2025 (6) TMI 1407 - HC - Income Tax

Warrant of authorization rejecting the handing over of stock in trade jewellery and follow up action including search and seizure (requisition) assessment order against the petitioner - HELD THAT - Based on the warrant of authorization respondent No.2 took the custody of gold jewellery worth Rs. 1, 07, 70, 042/- from the Court of Magistrate. The petitioners did not challenge the said order by filing a revision. By way of a petition under Section 482 of Cr.P.C. the petitioners sought quashment of the entire proceedings of Crime and seizure memo dated 12.7.2017. However the petitioners claimed the release of seized gold jewellery but a letter dated 11.9.2017 has been written by Special Railway Magistrate to GRP Ratlam for handing over the jewellery to the Principal Director of Investigation. Vide order dated 19.3.2024 the Single Bench of this Court has only quashed the proceedings of Crime No.3/2017 and declined to pass any order regarding release of gold ornaments. The aforesaid order has attained finality. Despite the aforesaid order the petitioners again filed an application before the Magistrate for the release of gold ornaments which came to be dismissed vide order dated 28.5.2024. Again the petitioners filed a Criminal Revision before this Court which has been dismissed vide order dated 9.8.2024. After the seizure the petitioners were served with the notice under Section 142(1) of the Income Tax Act dated 9.9.2019 thereafter notice under Section 143(2) was issued and thereafter final assessment order was passed on 24.12.2019. Petitioners challenged the said assessment order by way of appeal and the appeal has been dismissed. Therefore the Income Tax Authority has rightly dismissed the application for release of the gold ornaments because of the pending demand of Rs. 1.08 Crores. Therefore the only remedy available to the petitioners to challenge the order passed by the PCIT (Central) Mumbai is before the Income Tax Appellate Tribunal in view of Section 132-B of the Income Tax Act. Therefore in view of the above the petition cannot be entertained at this stage to challenge the warrant of authorization especially after passing the order of assessment and misconceived and dismissed. dismissal of appeal. The petition is misconceived and dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the warrant of authorization issued under Section 132-A(1)(c) of the Income Tax Act, 1961 and the subsequent order rejecting the release of seized gold jewellery are without jurisdiction and unconstitutional, particularly in light of the third proviso to Section 132(1) read with Section 132A(3) of the Income Tax Act?

- Whether the petitioners are entitled to the return of the seized stock-in-trade jewellery with compensation after setting aside the rejection order dated 4.12.2024?

- Whether the petitioners can challenge the assessment order passed under Section 143(3) of the Income Tax Act and the dismissal of their appeal before the Commissioner of Income Tax (Appeals) through the present writ petition?

- The scope and applicability of Section 132B of the Income Tax Act regarding the application and release of seized or requisitioned assets in the context of pending tax demand.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity and jurisdiction of the warrant of authorization and order rejecting release of jewellery

The petitioners challenged the warrant of authorization dated 17.7.2017 issued under Section 132-A(1)(c) of the Income Tax Act and the order dated 4.12.2024 rejecting the release of the seized gold jewellery. The petitioners contended that these actions were unconstitutional and without jurisdiction, invoking the third proviso to Section 132(1) read with Section 132A(3).

The Court noted that the warrant of authorization was issued following the seizure of 112 pieces of gold jewellery weighing 6010.3 grams, intercepted by the GRP, Ratlam Police Station. The petitioners were arrested, and the seized jewellery was placed in the custody of the Income Tax Department pursuant to the Magistrate's order. The petitioners had not challenged the Magistrate's order handing over the jewellery to the Income Tax Department by way of revision.

The Court referred to the earlier order dated 19.3.2024, wherein the Single Bench quashed the criminal proceedings under Sections 41 and 102 of the Cr.P.C. but expressly declined to interfere with the Income Tax proceedings or the custody of the seized jewellery, stating that the petitioners were free to claim the jewellery from the Income Tax Authorities in accordance with law.

The Court held that the petitioners' challenge to the warrant of authorization and the rejection order was premature and misconceived, especially post the assessment order and dismissal of their appeal before the Commissioner of Income Tax (Appeals). The Court emphasized that the Income Tax proceedings are separate and distinct from the criminal proceedings quashed earlier.

Issue 2: Entitlement to release of seized jewellery and compensation

Following the seizure, the petitioners sought release of the gold jewellery by filing applications under Section 451/457 and later under Section 452 of the Cr.P.C., all of which were rejected. The petitioners also filed criminal revisions challenging these rejections, which were dismissed.

The Court noted that the rejection of the release application was based on the pending tax demand of Rs. 1.08 Crores as per the assessment order dated 24.12.2019 passed under Section 143(3) of the Income Tax Act. The Court referred to Section 132B of the Income Tax Act, which governs the application of seized or requisitioned assets towards discharge of existing liabilities under the Act.

Section 132B(1)(i) provides that the amount of liability determined on completion of assessment may be recovered out of seized assets. The provisos allow for release of assets or portions thereof if the assessee satisfies the Assessing Officer regarding the nature and source of acquisition within thirty days of seizure. The assets can be sold to recover dues, and any surplus must be returned to the person from whose custody they were seized.

The Court observed that since the assessment order confirming the tax demand has attained finality (appeal dismissed before CIT(A)), the Income Tax Department was justified in refusing to release the jewellery until the liability is discharged or the order is set aside by the appropriate forum.

Regarding compensation, the Court did not find any basis for awarding compensation as the seizure and retention of jewellery were in accordance with statutory provisions and lawful procedures.

Issue 3: Challenge to assessment order and appellate order through writ petition

The petitioners attempted to challenge the assessment order and the dismissal of their appeal before the Commissioner of Income Tax (Appeals) by invoking writ jurisdiction. The Court held that the proper remedy for challenging the assessment order is to approach the Income Tax Appellate Tribunal (ITAT) as per the statutory scheme.

The Court emphasized that the writ petition is not the appropriate forum to challenge the assessment or appellate orders, especially when alternative statutory remedies are available and have not been exhausted. The Court reiterated that the writ petition is misconceived and dismissed on this ground as well.

Issue 4: Application of Section 132B of the Income Tax Act

The Court extensively discussed Section 132B, which regulates the manner in which seized or requisitioned assets may be applied towards discharge of existing tax liabilities. The section provides a mechanism for recovery of outstanding dues from seized assets and contemplates release of assets or portions thereof if the assessee satisfies the Assessing Officer regarding the legitimacy of acquisition.

The Court highlighted the following key provisions:

• Sub-section (1)(i) permits recovery of existing liabilities from seized assets.
• The first proviso allows release of assets if the assessee applies within 30 days and satisfactorily explains the nature and source of acquisition.
• The second proviso mandates release of assets or portions thereof within 120 days from the date of last authorization for search or requisition.
• Sub-section (3) requires any surplus assets or proceeds after discharge of liabilities to be returned forthwith to the person from whose custody they were seized.
• Sub-section (4) provides for payment of simple interest on amounts exceeding liabilities during the period from expiry of 120 days to completion of assessment.

The Court concluded that since the petitioners had not availed the remedy under Section 132B for release of assets and the assessment order confirming the demand is in place, the Income Tax Department's refusal to release the jewellery is lawful and justified.

3. SIGNIFICANT HOLDINGS

"The petition cannot be entertained at this stage to challenge the warrant of authorization, especially after passing the order of assessment and dismissal of appeal. The petition is misconceived and dismissed."

"The Income Tax proceedings are separate and distinct from the criminal proceedings which have been quashed. The petitioners are free to claim the jewellery from the Income Tax Authorities in accordance with law."

"Section 132B of the Income Tax Act clearly provides that seized assets may be applied towards discharge of existing liabilities, and any surplus must be returned. The Assessing Officer is empowered to release assets if the assessee satisfies the conditions prescribed under the provisos."

"The proper remedy to challenge the assessment order is before the Income Tax Appellate Tribunal, and writ jurisdiction is not available for such challenge when alternative statutory remedies exist."

The Court's final determination was to dismiss the writ petition, uphold the assessment order and the rejection of the release of jewellery, and confirm that the petitioners must pursue their remedies under the Income Tax Act, including before the ITAT, for any further relief.