Vinodbhai Jayantilal Zaveri vs Director of Inspection (Investigation) and Another

Rajesh Balia, J.—The petitioner is running a proprietary business in articles made of precious metals and precious stones. On February 2,

1985, there was a search by the Central excise authority on the petitioner when the Central excise authority seized 22 carat gold ornaments

weighing 967.650 gms. worth Rs. 1,74,177 and alloy gold studded with diamond weighing 152.500 gms. worth Rs. 1,01,440. Both the types of

the above ornaments were lying with the Central Excise Department. The Central Excise authority also found cash amounting to Rs. 1,60,000, of

which the Director of Inspection, in pursuance of the authorisation u/s 132A of the Income Tax Act, 1961, took possession from the Central

Excise Department. After holding the enquiry, an order u/s 132(5) of the Income Tax Act, 1961, was passed on June 24, 1985, estimating the

undisclosed income in the summary manner to the best of its knowledge and calculated the amount of tax on the income so estimated and also

determined other liabilities likely to arise in respect of such undisclosed assets and ordered the retention of Rs. 1,60,000. In estimating the

petitioner''s undisclosed income and calculating the tax liability likely to come into existence as a result of such undisclosed income, the aforesaid

ornaments and jewellery were also taken into account. Regular assessment in respect of the assessment year 1985-86 was completed on March

30, 1988. As the assessee was found in possession of the aforesaid jewellery and ornaments and cash on February 25, 1985, the question

whether these assets represented undisclosed income of the assessee was also dealt with during the course of regular assessment for the

assessment year 1985-86 in terms of section 69A of the Income Tax Act. The Income Tax Officer, on the basis of the material before him, came

to the conclusion that the possession of the aforesaid assets of which he was found in possession during the course of the search conducted on

February 25, 1985, was duly explained by the assessee and the same cannot be treated as income from undisclosed sources.

It further appears that the Central excise authority also found the possession of gold ornaments and jewellery by the assessee lawful and

released the same on February 25, 1989. Immediately on release of the aforesaid articles by the Central excise authorities, by order exhibit-B

dated nil, the Assistant Commissioner of Income Tax seized the same and issued the impugned notice in the present petition for passing an

appropriate order u/s 132(5) for the retention of those articles. It is this action of the respondent which is under challenge in this petition before this

court.

Learned counsel for the petitioner urged before us that since in respect of the aforesaid articles which were the subject-matter of search which

took place on February 25, 1985, regular assessment has come into existence, thereafter, no proceedings u/s 132(5) or 132(1) of the Act could

have been taken and the action taken by the respondents in respect of the aforesaid articles was without jurisdiction, arbitrary and illegal.

It was urged on behalf of the respondents that the gold ornaments and jewellery, not being the subject-matter of seizure which took place

earlier, could have been seized on their being released by the excise authorities and the order u/s 132(5) of the Act could have been passed in

respect of those seized articles for retaining the same, inasmuch as the order of the Income Tax Officer finding the possession of those articles

explained, was made the subject-matter of revision u/s 263 by the Commissioner of Income Tax and the same was pending.

We have given our anxious and careful consideration to the questions raised before us and we are of the opinion that the petition must succeed

and the contentions raised by the Revenue cannot be sustained. Section 132(1)(c) of the Act, on which reliance was placed by learned counsel for

the Revenue, reads as under :

(1)(c) any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or

other valuable article or thing represents either wholly or partly income or property which has not been, or would not be, disclosed for the

purposes of the Indian Income Tax Act, 1922 (11 of 1922), or this Act (hereinafter in this section referred to as ''the undisclosed income or

property'').

A perusal of the aforesaid provision leaves no room for doubt that the condition precedent for the exercise of or assumption of jurisdiction u/s

132(1)(c) of the Act is that a person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion,

jewellery or other valuable article or thing represents either wholly or partly income or property which has not been or would not be disclosed for

the purposes of the Act. From the undisputed facts, it is apparent that as on the date of the second authorisation, under which certain ornaments

are alleged to have been seized after release by the excise authorities those ornaments were found to be in the possession of the petitioner way

back in February, 1985, the same was made the subject-matter of the order u/s 132(5) of the Act for calculating the estimated income and the

income for the assessment years 1985-86 and 1986-87 in accordance with the provisions of section 69A of the Act for calculating tax for that

year. Pursuant to the orders passed u/s 132(5) of the Act, taking notice of the possession of the aforesaid valuables by the assessee on February

25, 1985, regular assessment had been also made on March 30, 1988, by holding that the same does not represent the assessee''s income from

undisclosed sources. The mere fact that the assessment order was, in the opinion of the Commissioner of Income Tax, erroneous and prejudicial to

the interests of the Revenue leading him to invoke the jurisdiction u/s 263 of the Act for initiating proceedings does not deviate from the fact that

the aforesaid valuables had in fact been disclosed for the assessment year 1985-86 and been made the subject-matter of assessment. If that be so,

there cannot be any ground whatsoever to hold the belief that the assessee would not disclose possession or the details of the aforesaid valuables

held by him. The mere fact that they have physically been returned to the assessee in the year 1989 does not obliterate the fact that the assessee

was in possession of those assets in February, 1985. It also does not alter the position that notwithstanding seizure as having been made subject to

the orders under the Gold (Control) Act or Customs Act or the Income Tax Act, the legal ownership remains with the assessee until it was lawfully

terminated by passing an appropriate order of confiscation or appropriating the same against the dues of the holder, or in any other manner

whatsoever and the possession of the Central Excise Department or for that matter, of valuables retained by the Income Tax Department u/s

132(5) of the Act, is possession for and on behalf of the person from whose custody such valuables have been seized for the purpose of being

treated in accordance with law when the occasion for such treatment arises, either for confiscation of the same or for utilisation of the same for

satisfying the liabilities arising under any of the statutes. But in no case, it could be said that the appropriate authority u/s 132 could hold belief on

July 18, 1989, issue authorisation u/s 132(1) after the release of the assets by the Central excise authority on the assumed belief that the petitioner

was in possession of the articles in dispute which represent his undisclosed income and that the person who received the valuables will not disclose

the same inasmuch as the possession thereof and the status thereof had already been disclosed in and dealt with by a valid order passed by the

competent authority for the assessment year 1985-86. It is to be noticed that under the provisions of section 69A of the Act, where, in any

financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article which is not recorded in the books of

account, if any, maintained by him for any source of income and the assessee offers no explanation about the nature and source of acquisition of

such money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the officer, satisfactory, the

money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.

Undisputedly, when the discovery of possession of the concerned assets by the petitioner was made in the financial year 1985, it could be

treated as income for the previous year ending on March 31, 1985, relevant to the assessment year 1985-86 and it was so dealt with and the fact

that ultimately the Assessing Officer found the source of acquisition of assets duly proved conclusively closes the applicability of section 69A in

respect of the same assets in the later year. The fact that no tax was levied in respect of such assets in 1985-86 is immaterial for the purpose of

resorting to section 132 in the present circumstances. If the contention of the Revenue is accepted, the position would be that the assessee was

found to be in possession of the aforesaid ornaments and jewellery in the previous year relevant to the assessment year 1985-86 and was

subjected to the orders u/s 132A read with section 132(5) as well as regular assessment. Once again, when the very same valuables were returned

to the assessee by the Central Excise Department, it could be made the subject-matter of similar proceedings for the assessment year 1985-86.

It is too obvious to be stated that the same income cannot be made the subject-matter of assessment for two different assessment years. Once

the assessee was found in possession of the disputed ornaments and jewellery on February 25, 1985, and was dealt with in accordance with law,

for the assessment year 1985-86, no proceedings u/s 132 of the Act once again could be taken for possession of the very same articles at a later

stage. Remedy in such case, for erroneous orders made, if any, lies elsewhere. The stage for making an order for seizure u/s 132(5) for retention of

assets is prior to the completion of regular assessment of the period for which such assets are subjected to assessment, but not after the completion

of regular assessment in respect of such articles for the relevant period.

We are fortified in our aforesaid conclusion by the decision of the Supreme Court in the case of K. Choyi Vs. Syed Abdulla Bafakky Thangal

and Others, , wherein it has been held in unequivocal terms that (at page 437) :

There can be no question of making a seizure u/s 132 of the Income Tax Act and proceeding further under the provisions of that section, once an

assessment is completed. Seizure u/s 132 relates to a pre-assessment stage.

As a result of the aforesaid discussion, the petition succeeds. The authorisation of seizure u/s 132(1) in respect of the valuables referred to

above and consequent seizure of these articles, vide exhibit-F panchanama along with the inventory and notice u/s 132(5), exhibit-B are quashed.

The ornaments and the jewellery seized under panchanama exhibit-F as per inventory exhibit-G shall be released forthwith to the petitioner.

However, this order will not affect in any manner the proceedings u/s 263 or the authority of the respondent authorities to act in accordance with

law for the purpose of recovery of any sum outstanding from the assessee from the assets of the assessee including the assets in question. Rule is

made absolute in terms indicated above with no order as to costs.