Wp(C)/3589/2010 Of Sri.p.m.sathyan v. The Commr.of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.R.RAMACHANDRA MENON THURSDAY, THE 3RD JUNE 2010 / 13TH JYAISTHA 1932 WP(C).No. 3589 of 2010(W) ------------------------- PETITIONER(S): --------------- SRI.P.M.SATHYAN, PROP.AISWARYA JEWEL CRAFTS, CHERPU P.O., TRICHUR. BY ADV. SRI.P.BALAKRISHNAN (E) SRI.MOHAN PULIKKAL RESPONDENT(S): --------------- 1. THE COMMISSIONER OF INCOME TAX, (CENTRAL), ERNAKULAM. 2. THE DIRECTOR OF INCOME TAX (INV), ERNAKULAM. 3. THE DEPUTY DIRECTOR OF INCOME TAX (INV), ERNAKULAM. 4. THE ADDL.DIRECTOR OF INCOME TAX (INV), ERNAKULAM. 5. THE ASST.DIRECTOR OF INCOME TAX INV)-II, O/O. THE ADDL.DIRECTOR OF INCOME-TAX (INV)-II, COCHIN. 6. THE DY.COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, THRISSUR. 7. THE UNION OF INDIA, REPRESENTED BY THE SECRETARY, MINISTRY OF FINANCE DEPARTMENT OF REVENUE, NORTH BLOCK, NEW DELHI. * R7 DELETED VIDE ORDER DATED 15.02.2010 IN I.A. 1886/2010 ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 03/06/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C) NO. 3589/2010 P.R.RAMACHANDRA MENON, J -------------------------------------------- WP(C) NO. 3589 OF 2010 -------------------------------------------- Dated this the 3[rd] day of June, 2010 JUDGMENT The petitioner is running a jewelery business in the name and style'Aiswarya Jewel Crafts', stated as engaged in purchasing old gold items,remaking and distributing it to various parties, besides exporting the same.The petitioner is having two residential buildings at Cherpu in ThrissurDistrict. Besides the business premises situated therein, there is alsoanother business premise in Chennai. 2.While so, a search was conducted under Section 132 of theIncome Tax Act, 1961 on 23.7.2009 at the two residential premises as wellas the business premises of the petitioner at Cherpu and similar searchwas conducted on 31.7.2009 in the business premises in Chennai. Therewas no seizure of any material from the business premises in Chennai, aswell as from the residential premises in Cherpu. However, in the course ofthe search conducted in the other residential buildings situated in Cherpu,5393.610 grams of gold was seized consisting of 449 long chains. Theproceedings in this regard are discernible from Exts.P1 to P4 mahazars,among which, Ext.P3 relates to seizure of gold items from the aboveresidential premises. 3.In connection with the seizure of the articles, Exts.P5 to P7 WP(C) No. 3589/2010 sworn statements were taken on the very same date of seizure, whileExts.P8 to P10 sworn statements were taken on the subsequent dates.Thereafter the petitioner filed Ext.P11 representation before the fourthrespondent seeking to release the gold articles seized. The petitioner fileda petition under the 1[st] proviso to Section 132B(1)(i). The saidrepresentation was followed by other representations, as borne byExts.P12 to P15. The case of the petitioner is that despite filing the saidpetitions and reminders, the gold articles, which were seized from thepetitioner, which according to the petitioner is 'stock-in-trade', have notbeen returned by the authorities concerned, in spite of the expiry of 120days as contemplated under the 'second proviso' to Section 132B(1)(i),which made the petitioner to approach this Court by filing this Writ Petitionfor appropriate reliefs. 4.The respondents have filed a statement rebutting theaverments and allegations raised in the Writ Petition contending that, theWrit Petition is devoid of any merit or bonafides and that the gold articlesseized are not liable to be reckoned as 'stock-in-trade' under anycircumstances. It is stated that, the seized materials clearly indicated thatneither the stock statement nor the sales figure disclosed by the assesseewas correct and that large scale of suppression of income received as''making charges'', up to 4% of the price of the gold was quite evident. It is 4.The respondents have filed a statement rebutting theaverments and allegations raised in the Writ Petition contending that, theWrit Petition is devoid of any merit or bonafides and that the gold articlesseized are not liable to be reckoned as 'stock-in-trade' under anycircumstances. It is stated that, the seized materials clearly indicated thatneither the stock statement nor the sales figure disclosed by the assesseewas correct and that large scale of suppression of income received as''making charges'', up to 4% of the price of the gold was quite evident. It is WP(C) No. 3589/2010 further stated that the making charges are fixed as a percentage of thequantity and is not an 'ad valorem rate' on the price of gold, whichaccording to the Department constitutes taxable income of the assesseefrom the business. It is also asserted that the seized articles were nothingbut personal assets of the assessee and very much distinguishable fromthe 'stock-in-trade'. Various other contentions have also been raised,stating that the assessee has not been maintaining proper books ofaccounts and that he is suppressing receipts and profits. 5.Sri.P.Balakrishnan, the learned counsel for the petitionersubmits that the seizure of the materials is not sustainable in the eye oflaw, as the seized gold articles clearly amounted to the 'stock-in-trade',which stands excluded from the purview of seizure, as stipulated in theproviso to Section 132 (1)(A)(B) (iii). The second contention is that there isviolation of the statutory requirement, particularly for not having acted uponin tune with the mandate as provided under the 'first' and 'second' provisoto Section 132 (B) (1) (i) and the statutory period is already over. Besidesthe above legal contentions, assertion is also made with regard to thefactual position that the items seized were actually kept apart, for thepurpose of export. 6.The basic question to be considered in this case is whetherthe seized articles stand exempted from the purview of seizure and WP(C) No. 3589/2010 whether the contention raised by the petitioner that it is 'stock in trade' canbe accepted or not. The learned standing counsel for the respondentssubmits that the entire capital asset of the petitioner is not liable to bereckoned a 'stock in trade'. The term 'stock in trade' is obviously notdefined under the Income Tax Act and applying the meaning in thecommon parlance and the field of accounting, it is only be the stock whichis reflected in the books of account. There is no case for thepetitioner/assessee that the seized goods was accounted any where in thebooks of accounts. That apart, the said material was seized not from thebusiness premises, but from the residential premises and this being theposition, even by the farthest stretch of imagination, it cannot beconsidered as part of 'stock in trade', submits the learned standingcounsel. Reliance is also placed on the decision rendered by the ApexCourt reported in Commissioner of Income Tax, Patiala Vs. Groz-Beckert Saboo Ltd. [116 ITR 125], wherein some specific observationsare there with regard to the item which could be treated as 'stock in trade'.In the said case, the raw materials and the semi finished needles whichoriginally were stated as obtained as gift items in April were subsequentlyentered in the books of accounts only in September, as part of the 'stock intrade', virtually making it clear that the item could not have beenconsidered as 'stock in trade' before entering the same in the books of WP(C) No. 3589/2010 WP(C) No. 3589/2010 accounts. The applicability of decision is seriously disputed from the side ofthe petitioner, referring to the facts and circumstances in the said case andthe distinction sought to be made with regard to the factual positionavailable in the present case. The learned counsel further submits that theresidential building from where the articles were seized is situated in closeproximity with the business place of the petitioner and hence that therewas nothing wrong for having kept the said articles at the residence andthat, such course by itself will not take it outside the purview of the 'stock intrade'. Reference is also made to the deposition of the petitioner as well asthe witnesses produced before this Court as Exts.P5 to P10. The versionof the petitioner is sought to be controverted from the part of thedepartment, by referring to some incriminating answers elicited from thewitnesses, as contained in the very same Exhibits. Going by the materialson record, this Court finds that this is a question which requires to beconsidered and adjudicated on the basis of the evidence by theappropriate authority in the due course. 7.Coming to the question of release of the gold articles to thepetitioner, it is brought to the notice of this Court by the learned counsel forthe petitioner that the liability, if at all any, can only be with regard to theelement of 'tax' in respect of the un-disclosed income, which is stated asreturned by the petitioner in the form of gold and that the entire gold seized WP(C) No. 3589/2010 from the petitioner is not liable to be detained at the hands of thedepartment in this regard. The scheme of the statute is also projected, withreference to the course to be pursued, under the 'first' and 'second' provisoto Section 132 (B) (1) (i), which shows that, it is not open to the departmentor the state to have the custody of the seized articles for ever and that thestatute very much envisages the release of the materials, on satisfying therequirements as prescribed; simultaneously adding that the petitioner hasfiled a petition as contemplated in the 'first proviso' within 30 days which isto be acted upon and finalised within 120 days as provided in the '2[nd]proviso'. It is assured from the part of the petitioner that the petitioner willco-operate with the finalisation of the proceedings as above, whichaccordingly is recorded. 8.The learned counsel for the petitioner submits that, because ofthe retention of the seized gold articles at the hands of the department, theentire business operations of the petitioner have come to a stand still andthat the petitioner is not in a position to satisfy the demand and the liabilitytowards the customers. Taking note of the rival contentions, this Courtfinds that an early adjudication of the proceedings is very much essential tosafeguard the interest of both the sides. 9.In the above particular facts and circumstances, this Courtdirects the respondents to finalise the adjudication proceedings pursuant to WP(C) No. 3589/2010 Exts.P1 to P4 in accordance with law, as expeditiously as possible, at anyrate, within three months from the date of receipt of a copy of thisjudgment. Release of the articles seized from the petitioner shall besubject to the outcome of the decision to be rendered by the appropriateauthority concerned. The Writ Petition is disposed of as above. dnc P.R.RAMACHANDRA MENONJUDGE