Rajasthan High Court: Seizure u/s 132 of the Income Tax Act, 1961 should not be undertaken merely on account of reasons to suspect, especially when the Assessee is able to explain the possession of goods by way of sufficient documentation.

Harshvardhan Chhajed & Ors. vs. Director General of Income Tax & Ors.; S.B. Civil Writ Petition No. 6097/2020; High Court of Rajasthan, Jaipur; 07.09.2021

Issue: Petitioners by way of this writ petition prayed that the respondents (Authority) be directed to release the attached stock-in-hand belonging to the petitioner companies and quash and set aside the wrongful action taken against the petitioners.

Brief Facts:

•  The petitioner no.3 was intercepted and searched at Jaipur Airport during his journey from Mumbai to Jaipur while he was carrying jewellery and diamonds, by the Income Tax Authorities. The said jewellery found in his possession was seized in terms of Section 132 of the Income Tax Act, 1961 (hereinafter referred to as “the Act of 1961”).
• Statement of petitioner No.3 was recorded under Section 132(4) of the Act of 1961, who has stated that the goods are stock-in-trade of the two petitioner firms and the challan approval memos were also submitted to the authorities.
•  Petitioners also appeared before the investigation wing of the Income Tax Department and produced all the relevant papers and the jewellery had been purchased through proper banking channel and therefore the petitioners submitted that the stock-in-trade ought to be delivered back to the petitioners.
•  It was contended that the provisions of the Income Tax Act do not allow seizure in terms of proviso to Section 132(1) (iii) of the Act of 1961 and therefore the goods ought to be returned to the petitioners.

Observations:

The Ld. Bench relied on following judgments:

i. Amore Jewels Pvt. Ltd, Anuj Ajmera Vs. Principal Commissioner of Income Tax & Ors.; 2018 (5) TMI 263- Rajasthan High Court

ii. Director General of Income Tax (Investigation) Pune & Ors. Vs. M/s Spacewood Furnishers Pvt. Ltd. & Ors.; (2015) 12 SCC 179,

iii. Khem Chand Mukim Vs. Principal Director of Income Tax (Inv.)-2, AIU &  Ors.; 2020 (1) TMI 1114- Delhi High Court,

iv. Sri Puspa Ranjan Sahoo Vs. Assistant Director Income Tax (Investigation), Bhubaneshwar; 2012 (9) TMI 432, Orissa High Court;

v. Director General of Income Tax & Anr. Vs. Diamondstar Exports Ltd. & Ors.; 2006 (3) TMI 140,

And observed as follows:

•  That the authority in such facts and circumstances, need to examine the question only with regard to release and a subjective satisfaction was required to arrived at whether the jewellery was part of stock-in trade of petitioner No.1 and whether the petitioner No.2 was duly authorized by the petitioner No.1 for the purpose of transaction, selling and putting up for approval.
•  It was noted that if the petitioner has placed before the respondents’; documents to show that the jewellery seized was part of their stock-in trade. Documents to that effect has also been placed to show that the petitioner was carrying them for the purpose of sale as well as approval, transaction memos and the boarding pass, insurance policy were relevant for the said purpose. In such a case, in view of Section 132B proviso, the jewellery is liable to be released.
•  In view of the documents and statements put forward on behalf of the petitioner No.1, there was no occasion to or reason to believe that the jewellery is part of undisclosed income of the petitioner No.2.
•  There is plethora of case law holding that the term “reason to believe” cannot be interpreted and construed as “reason to suspect”. If the sole ground for search and seizure is just the information that the Petitioner was in possession of jewellery which represents
  his undisclosed income or property, and that there is no cogent basis for arriving at this conclusion, then such exercise is vitiated and unlawful.
•  The power to search a person is a stringent power provided by law and this requires the officers to scrupulously follow the mandate and the rigor of the law prior to authorizing such an action, and unless the conditions to exercise such power are shown to exist, we would have no hesitation in striking down such an action.
•  If the Respondents have merely acted on the basis of surmises and conjectures, and without due authorization, their actions are in contravention of law, making the action of search and seizure bad in law.
•  It was observed that the seizure of jewellery being stock-in-trade by the authorized officer is wholly without authority of law and contrary to the statutory provision contained in proviso to Section 132 (1) (iii) and third proviso to Section 132 (1) (v).

Held :

•  From the perusal of the aforesaid judgments and law laid down, it is apparent that the seizure has to be conducted after due care and caution. Merely on account of reasons to suspect, seizure of goods ought not to be undertaken. In fact the investigation wing has to show reason to believe that a person is carrying undisclosed asset.
•  If the concerned person has shown documents in order to explain the goods which he is carrying and also gives a statement like in the present case that the articles were belonging to a firm and were part of stock-in-trade. Before seizure is conducted explanation ought to be taken from the concerned firms and if they are able to produce the related books of account and necessary proof of articles which may include sale details, purchase details, stock register, audit reports, income tax returns etc, the Income Tax Authorities ought to take a decision at this stage and ought not to be allowed to seize the goods for years together to await for the assessment order to be passed in relation to concerned employee.
•  It was further held that the seizure itself was wholly illegal and all consequential actions based on such seizure are illegal and contrary to the provision of Section 132(1)(iii) of the Act of 1961.
•  Hence, the petitioners were entitled to receive back the goods from the respondents as more than one year and six months had lapsed. The petitioners would also be entitled to interest of a sum of Rs.1 lakh which was paid as a gross amount towards retention of the jewellery which is stock-in-trade and is marketable.