Referred to

• CIT v. Gujarat Fluoro Chemicals [2014] 42 taxmann.com 1 /222 Taxman 349 (SC)/[2013] 358 ITR 291 (SC) (para 29)
• Sandvik Asia Ltd. v. CIT [2006] 150 Taxman 591 / 280 ITR 643 (SC) (para 33)