TMI Blog2020 (1) TMI 1114X X X X Extracts X X X X X X X X Extracts X X X X ..... sufficient safeguards. This is to ensure that undue hardship and harassment should not be caused by the arbitrary and unfounded action of the raiding party. Moreover, as discussed above it is not imperative that every article found as a result of search has to be seized. For this purpose, the provision itself restrains and curbs the authority to make seizure of stock-in-trade. No hesitation to observe that the officer in this case has completely ignored the mandate of law. It is also to be mentioned that despite the unlawful action, the Petitioner has been denied release of the jewellery, regardless of his repeatedly representations made to the department. After the seizure, Petitioner has been endlessly writing to the Respondents for the release of the seized articles. He had furnished all the necessary documents to explain as to how the articles seized are indeed his stock-in-trade. In fact, as noted in the preceding paragraphs, we had called upon the Respondents to give a specific response by way of an affidavit to the chart giving details of books of account provisioning for the articles seized. In response thereto, the Respondents have no plausible explanation and with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s set out in the petition are that the Petitioner - is in the business of trading in jewellery since 2010. He travelled from Delhi to Guwahati to attend a jewellery exhibition which was held from 07.09.2018 to 09.09.2018. On his return, he was stopped by Respondent No. 2 at Indira Gandhi International Airport, New Delhi and a search was conducted on him. The jewellery found in his possession was valued by the Revenue through a Registered Government Valuer at ₹ 1,58,62,924/- and the same was seized and panchnama dated 11.09.2018 was drawn in this behalf. Subsequently, Assistant Director of Income Tax (INV)-2 issued summons to the Petitioner under Section 131(1A) of the Act, dated 10.09.2018 and 11.09.2018, calling upon him to furnish details regarding the seized jewellery. Later, on 13.09.2018, another summon was issued calling upon him to give certain information and documents. In response to the above summons, Petitioner filed a reply dated 17.09.2018, submitting details as required by ADIT, Investigation (AIU). He also made a request for the release of the jewellery, asserting that the same was his stock- in- trade and the seizure has resulted in hampering his business. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h were produced before the concerned authorities. Despite justifying the lawful possession of the jewellery, the unlawful seizure continues. 5. He further argued that once the Petitioner was able to demonstrate that the jewellery in question was his stock-in-trade, the continuation of seizure is against the law viz. the proviso to Clause (iii) of Section 132 (1) of the Act and the 3rd proviso to Section 132(1)(v) of the Act. In support of his submissions, learned Counsel for the Petitioner relied upon the decision of Puspa Ranajan Sahoo vs Assistant Director of Income Tax (INV), [2012] 210 Taxman 217 (Orissa)(MAG). 6. Ms. Vibhooti Malhotra, learned senior standing counsel for the Revenue, assisted by Mr. Shailendra Singh, on the other hand, opposed the petition by arguing that the Investigation Wing of the Income Tax Department was in possession of credible information, on the basis whereof the AO formulated reason to believe that the Petitioner was in possession of jewellery, representing its undisclosed income and, therefore, the search was a valid exercise of power under Section 132 (1)(c) of the Act. It was further submitted that in terms of Section 132 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion was well within the jurisdiction of competent authority conducting the proceedings, emanating from the statement recorded on oath under Section 131 (1A) of the Act and by virtue of the incriminating documents found during the spot verification conducted on Petitioner s business premises. 9. We have given our thoughtful consideration to the submissions advanced by the learned counsels for the parties and have carefully evaluated the facts of the case and also the material placed on record. There cannot be any dispute that the Petitioner is in the business of sale and purchase of jewellery and is being assessed regularly for income tax. In support of this contention, the returns of income from AY 2015-16 to AY 2018-19 have been filed along with the petition. In the backdrop of the facts noted above, we have to examine the validity of the search and seizure action by the Respondents under Section 132 of the Act. At the outset, it would thus be apposite to refer to Section 132 of the Act, to the extent the same is relevant for the purpose of deciding the present petition. The same reads as under: 132. Search and seizure .-(1) Where the Principal Director Gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to- (i) enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such books of account, other documents, money, bullion, jewellery or other valuable article or thing are kept; (ii) break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by clause (i) where the keys thereof are not available; (ii-a) search any person who has got out of, or is about to get into, or is in, the building, place, vessel, vehicle or aircraft, if the authorised officer has reason to suspect that such person has secreted about his person any such books of account, other documents, money, bullion, jewellery or other valuable article or thing; (ii-b) require any person who is found to be in possession or control of any books of account or other documents maintained in the form of electronic record as defined in clause (i) of sub-section (1) of Section 2 of the Information Technology Act, 2000, to afford the authorised officer the necessary facility to inspect such books of account or other documents; (iii) seize any such books of account, other docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Joint Director or Joint Commissioner on or after the 1st day of October, 2009 unless he has been empowered by the Board to do so. Explanation .-For the removal of doubts, it is hereby declared that the reason to believe, as recorded by the income-tax authority under this sub-section, shall not be disclosed to any person or any authority or the Appellate Tribunal. [Emphasis Supplied] 10. Before proceeding further, we must note that on 08.11.2019, we had directed the Respondents to file an additional affidavit in response to the statement filed along with the writ petition, whereby the Petitioner had corelated the seized articles as per the description given in the inventory prepared by the registered valuer, with entries in his books of account. The endeavour was to verify Petitioner s contention that each seized article had been accounted for and already included in the books. At the time of the hearing, Respondents also produced the satisfaction note for the perusal of this Court, recording the reason, for authorizing the search. The original file containing the satisfaction note was tendered in a sealed cover. The same was de-sealed and perus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Limited and Ors., 2015 SCC OnLine SC 481 , laid down the principles that must be adhered to for authorizing search and seizure under Section 132 of the Act. The relevant portion is reproduced hereunder: 8.1. The authority must have information in its possession on the basis of which a reasonable belief can be founded that- (a) the person concerned has omitted or failed to produce books of account or other documents for production of which summons or notice had been issued Or such person will not produce such books of account or other documents even if summons or notice is issued to him Or (b) such person is in possession of any money, bullion, jewellery or other valuable article which represents either wholly or partly income or property which has not been or would not be disclosed. 8.2. Such information must be in possession of the authorised official before the opinion is formed. 8.3. There must be application of mind to the material and the formation of opinion must be honest and bona fide. Consideration of any extraneous or irrelevant material will vitiate the belief/satisfaction. 8.4. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onducted by Respondent No. 2. The Investigation wing of the Income Tax Department was in possession of credible information and thereafter formulated its reason to believe that the Petitioner was in possession, of, jewellery representing its undisclosed income or property. 15. The satisfaction note recorded on 11.10.2018, notes that an information was received on 10.09.2018 by the AIU team at IGI Airport, Delhi that one Shri Khem Chand Mukim is carrying jewellery amounting to ₹ 1.5crores, weighing around 8586.7 grams. On the basis of this information, Shri Khem Chand Mukim was intercepted on 10.09.2018 and he admitted to be in possession of jewellery. He clarified that he was the proprietor of M/s Shrimati Gems Jewels and had travelled on 06.09.2018 from Delhi to Guwahati for participating in an exhibition with the jewellery. Since copy of stock register was not submitted at that time, spot inquiry was conducted and summons were issued to collect the copy of the stock register from M/s Shrimati Gems Jewels. Shri. Vidit Jain was found at the showroom of M/s Shrimati Gems Jewels, but since he failed to produce any documentary evidence in support of the jeweller ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fers to money, bullion or jewellery or other valuable articles which either wholly or partly should have been income of an assessed which has not been disclosed for the purpose of the Act. The said sub-clause pertains only to moveable and not Immovable assets. Secondly it pertains to those assets which wholly or partly represent what should have been income. The expression which has not been or would not be, disclosed for the purposes of Income Tax Act would mean that income which is liable to tax, but which the assessed his not returned in his Income Tax return or made known to the Income Tax Department. The sub Clause itself refers to this as undisclosed income or property . In our opinion the words undisclosed , in that context, must mean income which is hidden from the Department. Clause (c) would refer to cases where the assessed knows that the moveable asset is or represents income which is taxable but which asset is not disclosed to the Department for the purpose of taxation. Those assets must be or represent hidden or secreted funds or assets. Where, however, existence of the money or asset is known to the Income Tax Department and where the case of the assessed is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of jewellery which represents his undisclosed income or property. Apart from mere reproduction of the said words, no cogent basis for arriving at this conclusion is discernible from the satisfaction note. There is plethora of case law holding that the term reason to believe cannot be interpreted and construed as reason to suspect . The reason to suspect that the Petitioner has undisclosed assets, and that there is likelihood that the same would not be disclosed, does not amount to saying that there are reasons to believe that the Petitioner is in possession of undisclosed assets, and intends to evade tax. This is the fundamental flaw in the action initiated by the Respondent No. 2and we have no hesitation to say that the entire exercise is vitiated and unlawful. 18. The facts as they have transpired, show that the search party comprising ADIT (INV), AIU and ITO (INV), (AIU), has executed the warrant to search at Terminal-1 (T-1) of Indira Gandhi International Airport, New Delhi. The warrant of authorization is dated 11.09.2018 - issued under Section 132 of the Act. This was issued pursuant to the satisfaction note recorded on 11.09.2018. The search commenced on 11.09.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ummons were issued to collect the copy of the stock register from M/s Shrimati Gems Jewels and, concurrently, a warrant of authorization was sought by invoking Section 132 (1) of the Act on the premise that Mr. Khem Chand Mukim was in possession of jewellery which did not relate to M/s Shrimati Gems Jewels. The mere possession of jewellery ipso facto cannot be sufficient for the officer to form a belief that the same had not been, or would not be disclosed for the purpose of this Act. The satisfaction as required under Section 132, must be formed on the basis of material on record and on the objective assessment of such material. Under no circumstances, on the basis of the information that is seemingly relied upon by the officer, can a reasonable person come to a conclusion that ingredients contained in Clause (c) of sub Section (1) of Section 132 were met. 20. If the search action was indeed subsequent to interception, as the Revenue wants us to believe, even then we would say - it is evident that the officer in question has completely misdirected himself and acted in an arbitrary manner. The proviso to Section 132(1)(iii) and 3rd proviso of Section 132 (1) (v) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lion, jewellery or other valuable article or thing being stock-in-trade of the business, found as a result of search shall not be seized but the authorized officer shall make a note or inventory of such stock-in-trade. Thus, stock-in-trade of business cannot be seized during search and seizure operations conducted on or after June 1, 2003. 60.3 XXXX 60.4 The Finance Act, 2003, has inserted a third proviso providing that nothing contained in the second proviso shall apply in case of any valuable article or thing, being stock-intrade or the business. 60.5 These amendments will take effect from June 1. 2003 [Section 59(a)] [Emphasis Supplied] 21. The crux of the matter is that the reasons were, firstly, not recorded before undertaking the search and was, therefore, completely unauthorized and a high-handed action on the part of the Respondents. The Respondents do not state that jewellery was concealed, or was kept by the Petitioner surreptitiously. Merely because the assessee was in possession of the same, it cannot be said that the same represents income or property which has not been disclosed or will not be disclosed. Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer within thirty days from the end of the month in which the asset was seized, for release of asset and the nature and source of acquisition of any such asset is explained to the satisfaction of the Assessing Officer, the amount of any existing liability referred to in this clause may be recovered out of such asset and the remaining portion, if any, of the asset may be released, with the prior approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, to the person from whose custody the assets were seized: Provided further that such asset or any portion thereof as is referred to in the first proviso shall be released within a period of one hundred and twenty days from the date on which the last of the authorisations for search under section 132 or for requisition under section 132A, as the case may be, was executed; (ii) if the assets consist solely of money, or partly of money and partly of other assets, the Assessing Officer may apply such money in the discharge of the liabilities referred to in clause (i) and the assessee shall be discharged of such liability to the extent of the money so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... U/s 132B, the explained assets except those required to meet any existing liability should, with the prior approval of the prescribed authority, be released within 120 days from the, date of the search. The AO should give the assesse adequate opportunity to furnish his explanation and evidence in support thereof. [Emphasis Supplied] 25. After the seizure, Petitioner has been endlessly writing to the Respondents for the release of the seized articles. He had furnished all the necessary documents to explain as to how the articles seized are indeed his stock-in-trade. In fact, as noted in the preceding paragraphs, we had called upon the Respondents to give a specific response by way of an affidavit to the chart giving details of books of account provisioning for the articles seized. In response thereto, the Respondents have no plausible explanation and with the intent to deny the relief to the Petitioner, they have contended that the purchase invoices of the Petitioner are of bulk goods and cannot be identified with the individual seized items. 26. Obviously, when the Petitioner - who is in the business of making jewellery, would necessarily have certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is concealed, or is likely to be concealed, is sufficient to trigger the exercise of power under Section 131 (1) of the Act for making an enquiry or investigation relating thereto, and that the action of interception was under Section 131 (1) of the Act. Though the rigor of law under Section 131 (1) of the Act - which permits the officers to make enquiry or investigation, when contrasted with the authorization for search and seizure under Section 132 (1) is different, however, in the present case, the verbal arguments advanced by the counsels are a desperate attempt to somehow sustain and justify the action. The record produced before us does not show that any action has been taken under Section 131 (1) of the Act. The satisfaction note is for issuance of warrant of authorization under Section 132 (1) of the Act, and there cannot be any two views about the same. The Officer, present in the Court, vaguely submitted that certain information was received prior to interception. However, when confronted with the specific queries in this regard, he admitted that he cannot disclose even to us in confidence, as to what was the information received, and by whom, and conceded that there i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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