2012 (9) TMI 432 - HC - Income Tax

Initiation of search and seizure u/s 132 - residential-cum-business premises - Held that - Clause (c) of Section 132(1) concerns money, bullion, jewellery or other valuable article or thing. In order to proceed under clause (c) there must be information with the authorizing authority relating to any person is in possession of money bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been or would not be disclosed for the purpose of the Act, thus there are materials available on record for which the specified authority had reason to believe that the condition precedent to issue the warrant of authorization to conduct search and seizure operation in terms of Section 132 at the residential-cum-business premises of the petitioner existed, thus the warrant of authorization cannot be quashed - in favour of revenue. Seizure of bullion, jewellery or valuable article of thing being stock-in-trade - Held that - The Finance Act, 2003, has amended Section 132 to provide that any bullion, jewellery or other valuable article or thing being stock-in-trade of the business, found as a result of search shall not be seized but the authorized officer shall make a note or inventory of such stock-intrade. Thus, stock-in-trade of business cannot be seized during search and seizure operations conducted on or after June 1, 2003 - thus the seizure of jewellery being stock-in-trade by the authorized officer is wholly without authority of law and contrary to the statutory provision contained in proviso to Section 132 (1) (iii) and third proviso to Section 132(1) (v) - in favour of assessee.

Summary

Issues Involved:
1. Validity of the search and seizure operation under Section 132 of the Income Tax Act.
2. Authority to seize stock-in-trade under Section 132 of the Income Tax Act.
3. Seizure of stock-in-trade representing undisclosed income or property.

Detailed Analysis:

Issue 1: Validity of the Search and Seizure Operation
The court examined whether the conditions precedent for initiating a search and seizure operation under Section 132 of the Income Tax Act were satisfied. The petitioner argued that the search was based on mere suspicion without substantial evidence, violating Section 132(1) which requires "reason to believe" rather than "reason to suspect." The court noted that the satisfaction note must clearly show the application of mind and the formation of opinion by the officer ordering the search. The court reviewed the records and found that there were sufficient materials available for the specified authority to have a "reason to believe" that the conditions for issuing the warrant of authorization existed. Therefore, the court upheld the validity of the search and seizure operation.

Issue 2: Authority to Seize Stock-in-Trade
The court addressed whether the authorized officer under Section 132 of the Income Tax Act has the authority to seize stock-in-trade found during a search operation. The petitioner contended that the seizure of stock-in-trade is prohibited by the third proviso to Section 132(1)(iii), which states that stock-in-trade found during a search shall not be seized but rather inventoried. The court agreed with the petitioner, stating that even if the stock-in-trade represents undisclosed income, the authorized officer is not empowered to seize it but must make a note or inventory of such stock.

Issue 3: Seizure of Stock-in-Trade Representing Undisclosed Income
The court further clarified that the proviso to Section 132(1)(iii) explicitly prevents the seizure of stock-in-trade, irrespective of whether it represents undisclosed income or property. The court emphasized that the legislative intent is clear in that stock-in-trade must be inventoried and not seized, as supported by Circular No. 8 of 2003 issued by the Central Board of Direct Taxes (CBDT). The court rejected the Department's contention that the authorized officer could seize stock-in-trade if it represented undisclosed income, reiterating that the statutory provisions must be strictly construed.

Conclusion:
The court concluded that the seizure of jewellery (gold and silver ornaments) being stock-in-trade by the authorized officer was wholly without authority of law and contrary to the statutory provisions. The court directed the Income Tax Department to return the seized jewellery to the petitioner after making the necessary inventory. The writ petition was allowed to this extent, ensuring compliance with the statutory requirements and upholding the rule of law.