Company jewellery seized from bank locker must be released as seizure was arbitrary and illegal under Section 132B

The HC directed respondents to release jewellery seized from petitioner company's bank locker, finding the seizure arbitrary and illegal. The court held that jewellery from company locker must be presumed company property, not individual director's assets, preventing disputes over company stock. Respondents lacked authority to withhold stock-in-trade after demand was made and failed to pass mandatory release orders under Section 132B(1)(i). The court rejected respondents' argument about stock value differences between dates, noting director's admission of additional stock. The seizure exceeded respondents' statutory powers under Section 132 proviso. WP allowed.

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Issues Involved:

1. Legality of the seizure of jewellery from the petitioner's bank locker under Section 132 of the Income Tax Act.
2. Compliance with the procedures outlined in Section 132B of the Income Tax Act for the release of seized assets.
3. Determination of whether the jewellery constitutes stock-in-trade or personal assets.
4. The impact of the seizure on the petitioner's business operations and rights.

Detailed Analysis:

1. Legality of the Seizure of Jewellery:

The petitioner challenged the actions of the Income Tax Department in seizing jewellery from its bank locker, arguing that such action was in violation of Section 132 of the Income Tax Act. The court noted that Section 132(1)(B)(iii) of the Act prohibits the seizure of stock-in-trade during a search operation. The court emphasized that the stock-in-trade should only be inventoried and not seized. The petitioner's assertion that the jewellery constituted stock-in-trade was supported by the fact that the locker was in the company's name, suggesting that the contents were part of its business assets. The court found no justification for the respondents to have seized the jewellery and diamonds from the locker, as the provisions of the Act clearly bar such an action.

2. Compliance with Section 132B Procedures:

The petitioner argued that the respondents failed to comply with the proviso to Section 132B(1)(i) of the Act, which outlines the procedure for releasing seized assets. The court highlighted that the respondents were required to pass orders for the release of assets if the nature and source of acquisition were satisfactorily explained. The respondents did not provide any reason for not releasing the jewellery, which the court deemed as inaction and non-compliance with statutory provisions. The court referenced previous judgments, including those from the High Courts of Orissa, Gujarat, and Rajasthan, which supported the petitioner's position that the respondents had no authority to retain the jewellery after the statutory period.

3. Determination of Jewellery as Stock-in-Trade:

The respondents contended that the jewellery found in the locker could be personal assets of the directors, as slips indicating personal ownership were discovered. However, the court concluded that since the locker was in the company's name, the jewellery should be presumed to be part of the company's stock-in-trade. The court dismissed the respondents' argument, emphasizing that allowing such a claim would create disputes regarding the company's stock and potentially allow individual directors to claim company assets, which is not permissible.

4. Impact on Business Operations:

The petitioner asserted that the seizure of jewellery severely hampered its business operations, resulting in irreparable loss. The court acknowledged this impact and criticized the respondents' adamant refusal to release the jewellery, which was deemed unwarranted. The court underscored that the provisions of the Finance Act should not be detrimental to regular business operations and that the respondents' actions were arbitrary and unjustified.

Conclusion:

The court allowed the writ petition, directing the respondents to release the jewellery as per the inventory of bank locker no. 161, South Indian Bank, Punjabi Bagh, Delhi, and the panchnama dated 17.07.2023. The court concluded that the respondents' actions were unauthorized and in violation of the statutory provisions, emphasizing that the jewellery should be released to the petitioner company, which is engaged in the business of jewellery. All pending applications were disposed of, and no costs were awarded.

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