Rajasthan High Court: Seizure u / s 132 of the Income Tax Act 1961 must not performed simply for reasons to be suspicious, especially when the Assessed is capable of explain the possession of goods by means of sufficient documentation.
Harshvardhan Chhajed and Ors. vs. General Director of Income Tax and Ors.; SB Civil Writ Petition No. 6097/2020; Rajasthan High Court, Jaipur; 07.09.2021
Affair: The petitioners, through this petition brief, prayed that the defendants (Authority) be ordered to release the attached stocks belonging to the petitioning companies and nullify and nullify the improper action taken against the petitioners.
- Petitioner number 3 was intercepted and searched at Jaipur airport during his trip from Mumbai to Jaipur while wearing jewelry and diamonds, by the Income tax Authorities. Said jewels found in his possession were seized in terms of article 132 of the Income tax Law of 1961 (hereinafter “the Law of 1961”).
- Petitioner’s statement No. 3 was registered pursuant to Article 132 (4) of the 1961 Law, who stated that the goods are stock in the trade of the two petitioning companies and that Challan’s approval memoranda were also submitted to the authorities.
- The petitioners also appeared before the investigation wing of the Income tax Department and submitted all the relevant documents and the jewelry had been purchased through the appropriate banking channel and therefore the petitioners argued that the stocks in the store should be returned to the petitioners.
- It was held that the provisions of the Income tax The law does not allow seizure in terms of clause 132 (1) (iii) of the 1961 Act and therefore the goods must be returned to the petitioners.
The Ld. Bench relied on the following judgments:
I. Amore Jewels Pvt. Ltd, Anuj Ajmera vs. Chief Commissioner of Income Tax and Ors.; 2018 (5) TMI 263- Rajasthan High Court
ii. General Director of Income Tax (Research) Pune & Ors. Vs. M / s Spacewood Furnishers Pvt. Ltd. and Ors .; (2015) 12 SCC 179,
iii. Khem Chand Mukim vs. Principal Director of Income Tax (Inv.) – 2, AIU & Ors.; 2020 (1) TMI 1114- High Court of Delhi,
iv. Sri Puspa Ranjan Sahoo vs. Deputy Director of Income Tax (Research), Bhubaneshwar; 2012 (9) TMI 432, Orissa High Court;
v. General Director of Income Tax & Anr. Vs. Diamondstar Exports Ltd. & Ors .; 2006 (3) TMI 140,
And he observed the following:
- That the authority in such facts and circumstances, needs to examine the issue only with respect to the release and subjective satisfaction is required to arrive at whether the jewels were part of the stock trade of petitioner No. 1 and if petitioner No. 2 was duly authorized by petitioner N ° 1 for the purposes of transaction, sale and making available.
- It was noted that if the petitioner has placed before the defendants’; documents proving that the seized jewelry was part of their stock trading. Documents have also been posted to this effect that show that the petitioner was carrying them for sale purposes, as well as the approval, the transaction memoranda and the boarding pass, insurance policy, were relevant for that purpose. In such a case, in view of the Section 132B provision, the jewelry may be released.
- In view of the documents and statements submitted on behalf of Petitioner No. 1, there was no reason or reason to believe that the jewelry is part of Petitioner No. 2’s undisclosed income.
- There is a plethora of jurisprudence that holds that the term “reason to believe” cannot be interpreted and interpreted as “reason to suspect”. If the sole reason for the search and seizure is only the information that the petitioner was in possession of jewelry representing
your undisclosed income or property, and that there is no convincing basis for this conclusion, then such an exercise is flawed and illegal.
- The power to search a person is a strict power provided by law and this requires officers to scrupulously follow the mandate and rigor of the law before authorizing such action, and unless the conditions to exercise such power are shown to exist. , we would not hesitate to cancel such action.
- If Defendants have acted simply on the basis of guesswork and conjecture, and without proper authorization, their actions are in violation of the law, making the search and seizure action wrong at law.
- It was observed that the seizure of jewels that are in stock in the trade by the authorized official totally lacks the authority of law and is contrary to the legal provision contained in the provision of Section 132 (1) (iii) and the third provision of Section 132 (1)) (v).
- From the reading of the aforementioned judgments and the established law, it follows that the seizure must be carried out with due care and caution. For the mere fact of having reason to be suspicious, the seizure of goods should not be carried out. In fact, the investigation wing must show reason to believe that a person is carrying undisclosed property.
- If the interested party has shown documents to explain the merchandise that he is transporting and also declares, as in the present case, that the articles belonged to a company and were part of stock in the trade. Before the seizure takes place, an explanation should be obtained from the companies concerned and whether they can produce the related ledgers and necessary proof of the items, which may include sale details, purchase details, stock records , audit reports, income tax returns, etc., the Income tax The authorities must make a decision at this stage and should not be allowed to seize the property for years together to wait for the appraisal order in relation to the employee in question to be approved.
- Furthermore, it was held that the seizure itself was totally illegal and all consequential actions based on such seizure are illegal and contrary to the provision of Section 132 (1) (iii) of the 1961 Act.
- Therefore, the petitioners had the right to receive the defendants’ assets since more than one year and six months had elapsed. The petitioners would also be entitled to interest in the amount of Rs 1 lakh which was paid as a gross amount for the retention of the jewelery which is in stock and is marketable.