HIGH COURT OF ORISSA
Puspa Ranjan Sahoo
versus
Assistant Director of Income-tax (INV)
W.P. (C) NO. 31361 OF 2011
JULY 3, 2012
JUDGMENT
B.N. Mahapatra, J.
This writ petition has been filed with a prayer to quash the warrant of authorization and follow up action including search and seizure of stock-in-trade and stock hypothecated and to declare the seizure of stock-in-trade and stock hypothecated as unconstitutional being without jurisdiction and contrary to 3rd proviso to Section 132(1) of Income Tax Act, 1961 (for short ‘the Ac’). The further prayer of the petitioner is for return of the seized stock-in-trade to the petitioner with compensation.
2. The petitioner’s case in a nutshell is that the petitioner is an assessee bearing Permanent Account Number (PAN) AAMHP1514Q in the files of ITO-W-2(4), Khurda, who exercises jurisdiction over the petitioner. The petitioner assessee has been filing his return of income and is assessed to tax regularly. The petitioner started trading in gold and silver jewellery in a retail counter since the year 2000. On 9th September, 2011 basing upon the information provided to the Income Tax department as a routine procedure by the local police a search and seizure operation was conducted at the residential-cum-business premises of the petitioner. Subsequently, panchanamas were prepared and statements were recorded under Section 132(4) of the Act. Inventories were made and jewelleries item bearing serial No.1 to 10 and 13 to 22 i.e. totalling 22 items valued at Rs.62,10,585 (Rupees Sixty two lakhs ten thousand five hundred eighty five) have been seized even though the same represented stock-in-trade of the business and stock hypothecated. Hence, the present writ petition.
3. Learned counsel appearing on behalf of the petitioner submitted that statements were recorded under Section 132(4) of the Act with regard to books of Account, other documents or assets found as a result of search and also in respect of all matters relevant for the purpose of investigation. The petitioner who happens to be the Karta of HUF files the returns in his dual capacity, i.e., karta of HUF and individual before the ITO, Ward-2(4), Khurda and is assessed to tax regularly and is not a defaulter so far any income tax is concerned. Neither there has been any non-compliance to summons under Sections 131(1) nor notice under Section 142(1). There existed no apprehension regarding non-cooperation or attempted evasion or avoidance of tax. The petitioner was not in possession of any undisclosed money, billion, jewellery or other valuable articles or thing which can validate the authorization and subsequent issuance of search warrant. Therefore, the entire action under Section 132(1) of the Act was vitiated. The Central Board of Direct Taxes (CBDT), who is empowered by the legislatures to frame rules under Section 132(14) disapproves this kind of search seizure of the present nature vide instruction No.7 of 2003 dated 30.07.2003, the guidelines of which should have been strictly adhered to. The petitioner is running a jewellery business and its part of business is to purchase old gold items, remaking them for trading purpose. Gold is a precious metal, accumulated by people for its monetary value and easy liquidation and anybody in possession of a gold ornament can dispose of the same in the market without any proof of its ownership as a general practice and being a trader in jewellery, the petitioner purchases old ornaments from people in need. Assuming and not admitting for the moment that the search conducted was valid, the seizure of the items in trade cannot be said to be valid. The seizure of stock-in-trade violates the 3rd proviso of Section 132(1) of the Act. Such action of the authority violates the constitutional right guaranteed to the petitioner under the Constitution. The petitioner who traded with silver jewellery and filigree works in his individual capacity also deals with gold jewellery in his HUF business and to finance his HUF business availed a cash credit facility (CC) by hypothecation of stock-in-trade to State Bank of India prior to the search. The opp. parties-Department is debarred from seizure of stock-in-trade in view of the 3rd proviso of Section 132(1) of the Act whether disclosed or undisclosed, whether explained or unexplained.
4. It was further submitted that the warrant of authorization and follow up action including search and seizure of stock-in-trade and stock hypothecated are void ab initio and deserve to be quashed on the ground that mere information received from local police and recovery of two items of alleged stolen jewellery from the petitioner who purchased both the items on good faith from the seller, without any further investigation or cogent material or reason, does not constitute information within the meaning of Section 132(1) particularly when search was conducted on the very same day the local police intimated the matter to the Department. Such opinion can at best provide a “reason to suspect” and does not give rise to “reason to believe” and thus does not fulfil any of the conditions precedent for invocation of Section 132 of the Act.
5. Mr. A. Mohpatra, learned Senior Standing Counsel appearing for the opp. parties submitted that there is valid reason to initiate the search and seizure proceedings as contemplated under Section 132 of the Act and the warrant of authorization issued to conduct search and seizure operation in the residential-cum-business premises of the petitioner is valid in law. In support of his contention, he produced the relevant record for perusal of this Court.
6. Mr. Mohapatra further submitted that in course of search and seizure operation, if the search party finds that the stock-in-trade and stock hypothecated either wholly or partly represents undisclosed income or property of the assessee, the search party is fully empowered to seize the stock-in-trade.
7. On the rival contentions urged on behalf of the parties, the questions that fall for consideration by this Court are as follows:-
(i) Whether the condition(s) precedent to initiate search and seizure operation as contemplated under Section 132 of the Income Tax Act are fulfilled/satisfied in the present case so as to make the search and seizure operation conducted in residential-cum-business premises valid in law?
(ii) Whether under Section 132 of the Income Tax Act, no power/authority is vested with the Authorized Officer to seize any bullion, jewellery or valuable article of thing being stock-in-trade?
(iii) Whether the authorized officer in course of search and seizure operation cannot seize stock-in-trade even if he comes to a conclusion that the said stock-in-trade represents wholly or partly undisclosed income or property of the Assessee ?
8. In order to decide above questions, it is necessary to examine the scope and ambit of Section 132 of the Act. The relevant provisions of Section 132 are quoted below:-
“132. Search and seizure
(1) Where the [Director General or Director] or the [Chief Commissioner or Commissioner] [or any such] [Joint] Director or [Joint] Commissioner as may be empowered in this behalf by the Board], 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 wouldn’t, 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 things 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 [Director General or Director] or the [Chief Commissioner or Commissioner], as the case may be, may authorize any [Joint] Director, [Joint] Commissioner, [Assistant Director] [or Deputy Director] [Assistant Commissioner [or Deputy Commissioner] or Income-tax Officer], or
(B) such [Joint] Director] or [Joint] Commissioner, as the case may be, may authorize any [Assistant Director] [or Deputy Director], [Assistant Commissioner [or Deputy Commissioner] or Income-tax Officer], (the officer so authorized in all cases being hereinafter referred to as the authorized 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;
[(iia) 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 authorized 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;]
[(iib) 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 (t) or sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000), to afford the authorized 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 authorized 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 there from;
(v) make a note or an inventory of any such money, bullion, jewellery or other valuable article or thing:
