Gujarat HC orders immediate release of seized jewellery held without authority for subsequent year liabilities

Gujarat HC directed respondents to release seized jewellery retained without authority. Assessment for AY 2014-15 was completed with no outstanding liability for that year. Court held jewellery cannot be retained for recovery of outstanding demands from subsequent assessment years. Section 132B amendment by Finance Act 2022 was effective from April 1, 2022, and prior provision only covered completion of assessment under section 153A. Retention of jewellery for subsequent years' liabilities was without jurisdiction and illegal, requiring immediate release to petitioner.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

(a) Whether the order of seizure dated 14.06.2013 under section 132 of the Income Tax Act, 1961, pertaining to jewellery seized during search proceedings, is liable to be quashed or set aside.

(b) Whether the respondents are legally justified in withholding the release of seized jewellery valued at Rs. 16,33,008/- belonging to petitioner no.2, on the ground of outstanding tax demand against petitioner no.3 for subsequent assessment years.

(c) Whether the provisions of section 132B of the Income Tax Act, 1961, as applicable to the relevant assessment year (2014-15), permit retention of seized assets for recovery of tax liabilities arising from subsequent assessment years.

(d) Whether the petitioners are entitled to the release of the seized jewellery under section 132B of the Act, considering the finality of the appellate order deleting additions for the relevant assessment year and payment of penalty by petitioner no.3.

(e) Whether interest on the market value of the jewellery retained by the department is payable under section 132B of the Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Validity of the seizure order dated 14.06.2013 under section 132

The seizure of jewellery worth Rs. 34,96,478/- and cash of Rs. 7,00,000/- was effected under section 132 during search proceedings on 13-14 June 2013. The petitioners challenged this seizure, seeking quashing of the order. The Court noted that jewellery worth Rs. 42,86,155/- was accepted as belonging to petitioner nos. 1 and 2 after applying Instruction No.1916 dated 11.05.1994, while the balance was seized.

The petitioner no.3 disclosed the source of jewellery during search and in the return of income. Subsequent assessment for AY 2014-15 was carried out, with additions made to income by the Assessing Officer but deleted by the CIT(Appeals), whose order attained finality. Given that no appeal was preferred by the Revenue and tax/penalty for AY 2014-15 was paid, the Court found no infirmity in the seizure itself but focused on the retention of jewellery post-assessment.

Issue (b) and (c): Legality of withholding jewellery on account of outstanding tax demand for subsequent years under section 132B

The respondents withheld jewellery worth Rs. 16,33,008/- belonging to petitioner no.2, wife of petitioner no.3, citing an outstanding tax demand of Rs. 3,36,21,170/- against petitioner no.3 for subsequent assessment years (determined by reassessment order dated 29.03.2023 under section 147).

The petitioners contended that under section 132B as it existed for AY 2014-15, the seized assets could only be retained to recover existing liabilities determined under assessment proceedings completed under section 153A for the block period. The Court examined the relevant statutory provision:

"The assets seized under section 132 ... may be dealt with in the following manner, namely:- (i) the amount of any existing liability under this Act ... and the amount of the liability determined on completion of the assessment under section 153A ... for the block period ... may be recovered out of such assets."

The Court observed that the provision prior to the Finance Act, 2022 amendment (effective 01.04.2022) did not include liabilities arising from assessments or reassessments completed under section 147 or other provisions beyond section 153A. Therefore, outstanding demands for subsequent years could not justify retention of jewellery seized in connection with AY 2014-15.

The respondents relied on departmental Instruction F.No.286/6/2008-IT (Inv.II) dated 21.01.2009, which permits adjustment of seized assets against existing liabilities. However, the Court held that this instruction cannot override the statutory mandate of section 132B as applicable at the relevant time.

Issue (d): Entitlement to release of seized jewellery under section 132B

The petitioners submitted that since the appellate order deleting additions for AY 2014-15 attained finality and penalty was paid, no outstanding liability existed for that year, entitling them to release of the jewellery. They also filed affidavit claiming ownership of the jewellery by petitioner nos. 1 and 2, distinct from petitioner no.3's liabilities.

The Court applied the law to the facts and concluded that retention of jewellery for recovery of demands not related to AY 2014-15 was without jurisdiction. The Court emphasized that the seized jewellery should be released forthwith in favour of petitioner no.2, as there was no outstanding liability for AY 2014-15 to justify retention.

Issue (e): Interest on market value of retained jewellery under section 132B

The petitioners prayed for interest on the market value of jewellery retained by the department under section 132B. The judgment does not explicitly address this prayer in the operative portion, indicating no specific determination on interest was made.

3. SIGNIFICANT HOLDINGS

The Court's crucial legal reasoning is encapsulated in the following verbatim excerpt:

"On perusal of the above provision, it is clear that the respondent is required to release jewellery amounting to Rs. 16,33,008/- which is retained by order dated 12.11.2024 in absence of any outstanding liability to be paid by petitioner no.3 regarding Assessment Year 2014-2015 and therefore, such jewellery could not have been retained for recovery of any outstanding demand for any subsequent assessment years of the petitioner no.3. Retention of jewellery is therefore, without any authority and jurisdiction and is required to be released forthwith in favour of petitioner no.2."

Further, the Court stated:

"The contentions raised on behalf of the respondents to retain the jewellery for recovery of outstanding tax dues of the petitioner no.3 is not tenable as the section 132B of the Act was amended to include the amount of the liabilities determined on 'completion of the assessment or reassessment or recomputation' with effect from 01.04.2022 by Finance Act, 2022 and prior thereto the provision existed as reproduced herein above qua completion of assessment under section 153A only. Therefore, in the facts of the case respondents are not justified in retaining the jewellery for recovery of outstanding liability of subsequent assessment year other than the A. Y. 2014-15 as there is no outstanding liability to be discharged by the petitioner no. for A.Y. 2014-15."

Core principles established include:

• Seized assets under section 132 must be released if no outstanding liability exists for the assessment year to which the seizure relates.
• Retention of seized assets for recovery of liabilities from subsequent assessment years, not covered under section 153A for the block period, is impermissible under the pre-2022 amendment version of section 132B.
• Departmental instructions cannot override the statutory provisions governing release and retention of seized assets.
• Ownership claims by parties distinct from the assessee with outstanding demands must be respected in release of seized assets.

Final determinations:

• The petition succeeds in directing the release of jewellery worth Rs. 16,33,008/- retained illegally and without jurisdiction.
• The impugned order refusing release to this extent is quashed and set aside.
• No order as to costs was made.

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