H K Jewels Private Limited And Anr vs. The Assistant Director Of Income Tax Investigation And Ors

Held

The Court held that the Panchanama dated June 1, 2024, was unreliable and vitiated by illegality due to significant inconsistencies with the established timeline of events. The Court noted that the gold jewellery was in the custody of the Income Tax Department from May 12, 2024, and its valuation was conducted on May 17, 2024. The Panchanama, however, indicated the search commenced on June 1, 2024. The Court found the explanation provided by the Revenue in their affidavit to be unacceptable and contrary to the record. Furthermore, the Court found ample evidence on record to establish that the seized jewellery was indeed the stock-in-trade of the Petitioner. Consequently, the Court concluded that the entire action taken by the Respondent Authorities was contrary to law. The Court quashed the order dated March 14, 2025, and the Panchanama dated June 1, 2024. The Court directed the Respondents to forthwith release the seized gold jewellery of 7738.80 gms to Petitioner No.1 within two weeks. The Court clarified that this order does not preclude the Income Tax Authorities from taking action to bring the gold to tax if they deem it appropriate, in accordance with law.

Facts

The Petitioners, H.K. Jewels Pvt Ltd and an employee, challenged an order dated March 14, 2025, and a Panchanama dated June 1, 2024, issued by the Income Tax Department. The Petitioners are engaged in gold trading and are registered GST dealers. The dispute arose when gold jewellery, sent by Petitioner No.1 to Bhubaneshwar for sale on approval, was intercepted by Income Tax officials on May 12, 2024, at Bhubaneshwar Airport. The Petitioner claims the gold was stock-in-trade and should not have been seized. The Income Tax Department took custody of 7738.80 gms of gold jewellery. Statements were recorded from the Petitioner's employees and customers. A previous writ petition was disposed of, allowing the Petitioners to raise objections regarding the seized stock. Their subsequent application for release was rejected by Respondent No.3 via the order dated March 14, 2025, stating the gold was unaccounted.

Key Issues

1. Whether the action of the Income Tax Department in seizing the gold jewellery, which the Petitioners claim is stock-in-trade, is illegal and without jurisdiction, particularly in light of Section 132(1)(B)(iii) of the Income Tax Act, 1961, which states that stock-in-trade cannot be seized but only inventoried? 2. Whether the Panchanama dated June 1, 2024, is vitiated by illegality and bad in law due to inconsistencies with the actual timeline of events, specifically the fact that the gold jewellery was in the custody of the Income Tax Department since May 12, 2024, and its valuation was done on May 17, 2024, while the Panchanama suggests the search commenced on June 1, 2024? Petitioner's arguments: The Petitioners argued that the seized gold was their stock-in-trade and, as per the proviso to Section 132(1)(B)(iii) of the Income Tax Act, 1961, it could not be seized. They also contended that the Panchanama was prepared incorrectly and at a much later date than when the gold was actually taken into custody, rendering the entire action illegal. They relied on the timeline of events and the valuation report. Revenue's arguments: The Revenue, through an affidavit, attempted to explain the inconsistencies by stating that the gold jewellery was 'discovered' on May 12, 2024, and not 'seized' on that date, and that the Panchanama reflected the commencement of proceedings. They did not provide a clear explanation for the discrepancy in dates.