2018 (5) TMI 263 - HC - Income Tax

Seeking release the seized jewellery - jewelry found in search proceedings - possession of certain jewelry or ornaments - Held that - The petitioner No.2 has placed before the respondents documents to show that the jewellery seized was part of their stock-in-trade. Documents to that effect has also been placed to show that the petitioner No.2 was carrying them for the purpose of sale as well as approval, transaction memos and the boarding pass, insurance policy were relevant for the said purpose. However, a look at the impugned order is quite amazing. In view of Section 132B proviso, the jewellery was liable to be released. In the light of the statement made under Section 132(4) by petitioner No.2 and in view of the documents and statements put forward on behalf of the petitioner No.1, there was no occasion to or reason to believe that the jewellery is part of undisclosed income of the petitioner No.2. Case of Diomondstar Exports Ltd. & Ors.(2004 (12) TMI 74 - BOMBAY High Court) and CIT Versus Vindhya Metal Corporation, reported in 1997 (3) TMI 3 - SUPREME Court followed wherein held merely because there is an intimation that a person is with possession of certain jewelry or ornaments was not sufficient ground for purpose of action under Section 132 and seizure was held to be invalid. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legitimacy of the seizure of jewelry under Section 132 of the Income Tax Act, 1961.
2. Justification for the non-release of seized jewelry under Section 132B of the Income Tax Act, 1961.
3. Procedural irregularities during the search and seizure operation.
4. The validity of the authority's decision-making process regarding the release of seized assets.

Detailed Analysis:

1. Legitimacy of the seizure of jewelry under Section 132 of the Income Tax Act, 1961:
The petitioners challenged the seizure of 583 pieces of jewelry by the Assistant Commissioner (Income Tax) Circle-1, Jaipur. The jewelry was seized during a search operation at the Indira Gandhi International Airport, where petitioner No.2 was found in possession of approximately 3 KG of gold jewelry. The authorities invoked Section 132 of the Act of 1961 due to the inability of the petitioner to produce documentation verifying the jewelry as stock-in-trade of petitioner No.1. The court noted that the authorities must have "information in its possession on the basis of which a reasonable belief can be founded" for such a seizure, as per the Supreme Court's principles in the case of Director General of Income Tax (Investigation), Pune And Others Vs. Spacewood Furnishers Private Limited And Others.

2. Justification for the non-release of seized jewelry under Section 132B of the Income Tax Act, 1961:
The petitioners argued that the jewelry was part of the stock-in-trade of petitioner No.1 and that petitioner No.2 was authorized to carry it for business purposes. Despite providing detailed documentation, including transaction memos, boarding passes, and an insurance policy, the respondents refused to release the jewelry. The court found that the authority's decision was based on "presumptions and assumptions" and did not properly consider the material evidence provided by the petitioners. The court emphasized that there was no finding that the jewelry did not belong to petitioner No.1 or that it was not part of the company's stock-in-trade.

3. Procedural irregularities during the search and seizure operation:
The petitioners contended that the search and seizure operation was procedurally flawed, citing issues such as the absence of witnesses who signed the 'panchnama' and the denial of the opportunity to cross-examine key witnesses. The court acknowledged these procedural concerns but focused primarily on the legitimacy of the seizure and the subsequent refusal to release the jewelry.

4. The validity of the authority's decision-making process regarding the release of seized assets:
The court scrutinized the authority's decision-making process and found it lacking. The authority questioned the manner in which petitioner No.2 was authorized to carry the jewelry and the pricing of the items but did not provide a valid reason for withholding the jewelry. The court highlighted that under Section 132B proviso, the jewelry was liable to be released, especially in light of the documents and statements provided by the petitioners. The court referenced the judgments in Diomondstar Exports Ltd. & Ors. and CIT Versus Vindhya Metal Corporation to support its decision.

Conclusion:
The court allowed the writ petition, quashing the order dated 19.07.2017, and directed the respondents to release the seized jewelry to petitioner No.1 within two weeks. The court found that the seizure and the refusal to release the jewelry were not justified based on the evidence and legal principles presented.