The Hon’ble HC, Delhi in the case of Khem Chand Mukim v. Principal Director of Income Tax (Inv.) [W.P. (C) No. 5343 of 2019 dated January 9, 2020] wherein there was no cogent basis for arriving at conclusion that the assessee was in possession of jewellery which represented his undisclosed income or property was discernible from satisfaction note, it was held that search and seizure was to be quashed and all actions taken pursuant to such search and seizure were to be declared illegal.
Facts:
The proprietor of M/s Shrimati Gems and Jewels (“the Petitioner”) is engaged in the business of trading in jewellery since 2010. He travelled from Delhi to Guwahati to attend a jewellery exhibition and on his return, he was stopped at New Delhi Airport, and a search was conducted on him. The jewellery found in his possession was valued by the revenue through a Registered Government Valuer at Rs. 1.59 crore and the same was seized and panchnama dated September 11, 2018 was drawn in this behalf.
Subsequently, Assistant Director of Income Tax (INV)-2 (“the Respondent”) issued summons to the Petitioner under Section 131(1A) of the Income Tax Act, 1961 (“Income Tax Act”), dated September 11, 2018 calling upon him to furnish details regarding the seized jewellery. Later, another summon dated September 13, 2018 was issued calling upon him to give certain information and documents.
In response to the above summons, the Petitioner filed a reply dated September 17, 2018 submitting details as required and also made a request for the release of the jewellery, asserting that the same was his stock-in-trade and the seizure had resulted in hampering his business.
However, despite continued representations to other Tax Officers, there had been no response from the Income Tax Department, constraining the Petitioner to file the instant writ petition.
Issue:
Whether search and seizure carried out under Section 132 of the Income Tax Act was valid.
Held:
The Hon’ble HC, Delhi in W.P. (C) No. 5343 of 2019 dated January 9, 2020 held as under:
- Reasons were, firstly, not recorded before undertaking the search and was, therefore, completely unauthorized and a high-handed action on the part of the Respondent. The Respondent did not state that jewellery was concealed, or was kept by the Petitioner surreptitiously. Merely because the Petitioner 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 132(1) of the Income Tax Act is a serious invasion on the privacy of the citizens, and has to be resorted to when there are pre-existing and pre-recorded good reasons to believe that the action under Section 132(1) ibid is called for. While the Respondent can argue that element of surprise is critical and essential for a successful operation of search and seizure, nevertheless, it has be cognizant that to balance the rights of the citizens, legislature has built in 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.
- Observed that the officer has completely ignored the mandate of law. Further, 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 Respondent 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. Further, when Respondent was called upon 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 Respondent has no plausible explanation and with the intent to deny the relief to the Petitioner, he has contended that the purchase invoices of the Petitioner are of bulk goods and cannot be identified with the individual seized items.
- Petitioner had placed material on record to substantiate the fact that jewellery found in his possession at the time of search was his stock-in-trade. Since the Respondent did not raise any serious dispute in their counter affidavit or in the additional affidavit, therefore, in view of the mandate contained in the proviso to Section 132B(1)(i) of the Income Tax Act, the Respondent has no authority to retain the seized jewellery beyond the said period. The outer limit of 120 days as provided under Section 132B of the Income Tax Act has also expired in the month of January 2019.
- The record produced before us does not show that any action has been taken under Section 131(1) of the Income Tax Act. The satisfaction note is for issuance of warrant of authorization under Section 132(1) of the Income Tax 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 as to what was the information received, and by whom, and conceded that there is no recording of such information.
- Thus, the petition was allowed. The search and seizure and ex post facto warrant of authorization dated September 11, 2018 issued by Respondent under Section 132 of the Income Tax Act was quashed. Consequently, all the actions taken pursuant to such search and seizure are declared illegal. The Respondent shall forthwith return to the Petitioner, the jewellery seized.
Relevant provisions:
Section 132(1) of the Income Tax Act
“132. Search and seizure.-
(1) Where the Principal Director General or Director General or Director or the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or Additional Director or Additional Commissioner, or Joint Director or Joint Commissioner in consequence of information in his possession, has reason to believe that-
(a) any person to whom a summons under sub-section (1) of section 37 of the Indian Income Tax Act, 1922 (11 of 1922), or under sub-section (1) of section 131 of this Act, or a notice under sub-section (4) of section 22 of the Indian Income Tax Act, 1922 (11 of 1922), or under sub-section (1) of section 142 of this Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account, or other documents as required by such summons or notice, or
(b) any person to whom a summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which will be useful for, or relevant to, any proceeding under the Indian Income Tax Act, 1922 (11 of 1922), or under this Act, or
(c) any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been, or would not be, disclosed for the purposes of the Indian Income Tax Act, 1922 (11 of 1922), or this Act (hereinafter in this section referred to as the undisclosed income or property), then,-
(A) the Principal Director General or Director General or Director or the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be may authorise any Additional Director or Additional Commissioner or Joint Director, Joint Commissioner, Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income Tax Officer, or
(B) such Additional Director or Additional Commissioner or Joint Director or Joint Commissioner, as the case may be, may authorise any Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income Tax Officer, (the officer so authorised in all cases being hereinafter referred to as the authorised officer) 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 documents, money, bullion, jewellery or other valuable article or thing found as a result of such search:
Provided that bullion, jewellery or other valuable article or thing, being stock-in-trade of the business, found as a result of such search shall not be seized but the authorised officer shall make a note or inventory of such stock-in-trade of the business.
(iv) place marks of identification on any books of account or other documents or make or cause to be made extracts or copies therefrom;
(v) make a note or an inventory of any such money, bullion, jewellery or other valuable article or thing:
Provided that where any building, place, vessel, vehicle or aircraft referred to in clause (i) is within the area of jurisdiction of any Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, but such Principal Chief Commissioner or Chief Commissioner] or Principal Commissioner or Commissioner] has no jurisdiction over the person referred to in clause (a) or clause (b) or clause (c), then, notwithstanding anything contained in Section 120, it shall be competent for him to exercise the powers under this sub-section in all cases where he has reason to believe that any delay in getting the authorisation from the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner having jurisdiction over such person may be prejudicial to the interests of the revenue:
Provided further that where it is not possible or practicable to take physical possession of any valuable article or thing and remove it to a safe place due to its volume, weight or other physical characteristics or due to its being of a dangerous nature, the authorised officer may serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it, except with the previous permission of such authorised officer and such action of the authorised officer shall be deemed to be seizure of such valuable article or thing under clause (iii):
Provided also that nothing contained in the second proviso shall apply in case of any valuable article or thing, being stock-in-trade of the business.
Provided also that no authorisation shall be issued by the Additional Director or Additional Commissioner or 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.”
Section 132B(1)(i) of the Income Tax Act:
“132B. (1) The assets seized under section 132 or requisitioned under section 132A may be dealt with in the following manner, namely:-
(i) the amount of any existing liability under this Act, the Wealth-tax Act, 1957 (27 of 1957), the Expenditure-tax Act, 1987 (35 of 1987), the Gift-tax Act, 1958 (18 of 1958) and the Interest-tax Act, 1974 (45 of 1974), and the amount of the liability determined on completion of the assessment under section 153A and the assessment of the year relevant to the previous year in which search is initiated or requisition is made, or the amount of liability determined on completion of the assessment under Chapter XIV-B for the block period, as the case may be (including any penalty levied or interest payable in connection with such assessment) and in respect of which such person is in default or is deemed to be in default, or the amount of liability arising on an application made before the Settlement Commission under sub-section (1) of section 245C, may be recovered out of such assets :
Provided that where the person concerned makes an application to the 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;”