2022 (4) TMI 1285 - HC - Income Tax

Seizure for assets in search proceedings - Application of seized or requisitioned assets u/s 132B - whether we should direct the respondents to hand over the diamonds to the writ applicant? - HELD THAT - The statutory provision of Section 132B of the Act is very clear. There appears to be a mandate and such mandate is mandatory and not directory. This is evident from the ratio of the decision of this High Court in the case of Nadim Dilipbhai Panjvani 2016 (1) TMI 811 - GUJARAT HIGH COURT wherein this Court has taken the view that the Courts should attach considerable importance to the time frame provided under Sections 132A and 132B when it comes to a question of retention of books of accounts or of seized assets. It is not permissible for the Court to read the time limit provided in the proviso to clause (i) of sub-section (1) of Section 132B of the Act as being merely directory. Any attempt on the part of the Court to read it as directory would substantially dilute the rigors of the statutory provisions and would give an unbridled power to the Assessing Officer to retain the seized assets awaiting the finalization of future possible liability for indefinite period without deciding the application of the person concerned who may be legitimately in a position to explain the source of the asset so seized. This writ application succeeds and is hereby allowed. The respondents are directed to hand over the seized asset (diamonds) to the writ applicant within a period of four weeks from the date of receipt of the writ of this order

Summary

Issues Involved:
1. Legitimacy of the seizure of diamonds.
2. Compliance with Section 132B of the Income Tax Act.
3. Mandate of the statutory time limit for retaining seized assets.
4. Entitlement of the writ applicant to the release of seized diamonds.

Detailed Analysis:

Legitimacy of the Seizure of Diamonds:
The writ applicant, engaged in the diamond business under the proprietary concern "M/s. Vir Impex," sold polished diamonds valued at ?92,09,550/- to "Akash Diamonds Pvt. Ltd." On 8th August 2019, during a search at Akash Diamonds Pvt. Ltd., the applicant's employee, Parin N. Sheth, was found with the diamonds and the corresponding invoice. The diamonds were seized, and the applicant requested their release, asserting ownership and explaining the business transaction.

Compliance with Section 132B of the Income Tax Act:
The writ applicant made multiple requests for the release of the diamonds under Section 132B(1)(i) of the Income Tax Act, which allows for the release of seized assets if the nature and source of acquisition are satisfactorily explained. Despite these requests, the Income Tax Officer did not respond. The applicant argued that the statutory time limit of 120 days for retaining seized assets had expired, citing the case of Nadim Dilipbhai Panjvani vs. Income Tax Officer, which emphasizes adherence to the time frame provided under Sections 132A and 132B.

Mandate of the Statutory Time Limit for Retaining Seized Assets:
The court highlighted the mandatory nature of the time limit under Section 132B. The first proviso to clause (i) of sub-section (1) of Section 132B states that if an application for release is made within 30 days and the source of acquisition is satisfactorily explained, the asset should be released within 120 days. The court referenced the Nadim Dilipbhai Panjvani case, which underscores the importance of the statutory time limit and the illegality of retaining seized assets beyond this period without a decision.

Entitlement of the Writ Applicant to the Release of Seized Diamonds:
The court found that the writ applicant had complied with the requirements of Section 132B by making timely applications and satisfactorily explaining the source of the diamonds. The Income Tax Officer's failure to respond within the statutory period rendered the continued retention of the diamonds illegal. The court ordered the release of the diamonds to the writ applicant within four weeks, allowing the assessment proceedings against Parin N. Sheth or the writ applicant to continue as per law.

Conclusion:
The court allowed the writ application, directing the respondents to release the seized diamonds to the writ applicant within four weeks, emphasizing the mandatory nature of the statutory time limit under Section 132B and the illegality of retaining seized assets beyond this period without a decision.