2021 (9) TMI 428 - HC - Income Tax

Seizure of goods at airpor t - jewellery found in possession was seized in terms of Section 132 - assessee seeking Release to attached stock-in-hand - jewellery seized in stock-in-trade - HELD THAT - As apparent that the seizure has to be conducted after due care and caution. Merely on account of reasons to suspect, seizure of goods ought not to be undertaken as held in Khem Chand Mukim 2020 (1) TMI 1114 - DELHI HIGH COURT In fact the investigation wing has to show reason to believe that a person is carrying undisclosed asset. If the concerned person has shown documents in order to explain the goods which he is carrying and also gives a statement like in the present case that the articles were belonging to a firm and were part of stock-in-trade. Before seizure is conducted explanation ought to be taken from the concerned firms and if they are able to produce the related books of account and necessary proof of articles which may include sale details, purchase details, stock register, audit reports, income tax returns etc, the Income Tax Authorities ought to take a decision at this stage and ought not to be allowed to seize the goods for years together to await for the assessment order to be passed in relation to concerned employee. As the claim of the goods in terms of Section 132(1)(iii) of the Act of 1961 has been made by the petitioner Nos.1 and 2 as the jewellery seized in stock-in-trade and required material has already been placed before the Income Tax Authorities. The same was required to be released as the seizure itself is found to be unjustified and illegal. Non mentioning of price of the goods in the challan would not construe that the goods are not part of stock-in-trade. This Court holds that the seizure itself was wholly illegal and all consequential actions based on such seizure are illegal and contrary to the provision of Section 132(1)(iii) - Hence, the petitioners were entitled to receive back the goods from the respondents as more than one year and six months have lapsed. The petitioners would also be entitled to interest of a sum of ₹ 1 lakh which was paid as a gross amount towards retention of the jewellery which is stock-in-trade and is marketable.

Summary

Issues Involved:
1. Legality of the seizure of jewellery and diamonds under Section 132 of the Income Tax Act, 1961.
2. Justification for the continued retention of seized assets.
3. Compliance with procedural requirements under the Income Tax Act.
4. Entitlement to the release of seized assets and compensation.

Detailed Analysis:

Issue 1: Legality of the Seizure of Jewellery and Diamonds

The petitioners argued that the jewellery and diamonds seized from petitioner No.3 at Jaipur Airport were stock-in-trade belonging to petitioner Nos.1 and 2. They contended that the seizure was wrongful and violated the proviso to Section 132(1)(iii) of the Income Tax Act, 1961, which states that stock-in-trade should not be seized but only inventoried. The respondents countered that petitioner No.3 failed to provide evidence of the source of the jewellery, and the challans presented were inadequate and possibly falsified.

Issue 2: Justification for Continued Retention of Seized Assets

The petitioners submitted various documents, including stock registers, purchase details, and audit reports, to justify the possession of the jewellery. They argued that the Department's valuer had overvalued the stock and that the goods should be returned. The respondents maintained that the seized assets were necessary for ongoing assessment proceedings under Section 153A of the Act and that the petitioners should provide security if the goods were to be released.

Issue 3: Compliance with Procedural Requirements

The petitioners cited several precedents, including Amore Jewels Pvt. Ltd. and Khem Chand Mukim, to argue that the seizure was based on surmises and conjectures, lacking the "reason to believe" required under Section 132. The court noted that procedural safeguards, such as obtaining explanations from the concerned firms and verifying documents like stock registers and income tax returns, were not adequately followed before the seizure.

Issue 4: Entitlement to Release of Seized Assets and Compensation

The court referenced multiple judgments, including those from the Rajasthan, Delhi, and Orissa High Courts, which held that the seizure of stock-in-trade is unlawful if proper documentation is provided. The court concluded that the seizure was unjustified and illegal, and directed the respondents to release the seized jewellery to the petitioners. Additionally, the court awarded interest of ?1 lakh to the petitioners for the wrongful retention of their marketable stock-in-trade.

Conclusion:

The court held that the seizure of jewellery and diamonds was illegal and ordered the release of the seized assets to the petitioners. The court emphasized that procedural requirements under the Income Tax Act must be strictly followed and that mere suspicion is insufficient for seizure. The petitioners were also awarded interest for the wrongful retention of their assets.