Income Tax Department justified in retaining seized jewelry worth Rs 2.16 crores under sections 132A and 132B due to stock discrepancies

The Rajasthan HC upheld proceedings under sections 131/132 of the Income Tax Act involving seizure of jewelry weighing 4603.110 grams gross and 4146.69 grams net under section 132A. The petitioner failed to provide itemized stock register matching seized items, with net weight differing from closing stock dated 21.03.2024. Bills worth Rs. 50 lakhs did not correspond to gold items valued at Rs. 2.16 crores. The court found factual disputes regarding stock register and seized quantity justified continued custody under section 132B. Assessment proceedings for 2024-25 remain ongoing with tax liability undetermined. The HC rejected the petition, noting adequate opportunity was provided under section 131 summons and proper approvals were obtained before initiating section 132A proceedings.

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Issues Involved:

1. Legality of proceedings under Sections 131/132 of the Income Tax Act, 1961.
2. Justification for the seizure of gold ornaments under Section 132-A of the Act.
3. Compliance with the proviso to Section 132(1)(iii) regarding the seizure of stock-in-trade.
4. Adequacy of the petitioner's response to the summons under Section 131.
5. Validity of the non-release of seized assets pending assessment proceedings.

Detailed Analysis:

1. Legality of Proceedings under Sections 131/132:

The petitioner challenged the initiation of proceedings under Sections 131/132 of the Income Tax Act, 1961, arguing that the "reasons to believe" necessary for such actions were not adequately specified. The court noted that the Income Tax Department initiated proceedings after the petitioner's vehicle, carrying gold ornaments, was intercepted. The petitioner was unable to provide an itemized stock register or match the items with the stock register to the satisfaction of the authorities. The court emphasized that the proceedings were initiated following due process, including the issuance of summons and the recording of statements under Section 132(4).

2. Justification for the Seizure under Section 132-A:

The petitioner contended that the seizure of gold ornaments was unjustified, as the stock was supported by valid invoices. However, the court observed that the discrepancy between the net weight of the jewelry items and the closing stock, along with the inability to produce an itemized stock register, justified the seizure. The court noted that the respondents demonstrated the mismatch in valuation and the absence of corresponding bills for the gold's value, which amounted to Rs. 2.16 crores.

3. Compliance with Proviso to Section 132(1)(iii):

The petitioner argued that the seizure violated the proviso to Section 132(1)(iii), which prohibits the seizure of stock-in-trade. The court acknowledged this provision but highlighted the factual dispute regarding the itemized stock register and the quantity of gold seized. Given the ongoing assessment proceedings, the court found no grounds to interfere with the seizure at this stage, as the assets were deemed necessary to remain in custody.

4. Adequacy of Petitioner's Response to Summons under Section 131:

The court found that the petitioner's failure to adequately explain the source of the gold during the initial summons under Section 131 justified the subsequent actions under Section 132A. The court noted that the petitioner's response did not satisfactorily address the discrepancies identified by the authorities, prompting the continuation of proceedings.

5. Validity of Non-Release of Seized Assets Pending Assessment:

The court held that the non-release of the seized gold was justified due to the ongoing assessment proceedings, which were yet to ascertain the tax liability. The court emphasized that the petitioner would have the opportunity to address the issues during the assessment process and could seek remedies through appeal if any adverse order was passed.

In conclusion, the court dismissed the petition, finding that the proceedings under Sections 131/132 were conducted in accordance with the law and that the non-release of the seized assets was warranted pending the completion of assessment proceedings. All pending applications were disposed of.

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