2024 (12) TMI 1348 - HC - Income Tax

Validity of proceedings u/s 131/132 - stock of Jewelry having gross weight of 4603.110 grams and net weight of 4146.69 grams was seized u/s 132A - HELD THAT - Categorical stand of the respondents is that when the petitioner (assessee) was asked to give itemized stock register and match the items carried by him with the stock register, he could not do so, to the satisfaction of the authorities. The itemized stock register was not furnished. The net weight mentioned of the jewelry items did not match with the closing stock as on 21.03.2024 and was found to be different. The same has been demonstrated by the respondents by the answers given to Question No.18 in the statements in the proceedings under Section 131 and also in the answer to Question No.13. This Court also observes that the respondents have further taken a stand that the difference in valuation, the itemized stock registers not being produced and the bills of Rs. 50,00,000/- not corresponding to the value of the gold items which was worth Rs.2.16 crores, became the reason for not releasing the same. This Court further observes that the assessment proceedings are still going on and the present tax liability is still not ascertainable. This Court also observes that once there is a factual dispute regarding the itemized stock register and the quantity of the gold seized, then all other documents can be considered by the assessing authority while completing its assessment proceedings. The assessment is for the year 2024-25, and this case is covered under Section 132 and after completion of such assessment, if the tax liability is arising then the petitioner shall have his own remedy, regarding the ornaments, but non-release thereof at this stage is justified. The first summons u/s 131 as examined by this Court, was a sufficient opportunity for the petitioner to explain the source of the gold, and his failure to do so has prompted the respondents to initiate the proceedings u/s 132A, which has been done after due and prior approval of the concerned authorities as per the Act of 1961. This Court also observes that the stock register of the Firm was present, but the jewelry items and the stock register bills were not matching. The order u/s 132B thus, cannot be interfered with at this stage, as the information received warrants the assets to remain in custody. The compulsory proceedings have to take place and the petitioner during the assessment proceedings will get sufficient time and opportunity to defend his case and take his remedy by filing the appeal before the CIT(A), if any adverse order is passed and therefore, at this stage, no interference is called for in the present petition. The principal argument of the petitioner is that the respondents have acted in sheer violation of the proviso to Section 132(1)(iii) of the Act of 1961, which provides that stock-in-trade of the business cannot be seized. This Court also observes that in the present petition, the petitioner is seeking quashment of the proceedings u/s 131/132 of the Act of 1961, citing that Section 132 has reasons to believe and thus, once the reasons to believe were specified then the proceedings ought to have been dropped.

Issues Involved:

1. Legality of proceedings under Sections 131/132 of the Income Tax Act, 1961.
2. Justification for the seizure of gold ornaments under Section 132-A of the Act.
3. Compliance with the proviso to Section 132(1)(iii) regarding the seizure of stock-in-trade.
4. Adequacy of the petitioner's response to the summons under Section 131.
5. Validity of the non-release of seized assets pending assessment proceedings.

Detailed Analysis:

1. Legality of Proceedings under Sections 131/132:

The petitioner challenged the initiation of proceedings under Sections 131/132 of the Income Tax Act, 1961, arguing that the "reasons to believe" necessary for such actions were not adequately specified. The court noted that the Income Tax Department initiated proceedings after the petitioner's vehicle, carrying gold ornaments, was intercepted. The petitioner was unable to provide an itemized stock register or match the items with the stock register to the satisfaction of the authorities. The court emphasized that the proceedings were initiated following due process, including the issuance of summons and the recording of statements under Section 132(4).

2. Justification for the Seizure under Section 132-A:

The petitioner contended that the seizure of gold ornaments was unjustified, as the stock was supported by valid invoices. However, the court observed that the discrepancy between the net weight of the jewelry items and the closing stock, along with the inability to produce an itemized stock register, justified the seizure. The court noted that the respondents demonstrated the mismatch in valuation and the absence of corresponding bills for the gold's value, which amounted to Rs. 2.16 crores.

3. Compliance with Proviso to Section 132(1)(iii):

The petitioner argued that the seizure violated the proviso to Section 132(1)(iii), which prohibits the seizure of stock-in-trade. The court acknowledged this provision but highlighted the factual dispute regarding the itemized stock register and the quantity of gold seized. Given the ongoing assessment proceedings, the court found no grounds to interfere with the seizure at this stage, as the assets were deemed necessary to remain in custody.

4. Adequacy of Petitioner's Response to Summons under Section 131:

The court found that the petitioner's failure to adequately explain the source of the gold during the initial summons under Section 131 justified the subsequent actions under Section 132A. The court noted that the petitioner's response did not satisfactorily address the discrepancies identified by the authorities, prompting the continuation of proceedings.

5. Validity of Non-Release of Seized Assets Pending Assessment:

The court held that the non-release of the seized gold was justified due to the ongoing assessment proceedings, which were yet to ascertain the tax liability. The court emphasized that the petitioner would have the opportunity to address the issues during the assessment process and could seek remedies through appeal if any adverse order was passed.

In conclusion, the court dismissed the petition, finding that the proceedings under Sections 131/132 were conducted in accordance with the law and that the non-release of the seized assets was warranted pending the completion of assessment proceedings. All pending applications were disposed of.

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