M/S Dillano Luxurious Jewels Limited vs. Deputy Director Income Tax Investigation And Anr.

Held

The Court held that the respondents acted arbitrarily and illegally in seizing the stock-in-trade of the petitioner company. It was found that the jewellery recovered from locker No. 161, which was in the company's name, was part of the company's stock-in-trade. The Court noted that the respondents were obliged to pass orders for the release of the jewellery under the proviso to Section 132B(1)(i) of the Income Tax Act, 1961, but failed to do so. Relying on precedents like Mitaben R. Shah and S.B. Civil Writ Petition No. 8900 of 2014, the Court stated that once the period prescribed by Section 132B(1)(i) is over, the respondents have no authority to retain the jewellery. The Court found no justification for the respondents to withhold the stock-in-trade, as they lacked the power to do so under Section 132. The Court directed the respondents to release the jewellery as per the inventory of the panchnama dated 17.07.2023 from locker No. 161, South Indian Bank, Punjabi Bagh, Delhi, forthwith. The issue of whether the jewellery belonged to individual directors was implicitly decided against the respondents by holding that the jewellery in the company's locker was stock-in-trade.

Facts

M/s Dillano Luxurious Jewels Limited (the petitioner) filed a writ petition seeking directions to release jewellery seized from its bank locker. The Income Tax Department conducted a search and seizure operation from 18.05.2023 to 23.05.2023 at the business and residential premises of Deep Malhotra and the petitioner company. During the search, inventory of cash, jewellery, and other assets was made. The petitioner's director stated that the company stores its jewellery in two lockers (No. 160 and 161) at South Indian Bank, Punjabi Bagh, Delhi. Locker No. 160 was in the name of a director, and Locker No. 161 was in the company's name. The respondents seized both lockers on 19.05.2023. The petitioner claims the seized jewellery constitutes stock-in-trade and should be released as per Section 132B(1)(i) of the Income Tax Act, 1961. The respondents refused to release the jewellery, citing ongoing investigations.

Key Issues

1. Whether the respondents acted arbitrarily and illegally in seizing the stock-in-trade of the petitioner company, and whether they have the power to withhold such stock in terms of Section 132 of the Income Tax Act, 1961? (This issue turns on Section 132 and Section 132B(1)(i) of the Income Tax Act, 1961). Petitioner's Arguments: The petitioner argued that the seized jewellery was part of its stock-in-trade and that the respondents were obliged to pass orders for its release under the proviso to Section 132B(1)(i) of the Act. They contended that the respondents acted arbitrarily and illegally by withholding the stock-in-trade, as they had no such power under Section 132. The petitioner relied on various High Court judgments, including Mitaben R. Shah vs. Deputy Commissioner of Income Tax and S.B. Civil Writ Petition No. 8900 of 2014 – Shri Kamal Mohan Gupta and another vs. Additional Director Income Tax, which held that authorities have no authority to retain jewellery beyond the prescribed period. Respondents' Arguments: The respondents argued that the search and seizure operation covered the premises of the Oasis Group and the petitioner company. They stated that it could not be ascertained whether the items held in the bank lockers were part of the stock-in-trade or held by the directors in a personal capacity. They also mentioned that a period of sixty days for investigation was expiring on 19.07.2023 and that summons were issued to directors who could not appear. They contended that the jewellery was seized as part of the investigation.