Seizure of gold jewellery claimed as stock-in-trade: unreliable panchnama led to order quashed and release directed
The dominant issue was whether the revenue could lawfully retain seized gold jewellery as "unaccounted assets" based on the panchnama and material gathered under the Income Tax Act. The HC held the panchnama was unreliable and contrary to the department's own record, since custody was taken earlier and valuation was already carried out, rendering the later panchnama's recitals incorrect and the affidavit explanation untenable; consequently, the panchnama and related order were quashed. The HC further found the seized jewellery was established to be the petitioner's stock-in-trade on documentary evidence, making continued retention unlawful; consequently, the revenue was directed to release the seized gold to the petitioner within two weeks.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the interception, custody and subsequent seizure of the gold jewellery by the Income Tax Department were lawful, having regard to the manner and dates on which the search, custody, valuation and Panchanama were effected and recorded.
1.2 Whether the gold jewellery in question constituted stock-in-trade of the petitioners' business and, if so, whether seizure thereof was impermissible in view of the statutory restriction on seizure of stock-in-trade.
1.3 Whether the order refusing release of the seized gold jewellery and the Panchanama recording the alleged seizure were liable to be quashed, and whether a consequential direction for release of the jewellery should be issued.
1.4 Whether the relief granted in relation to seizure and release of jewellery precludes the Income Tax Department from initiating or pursuing assessment or other tax proceedings in accordance with law.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Legality of interception, custody and seizure; validity of Panchanama
Legal framework (as noticed in the judgment)
2.1 The Court referred to statements recorded under Section 131(1A) of the Income Tax Act and the proviso to Section 132(1)(B)(iii) in the context of seizure and custody of stock-in-trade.
Interpretation and reasoning
2.2 The record showed that the gold jewellery was intercepted on 12 May 2024 at Bhubaneshwar Airport and taken into the custody of the Income Tax Department on that date. This was corroborated by: (i) questions put to the petitioners' employee in the statement recorded on 16 May 2024 under Section 131(1A), expressly stating that gold of 7738.74 gms had been kept in the custody of the Department on 12 May 2024; and (ii) further questions admitting that gold was in the "custody of the department".
2.3 The valuation of the seized gold was carried out by the Department on 17 May 2024, as evidenced from the record, thereby further confirming that the Department had custody of the jewellery well before 1 June 2024.
2.4 Notwithstanding the above, the Panchanama recorded that the search commenced on 1 June 2024 at 6.15 p.m. and closed on the same date at 8.30 p.m., suggesting that the gold was seized only on 1 June 2024 in the office of the Income Tax Department. The Court held that this recording in the Panchanama was inconsistent with and contrary to the contemporaneous record of custody and valuation.
2.5 The additional affidavit filed by the Department pursuant to the Court's order attempted to explain the inconsistency on the basis that the jewellery was "discovered" on 12 May 2024 but not seized on that date. The Court found this explanation unsustainable and contrary to the record, given that custody and valuation had in fact taken place from 12 May 2024 and 17 May 2024 respectively.
2.6 In view of these contradictions, the Court held that no reliance could be placed on the Panchanama dated 1 June 2024, and that the Department's action in treating the seizure as having taken place on that date and in that manner was contrary to law.
Conclusions
2.7 The Court concluded that the seizure proceedings reflected in the Panchanama dated 1 June 2024 were vitiated by inconsistencies and were not legally sustainable. The Panchanama was therefore liable to be quashed.
Issue 2: Character of the gold jewellery as stock-in-trade and consequences for seizure
Legal framework (as noticed in the judgment)
2.8 The Court noted the petitioners' reliance on the proviso to Section 132(1)(B)(iii) of the Income Tax Act, under which stock-in-trade of a business is not to be seized and only an inventory can be prepared.
Interpretation and reasoning
2.9 The petitioners placed on record detailed explanations of their business modus operandi and documentation evidencing the movement of gold from Mumbai to Bhubaneshwar, sales made to named retail jewellers, and the balance stock being returned to Mumbai through courier. These were furnished through letters dated 10 July 2024 and 11 July 2024 with supporting documents.
2.10 The Court found from the evidence on record that the jewellery in question was indeed stock-in-trade of the petitioners' business. The documentary material and explanations furnished by the petitioners were accepted as ample evidence of the stock-in-trade character of the jewellery.
2.11 Once the jewellery was established as stock-in-trade, the Court held that the Department's action in seizing it, rather than merely preparing an inventory, was contrary to the statutory scheme as reflected in the proviso to Section 132(1)(B)(iii).
Conclusions
2.12 The gold jewellery seized by the Department constituted stock-in-trade of the petitioners. Seizure of such stock-in-trade was impermissible in law; only an inventory could have been made. The seizure was, therefore, unlawful.
Issue 3: Validity of the order refusing release and entitlement to release of jewellery
Interpretation and reasoning
2.13 The petitioners applied for release of the gold as stock-in-trade, but the concerned authority rejected the application on the ground that the seized gold was "unaccounted assets" emanating from the petitioner and not liable to be released.
2.14 In light of the findings that (i) the Panchanama and seizure proceedings were unreliable and contrary to the factual record, and (ii) the jewellery was proven stock-in-trade which could not lawfully be seized, the Court held that the rejection of the release application was unsustainable.
2.15 The entire action of the respondent authorities in retaining the jewellery as seized assets was found to be contrary to law, both procedurally (due to inconsistent and incorrect Panchanama and explanations) and substantively (due to impermissible seizure of stock-in-trade).
Conclusions
2.16 The order dated 14 March 2025 refusing release of the seized jewellery and the Panchanama dated 1 June 2024 were quashed.
2.17 The respondents were directed to forthwith release the seized gold jewellery of 7738.80 gms to the petitioner within two weeks from the date of uploading of the Court's order.
Issue 4: Effect of the order on future tax proceedings
Interpretation and reasoning
2.18 The Court clarified that quashing the seizure-related actions and directing release of the jewellery should not be understood as granting any "clean-chit" to the petitioners on the merits of tax liability.
2.19 The Court expressly preserved the liberty of the Income Tax Authorities to examine, if so advised, whether the gold or the related transactions ought to be brought to tax, and to proceed in that regard strictly in accordance with law.
Conclusions
2.20 The relief granted is confined to the illegality of seizure and retention of stock-in-trade and does not bar or limit the Department's power to initiate or continue assessment or other proceedings in accordance with the Income Tax Act.
TaxTMI 
AI Drafter ✕
TaxTMI 
