New Delhi: The Punjab and Haryana High Court pulled up the Income Tax (I-T) Department last week, calling its seizure of a company’s jewellery from its bank locker “arbitrary, illegal, and unjustified” and directing the release of the assets.
A bench of justices Sanjeev Prakash Sharma and Sanjay Vashisth ruled, “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.”
The I-T Department had recorded the statement of the company’s director Chitwan Malhotra, where she spoke of the two lockers, during the search and seizure operation last year.
Speaking to ThePrint, senior advocate Radhika Suri, who represented the petitioner, jewellery company Dillano Luxurious Jewels, said, “The company is in the business of jewellery and the locker was in the company’s name as well. Therefore, whatever was in the locker belonged to the company.”
She cited the 2003 amendment to Section 132 of the I-T Act, which inserted a proviso (exception) to the main provision, “which specified that a thing found during a search cannot be seized if it is a ‘stock-in-trade’. However, you can note down its particulars, for information or for adding it to the inventory.”
“The jewellery stored in the locker was also ‘stock-in-trade’, which refers to a company’s goods in stock that are necessary for carrying on business,” she said.
Suri also said that compelling the assessee to approach the court was unwarranted while adding that the bench stepped in to restore the balance of justice in this case. “Moreover, this stock-in-trade was seized when the company’s director was travelling to London and wasn’t present here. Otherwise, the search took place on 18 May, last year.”
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Understanding the Income Tax Act
Section 132 of the Income Tax Act of 1961 empowers income tax authorities at a certain level—additional director, additional commissioner, joint director, and joint commissioner—to empower officers to enter, carry out a search, and seize account books, documents, cash and jewellery. The provision also allows them to break open lockers.
However, an exception was added to this provision in 2003, which said that if any bullion, jewellery, or other valuable articles found during the search are the company’s stock-in-trade, such items cannot be seized but the authorised officer may “make a note or inventory” of it.
A look at the case
In this case, Dillano Luxurious Jewels, based in West Delhi’s upscale Punjabi Bagh neighbourhood, approached the Punjab and Haryana High Court, seeking the release of their jewellery seized by the Income Tax Department from its locker.
The company specialises in the sale and purchase of different kinds of jewellery and ornaments.
In May, last year, the tax authorities conducted a search and seizure operation at the business and residential premises of one Deep Malhotra, along with his other properties or related properties, which included the premises of Dillano Luxurious Jewels as well.
During the course of this, they seized the company’s jewellery and made a list of its inventory that contained cash, jewellery, and foreign currency, along with some other assets, and recorded the statement of the company director Malhotra where she spoke of the two lockers where the company stores its jewellery and other ornaments.
However, the petitioners contended that despite the bar under Section 132, the I-T Department proceeded to confiscate their jewellery from the bank locker, where it was placed in safe custody. Subsequently, the I-T Department sat over the matter, while not releasing the company’s jewellery, the petitioners contended.
What the court ruled
In its 11 December ruling, the two-judge bench termed the I-T department’s confiscation of the company’s jewellery as “arbitrary, illegal and unjustified”, while adding that it should have returned or released the company’s stock-in trade when it received a letter to the effect from Dillano Luxurious Jewels.
“We find that the adamancy being shown for not releasing the jewellery was wholly unwarranted. An inventory could always be taken, which has already been done,” the court said in its order. It also added that “physical withholding of gold jewellery of stock in trade is found to be wholly unwarranted” and directed the release of the company’s valuables.
The court also pointed out that Section 132 contains a proviso which outlines the procedure for the release of the assets recovered as part of the search and seizure operation. It requires an application to be submitted to the concerned assessing officer within 30 days from the end of the month in which the asset was seized.
In this case, the I-T Department had “not come out with any reason as to why no order was passed by them releasing the gold, jewellery and diamond, which they had seized during the search operation”, it observed.
Earlier rulings clarify law on the subject
The court cited a series of rulings from high courts across the country that clarified the law on this subject.
For instance, it cited the Orissa HC’s 2012 judgment in Shri Pushpa Ranjan Sahoo vs. Asst. Director of Income Tax, where the court said, “In view of the specific provision contained in proviso to Section 132 (1) (iii) and third proviso to Section 132 (1) (v) of the Income Tax Act that bullion, jewellery or other valuable article or things being stock-in-trade found as a result of search shall not be seized.”
The bench also cited the Gujarat HC’s 2010 order in Mitaben R. Shah vs Deputy Commissioner of Income Tax, reaffirmed by the Rajasthan HC’s 2017 ruling in Kamal Mohan Gupta vs. Additional Director Income Tax, where it was held that once the 30-day-period under Section 132 B(1)(i) of the Act is over, the department had no authority to retain the jewellery.
(Edited by Sanya Mathur)