2025 (5) TMI 1673 - HC - Income Tax

Jewellery seized by the Income Tax authorities during the search and seizure operation - prayer sought for by the appellant to quash the summons panchanama and statements recorded from the employees of the appellant HELD THAT - The learned senior advocate appearing for the appellant would fairly submit that the summons have been acted upon statements have been recorded and panchanama has been drawn. If that be the admitted factual position the effect of the summons has worked out itself and it has been implemented. Therefore the challenge to the summons or panchanama or statements recorded from the employees or from the Director of the appellant cannot be quashed in the present proceedings more particularly at this stage of the proceeding. Therefore such prayers are to be rejected. Release of the jewellery which has been seized - The appellant appears to have taken a stand that the jewellery which has been seized are model jewelleries for the purpose of exhibiting the same throughout the country in various places and not intended for sale. However these issues cannot be gone into by us at this juncture and only direction that can be given is to direct the respondent No. 7 to commence the assessment proceeding. Since the appellant pleads that on account of the seizure being effected their business has been seriously affected we grant liberty to the appellant to file an appropriate application before the respondent No. 7 assessing officer with a prayer to release the seized jewellery upon such conditions as the respondent No. 7 may deem appropriate to impose. As submitted that the respondent No. 3 may be directed to return the jewellery to the custody of the respondent No. 7 which will facilitate the process of seeking for release of the jewellery. Such direction cannot be issued as the respondent No. 3 is outside the jurisdiction of this court. However it will be well-open to the respondent No. 7 to make appropriate requisition to the respondent No. 3 so that the seized jewellery are put in the custody of the respondent No. 7 who undoubtedly is the assessing officer who has to complete the assessment. Thus we find no good grounds to interfere with the order passed by the learned Single Bench. Accordingly the appeal as well as the connected application is dismissed with the above observations and directions. The respondent No. 7 is advised to commence the assessment proceeding within two months from the date of receipt of server copy of this order.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the summons dated 14th November 2022 issued to the appellant's employees, the statements recorded therefrom, the search warrant dated 15th November 2022, the panchanama dated 16th November 2022, and the valuation report dated 15th November 2022, along with all related proceedings, notices, and orders, can be quashed by the High Court.

- Whether the jewellery seized by the Income Tax authorities during the search and seizure operation can be ordered to be released and handed back to the appellant.

- Whether a writ of prohibition can be issued restraining the respondents from proceeding with or giving effect to the search, seizure, summons, statements, panchanama, valuation report, and search warrant issued at Ranchi.

- The territorial jurisdiction of the Calcutta High Court in issuing directions to authorities situated outside its territorial limits, specifically the Income Tax authorities at Ranchi, Jharkhand.

- The duty and jurisdiction of the Income Tax authorities with respect to custody and transfer of seized jewellery, especially the role of the assessing officer post-centralization of assessment.

- The appellant's entitlement and procedural recourse for release of seized jewellery affecting their business operations.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability and Quashing of Summons, Statements, Panchanama, and Related Proceedings

Relevant Legal Framework and Precedents: The issuance of summons, recording of statements, search warrants, and preparation of panchanama are statutory procedures under the Income Tax Act, 1961, specifically under sections 131, 132, 132B, and related provisions. Courts generally exercise caution in interfering with such procedural steps once acted upon and implemented.

Court's Interpretation and Reasoning: The Court observed that the summons had already been acted upon, statements recorded, and panchanama drawn. Since the effect of the summons and related actions had been executed, the Court held that the challenge to these procedural acts was not maintainable at this stage. The Court emphasized that a writ of prohibition cannot be issued to prevent a statutory authority from exercising its powers under the relevant statutes, especially when the proceedings have already progressed.

Key Evidence and Findings: The appellant's own admission that the summons were complied with and statements recorded was pivotal. The impugned order dismissing the writ petition on these grounds was found to be correct.

Application of Law to Facts: The Court applied the principle that once statutory procedures have been acted upon and implemented, courts do not interfere by quashing such actions unless there is a manifest illegality or violation of fundamental rights, which was not demonstrated here.

Treatment of Competing Arguments: The appellant's contention for quashing was rejected as premature and untenable. The Court declined to interfere with statutory functions exercised in accordance with law.

Conclusion: The prayers to quash summons, statements, panchanama, and related proceedings and to issue writ of prohibition were rejected as not maintainable.

Issue 2: Jurisdiction and Territorial Limits Regarding Seized Jewellery and Its Custody

Relevant Legal Framework and Precedents: The Income Tax Act provisions under sections 131, 132, and related clauses govern search, seizure, and custody of seized property. Jurisdictional limits of High Courts under Article 226 of the Constitution of India restrict issuance of directions to authorities outside territorial jurisdiction.

Court's Interpretation and Reasoning: The seizure was effected at Ranchi, Jharkhand, which lies outside the territorial jurisdiction of the Calcutta High Court. Hence, the Court held it could not issue directions to the respondent authority at Ranchi to return the jewellery or transfer custody. The Court clarified that though the respondent at Ranchi was impleaded, the territorial limits circumscribed the Court's power to issue direct orders to that authority.

Key Evidence and Findings: The seizure location and the physical custody of the jewellery were established to be outside Calcutta High Court's jurisdiction. The assessing officer's centralization and transfer of assessment powers to respondent No. 7 were also noted.

Application of Law to Facts: The Court strictly adhered to territorial jurisdiction principles, refusing to direct out-of-jurisdiction authorities, while allowing the jurisdictional assessing officer to act within their domain.

Treatment of Competing Arguments: The appellant's request for direct orders to the Ranchi authority was declined due to jurisdictional constraints. However, the Court permitted the jurisdictional assessing officer to seek requisition of the jewellery from the Ranchi authority.

Conclusion: No direction could be issued to the Ranchi authority; the jurisdictional assessing officer was empowered to proceed with assessment and take appropriate steps.

Issue 3: Duty of the Assessing Officer and Centralization of Assessment

Relevant Legal Framework and Precedents: Sections 131, 132, and 143(3) of the Income Tax Act govern assessment proceedings, search and seizure, and recording of ownership and valuation of seized assets. The centralization of assessment authority vests powers in a designated assessing officer.

Court's Interpretation and Reasoning: The Court noted that respondent No. 7 was the designated assessing officer after centralization and had completed assessment for one employee under section 143(3). The assessment order acknowledged that ownership of the seized jewellery did not lie with the employee, supporting the appellant's claim of ownership. The Court held that the appellant could rely on such findings during assessment proceedings.

Key Evidence and Findings: The assessment order dated 4th February 2025 recognizing ownership claims was a significant document. The appellant's plea that seizure hampered their business by restricting exhibition of model jewellery was also recorded.

Application of Law to Facts: The Court emphasized that ownership and entitlement issues must be resolved in the assessment proceedings initiated by the jurisdictional assessing officer, not by writ adjudication.

Treatment of Competing Arguments: The appellant's argument for immediate release of jewellery was acknowledged but deferred to the assessment process. The Court granted liberty to the appellant to apply for release before the assessing officer, who may impose conditions as deemed fit.

Conclusion: The assessing officer is directed to commence assessment proceedings and consider the appellant's application for release of jewellery on appropriate terms.

Issue 4: Impact of Seizure on Business and Interim Relief

Relevant Legal Framework and Precedents: Courts may grant interim relief in search and seizure cases where seizure causes irreparable harm to business, subject to conditions and safeguards.

Court's Interpretation and Reasoning: The appellant's contention that seizure affected their business operations by preventing display of model jewellery was noted. However, the Court held that such factual issues cannot be adjudicated in writ proceedings at this stage. Instead, the appellant was permitted to seek release through appropriate application before the assessing officer.

Key Evidence and Findings: The appellant's statement regarding the nature of jewellery as models for exhibitions was accepted as a factual plea but not adjudicated.

Application of Law to Facts: The Court balanced the appellant's hardship against the statutory process, leaving the question of interim release to the assessing officer's discretion.

Treatment of Competing Arguments: The appellant's request for immediate release was declined by the Court but with liberty to seek conditional release.

Conclusion: No immediate release ordered; appellant may apply for release before assessing officer who may impose conditions.

Issue 5: Directions Regarding Assessment Proceedings and Compliance with Notices

Relevant Legal Framework and Precedents: Section 148 of the Income Tax Act empowers the assessing officer to reopen assessments. Compliance with notices and filing of returns are mandatory procedural steps.

Court's Interpretation and Reasoning: The Court directed the respondent No. 7 to commence assessment proceedings within two months. The appellant was granted 15 days to file return of income in response to the notice issued under section 148. The Court clarified that the assessing officer shall decide the matter independently without being influenced by observations in the present or earlier orders.

Key Evidence and Findings: The notice under section 148 dated 22nd August 2024 and pending assessment proceedings were crucial to this direction.

Application of Law to Facts: The Court ensured procedural compliance and independent adjudication by the assessing officer, safeguarding the appellant's right to a fair assessment.

Treatment of Competing Arguments: The appellant's challenge to the notice was effectively rejected by dismissal of the writ petition, but opportunity to comply and participate in assessment was preserved.

Conclusion: Assessment proceedings to be commenced promptly; appellant to file return within prescribed time; assessing officer to decide independently.

3. SIGNIFICANT HOLDINGS

"The prayer sought for by the appellant to quash the summons, panchanama and statements recorded from the employees of the appellant is not maintainable... If that be the admitted factual position the effect of the summons has worked out itself and it has been implemented."

"A writ of prohibition cannot be issued by a court exercising jurisdiction under Article 226 of the Constitution of India to perpetually restrain a statutory authority from exercising its powers under the relevant statutes."

"The seizure has been effected at Ranchi in the State of Jharkhand which is outside the territorial jurisdiction of the High Court at Calcutta. Therefore, a writ of mandamus cannot be issued to an authority which is situated outside the jurisdiction of this court."

"It is well-open to the respondent No. 7 to make appropriate requisition to the respondent No. 3 so that the seized jewellery are put in the custody of the respondent No. 7, who undoubtedly is the assessing officer who has to complete the assessment."

"The respondent No. 7 shall independently decide the matter without being influenced in any manner by any of the observations made by the learned Single Bench in the impugned order or the observations which have been made by us in this judgment and order."

Core principles established include the non-maintainability of writ petitions to quash procedural acts already executed under the Income Tax Act, the territorial limits of High Court jurisdiction, the procedural mandate for assessment proceedings to resolve ownership and entitlement disputes concerning seized property, and the discretionary power of the assessing officer to consider interim release of seized property subject to conditions.

Final determinations were that the writ petition was correctly dismissed, no quashing of summons or related documents was permissible, no writ of prohibition could be issued, no direction could be given to authorities outside territorial jurisdiction, and the assessing officer was directed to commence assessment proceedings within two months while the appellant was allowed to file returns and seek conditional release of seized jewellery.