2025 (8) TMI 1117 - HC - Income Tax

Seizures and retention unlawful for SOP failures; s.148 proceedings quashed against transporter, jewellery to be released and costs awarded

ARIHANT JEWELLERS, MR. AMIT SHARMA, SEQUEL LOGISTICS PRIVATE LIMITED THROUGH ITS AUTHORIZED PERSON/ SIGNATORY JITENDRA PATIDAR Versus PRINCIPAL COMMISSIONER OF INCOME TAX I AND OTHERS

ARIHANT JEWELLERS, MR. AMIT SHARMA, SEQUEL LOGISTICS PRIVATE LIMITED THROUGH ITS AUTHORIZED PERSON/ SIGNATORY JITENDRA PATIDAR Versus PRINCIPAL ... ISSUES PRESENTED AND CONSIDERED 1. Whether the Static Surveillance Team (SST) was justified in detaining/seizing 37 consignments of jewellery during enforcement of the Model Code of Conduct and in handing them over to the Income Tax Department. 2. Whether the Income Tax Department was justified in requisitioning the seized consignments under Section 132A and in initiating reassessment proceedings under Section 148 against the person found in possession on the basis of a 'reason to believe' that the consignments represented undisclosed income. 3. Whether the consignee claiming proprietary title to a specific consignment is entitled to release of the goods, having filed applications under the statutory scheme (Section 132B) and having produced documentary proof of ownership. ISSUE-WISE DETAILED ANALYSIS - ISSUE 1: LEGITIMACY OF SST SEIZURE AND HANDING OVER TO IT DEPARTMENT Legal framework: Election Commission issued Standard Operating Procedure (SOP) for seizure/release of cash and valuables during enforcement of Model Code of Conduct; SOP contemplates seizure only where items are linked to electoral inducement or a candidate/party, and provides for District Grievance Committee (DGC) review and prompt release where no electoral link or FIR exists; where value > Rs.10 lakh, Income Tax nodal officer to be informed before release. Statutory custody rules and timelines in SOP and related instructions govern interim handling of seized valuables. Precedent treatment: Court relied on the SOP's mandatory procedural safeguards and principles requiring recording of satisfaction/grounds for seizure and timely DGC action; where SOP controls administrative conduct during elections, non-compliance undermines validity of downstream transfers. Interpretation and reasoning: The SST did not record any satisfaction linking the consignments to electoral inducement or a candidate; no FIR/complaint was registered; the DGC failed to record a reasoned order explaining retention rather than immediate release; consignments were kept beyond the seven-day limit contemplated by SOP and then handed over to Income Tax authorities without the requisite satisfaction. The department itself conceded absence of electoral linkage and acknowledged that supporting documents were carried for many consignments. The SOP contemplates informing, not automatic transfer, to Income Tax where value exceeds threshold and only where release is subject to Income Tax verification - it does not authorize unconditional handing over in absence of recorded satisfaction. Ratio vs. Obiter: Ratio - SST and DGC must comply with SOP mandatory steps (record satisfaction, examine documents, register FIR if warranted, and not keep items pending beyond seven days absent FIR); handing over to Income Tax without satisfying SOP conditions is illegal. Obiter - observations about best administrative practice and expectations of application of mind by officials. Conclusion: The SST's detention/retention and the subsequent handing over to the Income Tax Department were unlawful for non-compliance with the SOP and absence of recorded satisfaction linking the goods to electoral inducement; Issue 1 answered against the respondents and in favor of petitioners. ISSUE-WISE DETAILED ANALYSIS - ISSUE 2: VALIDITY OF REQUISITION UNDER SECTION 132A AND PROCEEDINGS UNDER SECTION 148 Legal framework: Section 132A permits requisition of articles by Income Tax authorities where they have 'reason to believe' that such articles represent income or property not disclosed; the proviso protects satisfaction notes from disclosure. Reassessment under Section 148 follows where assessment proceedings are justified by information/evidence. Section 132B prescribes timelines and release mechanisms for claimed assets. Precedent treatment: The Court acknowledged that satisfaction under Section 132A is a statutory requirement and that the satisfaction note is ordinarily not disclosed; however, statutory protections do not immunize requisition when fundamental factual errors exist - e.g., treating a bona fide carrier/bailee as proprietor without adequate inquiry. Interpretation and reasoning: The person in possession was an admitted employee/custodian of a logistics company and produced invoices, dockets and transport documents; movement of jewellery may be exempt from e-way bill requirements. The Income Tax enquiry relied on alleged inconsistencies and non-production of certain documentary materials, but the record showed consignor/consignee details for 37 consignments and no electoral nexus. Given the bailee/employee status, the burden on authorities was to investigate consignees/consignors and not to proceed against the custodian as owner without adequate basis. Centralization and initiation of reassessment against the custodian, without calling consignors/consignees for explanation and despite documentary indicia of third-party ownership, was held to be unsustainable. Consequently, proceedings under Section 148 against the custodian were quashed, while preserving the department's liberty to proceed against true owners/consignors where material supports such action. Ratio vs. Obiter: Ratio - requisition and reassessment against a custodian/employee are impermissible where the record demonstrates consignor/consignee ownership and no reasonable basis exists to treat the custodian as owner; Section 132A requisition must be founded on adequate material directing attention to the correct person. Obiter - remarks on non-availability of e-way bill not being fatal given applicable CGST rules. Conclusion: The Income Tax Department's initiation of reassessment proceedings and treatment of the custodian as owner lacked sufficient basis and was quashed in respect of the custodian; Issue 2 answered in favor of the custodian petitioner, with liberty for the department to pursue proceedings against actual consignors/consignees if supported by evidence. ISSUE-WISE DETAILED ANALYSIS - ISSUE 3: ENTITLEMENT TO RELEASE BY A CONSIGNEE/CLAIMANT UNDER SECTION 132B Legal framework: Section 132B prescribes application procedure, time-limits and adjudication by the Assessing Officer dealing with the seized assets; the first proviso contemplates claims to be made to the officer handling the seized asset, and the second proviso prescribes release within 120 days if no adverse determination is made; centralization under Section 127 vests the dealing officer with jurisdiction. Precedent treatment: Administrative centralization and the scheme of Section 132B require claims to be considered by the officer handling the seized property; failure to entertain claims on technical grounds or wrong allocation of jurisdiction is inconsistent with the statutory object of permitting rightful owners to seek release. Interpretation and reasoning: Claimant produced documentary evidence and offered bank guarantee; their application was not entertained on the ground that it should have been filed before their own Assessing Officer rather than the centralised officer. Once the custodian's case was centralized, the centralized Assessing Officer was the appropriate authority to consider claims by consignors/consignees to avoid conflicting orders. The department failed to process applications within the statutory regime and did not conclude proceedings within the 120-day timeline. The Court held that claimant applications ought to be adjudicated by the centralized Deputy Commissioner handling the requisitioned assets, and that delay and procedural missteps by authorities made continued retention unlawful. Ratio vs. Obiter: Ratio - persons claiming ownership of seized assets must have their claims considered by the Assessing Officer dealing with the seized assets (including centralized officer), and statutory timelines under Section 132B must be respected; failure to consider valid claims and to conclude proceedings within stipulated period attracts relief. Obiter - guidance on interplay of centralization practices and ITBA entry procedures. Conclusion: The consignee claiming title was entitled to release; the centralized Assessing Officer was directed to release the relevant consignments, and Issue 3 answered in favor of the claimant petitioner. DISPOSITIONAL CONCLUSIONS AND RELIEF The writ petitions were allowed to the extent indicated: SST and DGC actions breached SOP and were unlawful; reassessment proceedings against the custodian were quashed; consignor/consignee claims were to be considered by the centralized Assessing Officer and release directed for the consignments shown to be owned by the claimant, with the departmental liberty to proceed against actual owners where evidence supports such action. Costs awarded against respondents.