2024 (12) TMI 1086 - HC - Income Tax

Seeking directions to the respondents to release the jewellery seized from its bank locker as per panchnama prepared by respondents - HELD THAT - The respondents have acted in an arbitrary, illegal and unjustified manner in seizing the stock in trade of the petitioner company. Any jewellery recovered from the locker belonging to the company, would have to be presumed to be that of the company and it cannot be allowed to contend that the jewellery belongs to any individual director. If such an attempt is allowed to be accepted, dispute would arise regarding the stock of the company itself. The company s assets cannot be claimed by any individual director. However, the action of the respondent-department would result in the company s assets being claimed by the individual director also, which cannot be allowed. We find that the action was being initiated against the Oasis Group and the petitioner company. The respondents, therefore, were wholly unauthorized to withhold the stock in trade after the same was already demanded. Additionally, keeping in view the provisions of Section 132B (1) (i) and the proviso thereto, the respondents were obliged to pass orders for releasing the jewellery. In this case, no orders were passed, therefore, the petitioner company was entitled to release of the assets of the company which had been seized. We agree with the counsel for the respondents of the stock in trade of different value as on 17.05.2023 in comparison to the stock in trade as on 31.03.2023. However, the same would have no relevance keeping in view the statement of the concerned director, who admits that the stock in trade may be more apart from the gold seized from the premises as well as the gold and jewellery lying in the locker. Such excuse could not be a ground to withhold the stock in trade, which has been seized from the locker as there was no such power available with the respondents in terms of the proviso to Section 132 - WP allowed.

Issues Involved:

1. Legality of the seizure of jewellery from the petitioner's bank locker under Section 132 of the Income Tax Act.
2. Compliance with the procedures outlined in Section 132B of the Income Tax Act for the release of seized assets.
3. Determination of whether the jewellery constitutes stock-in-trade or personal assets.
4. The impact of the seizure on the petitioner's business operations and rights.

Detailed Analysis:

1. Legality of the Seizure of Jewellery:

The petitioner challenged the actions of the Income Tax Department in seizing jewellery from its bank locker, arguing that such action was in violation of Section 132 of the Income Tax Act. The court noted that Section 132(1)(B)(iii) of the Act prohibits the seizure of stock-in-trade during a search operation. The court emphasized that the stock-in-trade should only be inventoried and not seized. The petitioner's assertion that the jewellery constituted stock-in-trade was supported by the fact that the locker was in the company's name, suggesting that the contents were part of its business assets. The court found no justification for the respondents to have seized the jewellery and diamonds from the locker, as the provisions of the Act clearly bar such an action.

2. Compliance with Section 132B Procedures:

The petitioner argued that the respondents failed to comply with the proviso to Section 132B(1)(i) of the Act, which outlines the procedure for releasing seized assets. The court highlighted that the respondents were required to pass orders for the release of assets if the nature and source of acquisition were satisfactorily explained. The respondents did not provide any reason for not releasing the jewellery, which the court deemed as inaction and non-compliance with statutory provisions. The court referenced previous judgments, including those from the High Courts of Orissa, Gujarat, and Rajasthan, which supported the petitioner's position that the respondents had no authority to retain the jewellery after the statutory period.

3. Determination of Jewellery as Stock-in-Trade:

The respondents contended that the jewellery found in the locker could be personal assets of the directors, as slips indicating personal ownership were discovered. However, the court concluded that since the locker was in the company's name, the jewellery should be presumed to be part of the company's stock-in-trade. The court dismissed the respondents' argument, emphasizing that allowing such a claim would create disputes regarding the company's stock and potentially allow individual directors to claim company assets, which is not permissible.

4. Impact on Business Operations:

The petitioner asserted that the seizure of jewellery severely hampered its business operations, resulting in irreparable loss. The court acknowledged this impact and criticized the respondents' adamant refusal to release the jewellery, which was deemed unwarranted. The court underscored that the provisions of the Finance Act should not be detrimental to regular business operations and that the respondents' actions were arbitrary and unjustified.

Conclusion:

The court allowed the writ petition, directing the respondents to release the jewellery as per the inventory of bank locker no. 161, South Indian Bank, Punjabi Bagh, Delhi, and the panchnama dated 17.07.2023. The court concluded that the respondents' actions were unauthorized and in violation of the statutory provisions, emphasizing that the jewellery should be released to the petitioner company, which is engaged in the business of jewellery. All pending applications were disposed of, and no costs were awarded.

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