Retention of search-seized articles u/s132B after release request; continued holding barred without recorded tax-liability necessity

The dominant issue was whether the revenue could lawfully retain articles seized during a search in light of s.132B of the Income-tax Act when the affected person had furnished the requisite explanation and applied for release within the prescribed time. The HC held that s.132B permits retention only to the extent necessary for satisfying existing tax liabilities, and absent any recorded, sufficient reason showing such necessity, continued retention is impermissible. Consequently, the HC directed the authorities to release the seized articles to the applicant.

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Issues Involved:
1. Legality of the order passed under section 132B(1)(i) of the Income-tax Act, 1961.
2. Validity of retaining seized gold ornaments and jewellery beyond the prescribed period.

Issue-Wise Detailed Analysis:

1. Legality of the Order Passed Under Section 132B(1)(i) of the Income-tax Act, 1961
The petitioners sought to quash the order passed by respondent No. 2 under section 132B(1)(i) of the Income-tax Act, 1961, which rejected their application for the release of seized gold ornaments and jewellery. The petitioners argued that their application was made within the stipulated time and included detailed evidence regarding the nature and source of the jewellery. Despite this, the respondent did not act within the 120-day period specified in the second proviso to section 132B(1)(i) of the Act. The court found the impugned order invalid and not tenable at law, stating that the provisions of section 132B(1) are clear and unambiguous. The court emphasized that the assets must be released within 120 days from the date of the last authorization for search or requisition.

2. Validity of Retaining Seized Gold Ornaments and Jewellery Beyond the Prescribed Period
The court noted that the respondents retained the seized assets beyond the 120-day period without any valid reason. The petitioners had made timely applications and provided necessary evidence, yet the respondents failed to act within the permissible time limit. The court highlighted that the respondents' action of passing the order after the expiry of 120 days and raising contentions only after this period was not permissible. The court relied on the precedent set by Cowasjee Nusserwanji Dinshaw v. ITO [1987] 165 ITR 702, which held that retention of seized assets beyond the statutory period without proper communication was illegal and unlawful. Therefore, the court quashed the orders retaining the assets beyond the 120-day period and directed the respondents to release the seized gold ornaments and jewellery forthwith.

Conclusion
The court concluded that the respondents' actions were not in compliance with the statutory provisions of section 132B(1)(i) of the Income-tax Act, 1961. The retention of seized assets beyond the 120-day period was deemed illegal and unlawful. The court directed the respondents to release the seized gold ornaments and jewellery within two weeks from the receipt of the court's writ or the certified copy of the order, whichever was earlier. All petitions were allowed to this extent, and the rule was made absolute without any order as to costs.

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