2020 (2) TMI 953 - HC - Income Tax

Validity of assessment order - Seizure of gold u/s 132 - Jurisdiction - Presumption u/s 292C - HELD THAT - Since the investigation and eventual seizure by the officers of the 2nd respondent was pursuant to the tip off from the officers of the 1st respondent at the Chennai Kamaraj International Airport when the 4th petitioner was boarding the flight in evening to Kolkata on 30.06.2016 carrying gold, the 2nd respondent ought to have seized the gold and sent it to his counterpart for further investigation. Detention seizure effected by the officers at Kolkata shows arbitrary exercise of power in as much as person claiming to be the owners of the seized gold bullion and jewellery is admittedly located within the State of Tamil Nadu at Chennai and carry on business in retail sale and manufacture of gold jewellery. Seized gold should be directed to be delivered to the office of Chief Commissioner of Income Tax, Chennai who may himself decide or nominate a senior officer from the department to investigate the case. The 1st and the 2nd petitioners along with 3rd and 4th petitioners and the 4th respondent may thereafter file appropriate written submission together with evidence in support of this case before the Chief Commissioner of Income Tax or any other senior officer of the Income Tax Department who may be nominated by the Chief Commissioner of Income Tax, Chennai for the aforesaid purpose. It is for the said officer to conclude as to whether the 1st petitioner and/or the 4th respondent or both can claim ownership over the seized gold bullion and jewellery which was seized from the 4th petitioner by the 2nd respondent on 01.07.2016. If on further investigation such officer comes to a conclusion that the explanation offered by the 1st and 2nd petitioners along with the 4th petitioner and 4th respondent are unsatisfactory, appropriate steps shall be thereafter taken in accordance with law. On the other hand, if on enquiry it is concluded that the 1st petitioner or the 4th respondent are indeed the owner of the seized gold bullion and jewellery, it shall be handed over to the lawful owner or person who is entitled to it. The above exercise shall be carried out within a period of three months from date of receipt of a copy of this order strictly without any deviation. The petitioners shall be given due notice of hearing before order is passed. As far as impugned order dated 31.12.2018 passed by the 5th respondent is concerned, liberty is given to the 4th petitioner to take appropriate steps against the said order before the jurisdictional Appellate Commissioner within a period of thirty days from the date of receipt of a copy of this order.

Summary

Issues Involved:
1. Legality of the search and seizure proceedings.
2. Jurisdiction of the court to quash the seizure and assessment order.
3. Ownership and rightful possession of the seized gold bullion and jewellery.
4. Validity of the assessment order treating the seized gold as undisclosed income.

Detailed Analysis:

1. Legality of the Search and Seizure Proceedings:
The petitioners challenged the search and seizure proceedings conducted under Warrant No.8609 dated 1st July 2016, arguing that the 2nd respondent had no authority under Section 132 of the Income Tax Act, 1961, to seize bullion and jewellery as they were stock in trade of the petitioners' business. The petitioners contended that the 2nd respondent was merely bound to make a note or inventory of such stock in trade and return the jewellery items. The court found that the seizure was not justified as the gold was meant for manufacturing and repair/polishing purposes and was handed over to the 4th petitioner by the 2nd petitioner. The 2nd respondent should have transferred the seized gold to the jurisdictional Income Tax Officers at Chennai for further investigation.

2. Jurisdiction of the Court to Quash the Seizure and Assessment Order:
The respondents argued that the writ petition was outside the jurisdiction of the court as the entire cause of action arose in Kolkata. However, the court held that the seizure and the consequential assessment order were intertwined and had their basis from intelligence gathered at Chennai. The court concluded that it had jurisdiction to interfere with the seizure and the assessment order as the basis of the seizure was the tip-off from Chennai, and the ownership was claimed by persons located in Chennai.

3. Ownership and Rightful Possession of the Seized Gold Bullion and Jewellery:
The petitioners consistently maintained that the seized gold belonged to the 1st petitioner and was handed over to the 2nd petitioner for manufacturing and repair purposes. The court found no variance in the statements of the petitioners and concluded that the seized gold could not be treated as undisclosed income of the 4th petitioner. The court directed that the seized gold should be delivered to the Chief Commissioner of Income Tax, Chennai, for further investigation to determine the rightful owner.

4. Validity of the Assessment Order Treating the Seized Gold as Undisclosed Income:
The 5th respondent passed an assessment order on 31.12.2018, treating the seized gold as undisclosed income of the 4th petitioner. The court found that the 5th respondent was not justified in concluding that the seized gold was undisclosed income, as the explanation given by the petitioners was satisfactory. The court quashed the impugned seizure and directed further investigation by the Chief Commissioner of Income Tax, Chennai. The court also granted liberty to the 4th petitioner to take appropriate steps against the assessment order before the jurisdictional Appellate Commissioner within thirty days.

Conclusion:
The court quashed the seizure effected by the 2nd respondent and directed the seized gold to be delivered to the Chief Commissioner of Income Tax, Chennai, for further investigation. The court also provided the 4th petitioner with the liberty to challenge the assessment order before the jurisdictional Appellate Commissioner. The petition was disposed of with these directions, and no costs were awarded.