2024 (6) TMI 1473 - HC - Income Tax

Jewellery seizure upheld as petitioner failed to prove stock-in-trade status under Section 132(1)(iii) without supporting documents

The Chhattisgarh HC upheld the seizure of jewellery claimed as stock-in-trade by the petitioner. The court held that to qualify for protection under ... Seizure of jewellery - said to be stock-in-trade by the petitioner was refused to be handed over from seizure - HELD THAT:- Event of facts demonstrates that though appellant claimed the goods under stock- in-trade, but in order to put the goods which in such basket as stock-in- trade were seized, as stock-in-trade, prima facie it requires that it is to be proved as stock-in-trade by supporting documents. The stock-in-trade has not been defined under the Income Tax Act, 1961. It is a general parlance, the definition by meaning how it attributes the goods purchased or procured and put into stock of running business and ignorance may be ominous to draw adverse inference. When the appellant itself has stated in the statement (question 17 and 18) recorded u/d 132(4) of the Act of 1961 that they do not possess any bill or invoices, prima facie by making such statement it appears that goods so seized by the stock-in-trade will not take it within its sweep of definition so as to insulate it with the proviso of Section 132(1)(iii) which reads as under:- (iii) seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such search: [Provided that bullion, jewellery or other valuable article or thing, being stock-in-trade of the business, found as a result of such search shall not be seized but the authorised officer shall make a note or inventory of such stock-in-trade of the business;] Therefore, both the statements recorded u/s 132(4) we do not find that prima facie, the appellant was able to establish the goods so seized apart from the showroom, were part of the stock-in-trade meaning thereby it was in the pipeline of the business transaction by mere turn of phrase. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court include:(a) Whether jewellery seized during a search under Section 132 of the Income Tax Act, 1961, claimed by the appellant as stock-in-trade, could be lawfully retained by the Revenue or was required to be released immediately as per the proviso to Section 132(1)(iii) of the Act.(b) The applicability and interpretation of the proviso to Section 132(1)(iii) concerning the seizure of bullion, jewellery, or other valuable articles that form part of stock-in-trade.(c) The evidentiary burden on the appellant to establish that the seized goods were indeed stock-in-trade and the legal consequences of failure to produce supporting documentation such as bills or invoices.(d) The appropriateness of the remedy under Section 132B(i) of the Income Tax Act for release of seized goods and whether the appellant could be compelled to admit tax liability to avail such remedy.2. ISSUE-WISE DETAILED ANALYSISIssue (a) and (b): Whether jewellery seized as stock-in-trade can be retained or must be released immediately under Section 132(1)(iii) provisoThe relevant legal framework is Section 132 of the Income Tax Act, 1961, which authorizes search and seizure operations. Specifically, Section 132(1)(iii) permits seizure of books of account, documents, money, bullion, jewellery, or other valuable articles found during search. However, the proviso to this clause states that bullion, jewellery, or other valuable articles that are stock-in-trade of the business shall not be seized but only inventoried.The appellant contended that since the jewellery seized was stock-in-trade, it could not be seized at all and the Revenue was limited to making an inventory. The appellant relied on the plain language of the proviso to argue that seizure of stock-in-trade jewellery is prohibited irrespective of whether the goods are accounted for or not.The Revenue, however, argued that the benefit of the proviso is conditional upon prima facie establishment that the goods are stock-in-trade, which requires supporting evidence such as invoices or bills. The appellant's own statements under Section 132(4) indicated absence of such documentation for jewellery found in the residential premises, thereby negating the claim that the goods were stock-in-trade.The Court recognized that the proviso to Section 132(1)(iii) protects stock-in-trade from seizure but emphasized that the status of goods as stock-in-trade must be prima facie established. Since the Income Tax Act does not define 'stock-in-trade,' the Court relied on the general commercial understanding that stock-in-trade comprises goods purchased or procured and held for running the business.The Court noted that the appellant's admission of lack of bills or invoices for the seized jewellery in the residence undermined the claim that such goods were part of stock-in-trade. Thus, the goods could not be insulated from seizure under the proviso.Issue (c): Evidentiary burden to establish stock-in-trade statusThe Court examined the appellant's statements recorded under Section 132(4), which revealed absence of documentary proof for the jewellery seized from the residence. The Court held that mere assertion that goods are stock-in-trade is insufficient without corroboration by supporting documents.The Court reasoned that the appellant's failure to produce bills or invoices prima facie disqualified the seized goods from being treated as stock-in-trade. This evidentiary deficiency justified the Revenue's retention of the goods.Issue (d): Remedy under Section 132B(i) and compulsion to admit tax liabilityThe Single Bench had dismissed the writ petition on the ground that the appellant could seek release of the seized goods by applying under Section 132B(i), which allows release on payment of tax or furnishing security.The appellant challenged this approach, arguing that it effectively compelled admission of tax liability, which cannot be judicially mandated. The Court acknowledged this concern and expressed disagreement with the reasoning to the extent it forced the appellant to admit tax liability.Nonetheless, the Court observed that since the appellant failed to establish stock-in-trade status prima facie, the remedy under Section 132B(i) remained available and appropriate. The Court declined to interfere with the Revenue's actions or the Single Bench's direction in this regard.3. SIGNIFICANT HOLDINGSThe Court held that:'Though appellant claimed the goods under stock-in-trade, in order to put the goods which in such basket as stock-in-trade were seized, prima facie it requires that it is to be proved as stock-in-trade by supporting documents.''The stock-in-trade has not been defined under the Income Tax Act, 1961. It is a general parlance, the definition by meaning how it attributes the goods purchased or procured and put into stock of running business and ignorance may be ominous to draw adverse inference.''When the appellant itself has stated in the statement recorded under Section 132(4) of the Act of 1961 that they do not possess any bill or invoices, prima facie by making such statement it appears that goods so seized by the stock-in-trade will not take it within its sweep of definition so as to insulate it with the proviso of Section 132(1)(iii).'Accordingly, the Court concluded that the jewellery seized could be lawfully retained by the Revenue as the appellant failed to establish the goods were stock-in-trade. The Court declined to interfere with the dismissal of the writ petition and upheld the availability of the remedy under Section 132B(i) without compelling admission of tax liability.