Wp/10615/2006 Of M/S. M.d.r.jewellers v. Additional Director Of Income Tax (Investigation)

THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY And THE HON’BLE SRI JUSTICE D.APPA RAO WRIT PETITION No.10615 of 2006 Date: 31.05.2006 Between: M/s.M.D.R.Jewellers. .. PETITIONER AND Additional Director of Income Tax (Investigation) and others. .. RESPONDENTS THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY And THE HON’BLE SRI JUSTICE D.APPA RAO WRIT PETITION No.10615 of 2006 ORDER: (per the hon’ble Sri Justice L.Narasimha Reddy) The petitioner is a partnership firm undertaking the business in jewellery. It isstated that it was constituted recently, in March 2005. In the affidavit filed insupport of the writ petition, a detailed account is given as to the manner, inwhich the firm had secured its resources, such as by raising loans from Banks,duly offering the immovable property as security etc. According to the petitioner, it purchased 16,000 grams of bullion fromM/s.Mohanlal Mahendra Kumar Jewellers, Noida, Uttar Pradesh, for a sum ofRs.1,26,36,000/-. It is also stated that the transaction was arranged at therequest of Mr.Kewalchand Jain of M/s. Sundeep Jewellers, Jaipur. Thepetitioner states that the gold purchased by it was entrusted to oneMr.Raghuveer Singh for transport to Hyderabad to be delivered to thepetitioner-firm. It is pleaded that the said Raghuveer Singh has taken a flightfrom Delhi to Hyderabad, and that the respondents have intercepted him at theAirport. Through a panchanama, dated 30.03.2006, the 3[rd] respondent seizedthe gold from the said Raghuveer Singh. Subsequently, the second respondent issued a notice to the petitioner toexplain its relation to the seized bullion. The statement of one of the partners,Mr.Vimal Goel, was recorded on 30.03.2006. The further proceedings are inprogress. The petitioner challenges the action of the respondents in seizing thegold, through panchanama, dated 30.03.2006, as illegal, arbitrary and contraryto the provisions of Section 132(1) of the Income Tax Act, 1961(for short ‘theAct’). Sri D.Prakash Reddy, the learned Senior Counsel appearing for the petitionersubmits that Section 132 of the Act clearly prohibits the seizure of bullion,which is stock-in-trade, and the instant seizure is in clear violation of thespecific provisions of the Act. He contends that the petitioner is prepared tooffer its explanation and produce such material, as is required by therespondents. He submits that the seizure of such a valuable stock would notonly cripple the business of the petitioner-firm, but also would ruin its future. The learned Standing Counsel for the Income Tax, on the other hand, submitsthat there is any amount of doubt, as to the relation of the person, who wascarrying the bullion, with the petitioner-firm, and unless the entire enquiry intothe matter is completed, it is not at all safe or advisable to release the bullion tothe petitioner-firm. The bullion, referred to above, was seized from the possession of RaghuveerSingh. When the writ petition came up for hearing on 30.05.2006, the learnedStanding Counsel for the Income Tax expressed a doubt as to whether theperson, from whom the material was seized, made any disclaim in favour of thepetitioner or whether he has got any independent right of his own. It is in thiscontext an affidavit is filed by Sri Raghuveer Singh. It is stated that he is anemployee of Jaipur Branch of the petitioner-firm and that he was entrusted withthe job of receiving bullion purchased by the petitioner from M/s.MohanlalMahendra Kumar Jewellers, Noida, Uttar Pradesh, and delivering the same tothe petitioner-firm. He did not make any claim of his own to the goods. The bullion, referred to above, was seized from the possession of RaghuveerSingh. When the writ petition came up for hearing on 30.05.2006, the learnedStanding Counsel for the Income Tax expressed a doubt as to whether theperson, from whom the material was seized, made any disclaim in favour of thepetitioner or whether he has got any independent right of his own. It is in thiscontext an affidavit is filed by Sri Raghuveer Singh. It is stated that he is anemployee of Jaipur Branch of the petitioner-firm and that he was entrusted withthe job of receiving bullion purchased by the petitioner from M/s.MohanlalMahendra Kumar Jewellers, Noida, Uttar Pradesh, and delivering the same tothe petitioner-firm. He did not make any claim of his own to the goods. The second respondent is proceeding with the enquiry into the matter. Theconcern of the Department is to examine whether the petitioner had maintainedproper records, accounting for the purchase of the said bullion. The enquiry isin progress. One significant aspect of the matter is that the second respondenthas not only issued notice of hearing to the petitioner-firm but also hadrecorded the statement of one of its partners. Therefore, basically, there doesnot exist any doubt as to the claim or ownership of the petitioner over theseized bullion. What is in doubt is whether the petitioner had accounted for it orcomplied with the various provisions of the Act. Section 132 of the Act prescribes the procedure for search and seizure. TheSection is very elaborate and deals with various contingencies. The Parliamentinserted two provisos in the said Section through the Finance Act, 2003, witheffect from 01.06.2003. They read as under: [Provided that bullion, jewellery or other valuable article or thing,being stock-in-trade of the business, found as a result of suchsearch shall not be seized but the authorized officer shall make anote or inventory of such stock-in-trade of the business.] [Provided also that nothing contained in the second proviso shallapply in case of any valuable article or thing, being stock-in-tradeof the business] From a combined reading of both the provisos, it is evident that bullion,jewellery or other valuable articles, being stock-in-trade of the business, whichis found during the search, shall not be seized. It however authorizes theOfficer concerned to make a note or inventory of such stock- in-trade of thebusiness. The facts as presented before this Court disclose to a large extent that theseized gold is stock-in-trade and thereby the said two provisos, which are partof Section 132 of the Act, get attracted. In that view of the matter, the continuedseizure does not accord with the mandatory provisions of the Act. The learned Standing Counsel had placed reliance upon an order of this Courtin W.P.No.22467 of 2005, dated 17.11.2005. From a perusal of the said order, itis evident that there were allegations of clandestine business, against thepetitioner therein. This Court has also referred to serious contradictions in theversion presented by the petitioner therein. Reference was also made to theclandestine nature of the business. In the instant case, the learned StandingCounsel made available, the statement recorded by the Department from one ofthe partners of the firm and a perusal of the same does not disclose that anyclandestineness was attributed to the petitioner. At any rate, the petitioner isentitled for the benefit of the provisos, referred to above. At the same time, thisCourt is of the view that adequate security needs to be assured for theDepartment. For the foregoing reasons, we allow the Writ petition and direct release of thebullion seized by the third respondent from Mr.Raghuveer Singh on 30.03.2006,in favour of the petitioner-firm, under due acknowledgment, subject to thecondition that the petitioner shall furnish bank guarantee to the satisfaction ofthe respondents for a sum of Rs.50,00,000/- (Rupees Fifty Lakhs Only). Thebank guarantee, so furnished, as well as the return of bullion to the petitioner,shall be subject to the outcome of the proceedings, that are now pending against the petitioner. There shall be no order as to costs. _________________________ (L.NARASIMHA REDDY, J) 31[st] May, 2006.Note: Issue C.C. by tomorrow.Jsu/kdl ________________ (D.APPA RAO, J) THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY And THE HON’BLE SRI JUSTICE D.APPA RAO WRIT PETITION No.10615 of 2006