Jewellery seized u/s132 after Form-5 settlement: continued detention despite co-locker holder demand quashed; release ordered with costs.
Detention of jewellery seized under s.132 after settlement under the Vivad se Vishwas Act, 2020 was held unlawful. The HC found that issuance of Form-5 resulted in full and final discharge of the petitioner's tax liability arising from the relevant assessment order, and the CIT(A)'s findings had already addressed ownership of the seized jewellery. The AO's refusal to release the jewellery on the ground that a co-locker holder's separate demand remained outstanding was held to be without authority, perverse, and contrary to the scheme's intent and the appellate findings. Consequently, the impugned action was quashed, release of the seized jewellery was directed within two weeks, and exemplary costs were imposed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether, after assessment and appellate proceedings culminating in a finding that the seized jewellery belongs to the petitioner and after full and final settlement of tax liability under the Vivad se Vishwas Act, 2020, the Revenue could lawfully continue to detain the seized jewellery.
1.2 Whether the Revenue was justified, under Section 132B of the Income Tax Act, 1961 and the CBDT Circular dated 21.01.2009 (F. No. 286/6/2008-IT(Inv.II)), in refusing release of the petitioner's jewellery on the ground of outstanding tax demand in the case of the petitioner's mother-in-law, who was joint holder of the lockers.
1.3 Whether the continued detention of the jewellery, despite the appellate findings and issuance of Form-5 under the Vivad se Vishwas Scheme, was illegal, perverse, and warranted imposition of costs and further coercive directions.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Entitlement to release of seized jewellery after appellate findings and Vivad se Vishwas settlement
Legal framework (as discussed by the Court)
2.1 The Court considered the scheme of search and seizure under Section 132 of the Income Tax Act, 1961, the consequent assessments under Sections 153A and 143(3), and the mechanism for dealing with seized assets under Section 132B, in light of the appellate order of the Commissioner of Income Tax (Appeals) and the Vivad se Vishwas Act, 2020 and Rules thereunder (Forms 1-5).
Interpretation and reasoning
2.2 The Court noted that search under Section 132 led to seizure of jewellery from lockers jointly held by the petitioner and her mother-in-law, and that separate assessments were framed for both, with an arbitrary 50:50 substantive/protective apportionment of unexplained jewellery.
2.3 The Court highlighted that the Commissioner of Income Tax (Appeals), in a detailed order, rejected the 50:50 presumption as "cursory and mechanical", declared the protective/substantive bifurcation invalid, and held, on the basis of material and explanations, that specific quantities of jewellery were to be treated as explained and that the balance unexplained jewellery and ornaments were owned and "owned up" by the petitioner alone.
2.4 The appellate authority directed the Assessing Officer to make addition of the value of such unexplained jewellery in the petitioner's hands and to issue fresh notice under Section 274 read with Section 271(1)(c) for the enhanced addition.
2.5 The Court recorded that the Assessing Officer passed an order giving effect to the appellate order, determining revised income and tax demand, and that, thereafter, during pendency of second appeal before the Tribunal, the petitioner opted for settlement under the Vivad se Vishwas Act, 2020.
2.6 The petitioner filed declaration (Forms 1 and 2), the Department quantified the amount payable (Form 3), the petitioner paid the determined sum and filed Form 4, and the competent authority issued Form 5, explicitly accepting the declaration and treating the matter as full and final settlement for the relevant assessment year.
2.7 The Court emphasized that, by virtue of Form 5, the entire tax liability arising from the order giving effect to the appellate order stood conclusively settled; it was "laid quietus", and the tax consequences of the unexplained jewellery in the petitioner's hands were fully discharged.
2.8 Despite such settlement and repeated written requests, including grievances to higher authorities, the jewellery remained unreleased. The Court noted that even an additional minor outstanding amount demanded by the Department was paid, yet detention continued.
Conclusions
2.9 The Court held that, once the appellate authority had clearly recorded that the seized jewellery belonged to and was owned by the petitioner, and once the tax liability arising therefrom had been fully and finally settled under the Vivad se Vishwas Scheme culminating in Form 5, the Revenue had no authority to further detain the petitioner's jewellery.
2.10 The Court concluded that the petitioner was entitled to immediate release of the seized jewellery (3473.700 grams of gold and 6.97 carats of diamond) in terms of her writ prayer.
Issue 2: Justification under Section 132B and CBDT Circular dated 21.01.2009 for continued detention based on mother-in-law's demand
Legal framework (as discussed by the Court)
2.11 The Court considered the CBDT Instruction/Circular dated 21.01.2009 (F. No. 286/6/2008-IT(Inv.II)), particularly paragraph 3, which governs release of seized assets under Section 132B, including:
- Para 3(a): Release where nature and source of acquisition is explained, subject to recovery of outstanding arrears under Section 132B(1).
- Para 3(b)(i) & (ii): Non-release of that part of seized assets sufficient to meet existing liabilities and expected penalty liabilities connected with search assessments.
Interpretation and reasoning
2.12 The Revenue relied on para 3(b)(i) and (ii) of the Circular to argue that seized jewellery could not be released because there existed an outstanding demand in the case of the petitioner's mother-in-law, a joint locker holder.
2.13 The Court observed that this stand directly ignored and contradicted the categorical findings of the appellate authority, which had:
- Rejected the earlier 50:50 bifurcation;
- Treated the disputed unexplained jewellery as owned and "owned up" by the petitioner; and
- Directed addition of its value only in the petitioner's hands.
2.14 The Court further noted that the mother-in-law herself had communicated that she had no objection to the release of the jewellery to the petitioner.
2.15 The Court reasoned that invoking para 3(b)(i) and (ii) to withhold jewellery belonging to the petitioner, on account of another person's (mother-in-law's) outstanding demand, amounted to "travelling beyond the intention" of the Circular.
2.16 The Court found that the Circular contemplates retention of assets for the assessee's own existing and expected search-related liabilities; it does not authorize appropriating assets judicially and administratively determined to belong to one assessee, for recovery of another assessee's dues, especially when appellate findings and a statutory settlement scheme (Vivad se Vishwas) have conclusively fixed ownership and liability.
2.17 The Court held that, by continuing to rely on the Circular as against the appellate order and Form 5, the Department had in effect questioned and overreached both the binding appellate findings and the decision of the competent authority under the Vivad se Vishwas Scheme.
Conclusions
2.18 The Court held that paragraph 3(b)(i) and (ii) of the Circular dated 21.01.2009 could not be validly invoked to retain the petitioner's jewellery on the pretext of the mother-in-law's outstanding demand.
2.19 The Court concluded that the Department's reliance on the Circular to deny release of the seized jewellery was misconceived, illegal, and contrary to the scheme of Section 132B, the Circular itself, the findings of the appellate authority, and the operation of the Vivad se Vishwas Scheme.
Issue 3: Legality of the Department's conduct and award of costs and coercive directions
Interpretation and reasoning
2.20 The Court characterized the Department's refusal to release jewellery, despite clear appellate findings and the issuance of Form 5 under the Vivad se Vishwas Act, as an "obstinate attitude" and an action "in defiant manner".
2.21 It held that, by persisting with detention on the basis of the mother-in-law's demand and the Circular, the Department had acted illegally and perversely, and in a manner that overreached:
- The findings of the Commissioner of Income Tax (Appeals) on ownership and taxability of the jewellery; and
- The decision of the competent authority under the Vivad se Vishwas Scheme in issuing Form 5, signifying full and final settlement.
2.22 The Court observed that the petitioner had been made to suffer for several years even after final determination of her liability and acknowledged compliance, solely due to the Department's refusal to honour the appellate and settlement outcomes.
Conclusions and directions
2.23 The Court declared the impugned action of the Department in continuing to detain the petitioner's jewellery after the appellate order and issuance of Form 5 as "illegal and perverse".
2.24 The Court directed the Department to release the seized jewellery (3473.700 grams of gold and 6.97 carats of diamond) within two weeks from receipt of the order.
2.25 The Court imposed exemplary costs of Rs. 10,000/- to be paid to the petitioner along with the release of jewellery.
2.26 The Court further directed that, in case of non-release within the prescribed two-week period, the concerned authority shall pay Rs. 1,000/- per day of delay to the petitioner, and such amount shall be recoverable from the erring officer personally.
2.27 On these findings and directions, the writ petition was allowed and rule made absolute.
TaxTMI 
AI Drafter ✕
TaxTMI 
