Stock seized during search must be released within 120 days
Relevant Extract of Order is as follows:
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 132(1) as noted above 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) is called for. While revenue 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.
22. We have 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. The provision for dealing with release of the seized assets is provided under Section 132 (B) (1) of the act which reads as follows:
“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;
(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 applied;
(iii) the assets other than money may also be applied for the discharge of any such liability referred to in clause (i) as remains undischarged and for this purpose such assets shall be deemed to be under distraint as if such distraint was effected by the Assessing Officer or, as the case may be, the Tax Recovery Officer under authorisation from the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner under sub-section (5) of section 226 and the Assessing Officer or, as the case may be, the Tax Recovery Officer may recover the amount of such liabilities by the sale of such assets and such sale shall be effected in the manner laid down in the Third Schedule.
(2) Nothing contained in sub-section (1) shall preclude the recovery of the amount of liabilities aforesaid by any other mode laid down in this Act.
(3) Any assets or proceeds thereof which remain after the liabilities referred to in clause (i) of sub-section (1) are discharged shall be forthwith made over or paid to the persons from whose custody the assets were seized.
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[Emphasis Supplied]
23. The first proviso to Section 132B provides that in a case where the person concerned has made an application to the AO within 30 days from the end of the month, in which the asset was seized, for release of the asset and the source of acquisition of any such asset is explained to the satisfaction of the AO, the amount of any existing liability referred to under Section 132B(1)(i) may be recovered out of such asset and the remaining portion, if any, of the seized asset may be released with the prior approval of the Principal Chief Commissioner/Commissioner, to the person from whose custody the asset is seized. The second proviso provides a deadline of 120 days from the date of authorization for search under Section 132 or requisition under Section 132A, as the case may be, was executed.
24. Further, the Manual of Office Procedure Volume -II Chapter 3 Assessment Procedure (Search and Seizure) provides under clause 3(ii), also mandates the release of assets within 120 days, which is reproduced hereunder:
“3. Custody and release of seized material: the following points have to be borne in mind with regard to custody and release of seized material: –
i. XXX
ii. 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 items as purchases in bulk for the purpose of molding them into specific jewellery articles such as ear rings, ear tops, sets etc. 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 Respondents 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), the Respondents have no authority to retain the seized jewellery beyond the said period. The outer limit of 120 days as provided under Section 132B has also expired in the month of January 2019.
27. Before parting we may add that the opinion which has to be formed is subjective, and though the jurisdiction of the Court to interfere is very limited, and we are not to act as an Appellate Court and meticulously examine the information in order to decide whether an action under Section 132 is called for, yet at the same time we may emphasize that 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. We are compelled to interfere as there was complete lack of information prior to the action of search, exhibiting gross non application of mind and arbitrariness by the appropriate authorities. The reason to believe in the present case was nonexistent prior to the search. Even after the search, there was no material to conclude that no such disclosure had been made, or that no disclosure would be made so as to satisfy the prerequisites of Section 132 of the Act. 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.
28. We may also record that a very feeble attempt was made by the Respondents during the course of arguments to contend that there was no search or seizure at the Airport and, after preparing an inventory, the jewellery articles were given back to the Petitioner and continued to remain in his possession. It was also argued that mere suspicion that the income 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 is no recording of such information.
29. For the foregoing reasons, the petition succeeds and is accordingly allowed. The impugned search and seizure and ex post facto warrant of authorization dated 11.09.2018 issued by Respondent No.2 under Section 132 of the Act is hereby quashed. Consequently, all the actions taken pursuant to such search and seizure are declared illegal. The Respondents shall forthwith return to the Petitioner, the jewellery seized. Since the action of the Respondent is found to be grossly arbitrary, and the entire action is vitiated, in order to discourage the Respondents from resorting to unwarranted action of search, we are inclined to saddle the Respondents with costs which are quantified at Rs.50,000/-. The costs shall be payable to Delhi Legal Service Authority within four weeks of a copy of this decision being served on them.
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Tags : Judgement, High Court, Income Tax
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