Seizure of jewellery held valid in view of assessee’s failure to substantiate the legitimacy of jewellery, discrepancies in documentation and weight
In a recent judgment, Hon’ble Calcutta High Court held that the seizure of the jewellery was valid in view of the assessee’s failure to substantiate the legitimacy of the jewellery, the discrepancies in documentation and weight and the reasonable belief of the Income Tax authorities in potential wrongdoing.
ABCAUS Case Law Citation:
4714 (2025) (08) abcaus.in HC
Important Case Laws relied upon by Parties:
CIT v. Laljibhai Kanjibhai Mandalia
In the instant case, the Petitioner assesee had challenged the search and seizure of the gold ornaments by Income Tax Authorities at Railway Station.
The petitioner was a Private Limited Company in Kolkata specializing in the design, craftsmanship and sale of fine gold and studded stone jewellery. The assessee operated several showrooms and also frequently participates in jewellery shows, exhibitions and displays across various cities in India to showcase crafted jewellery and taking orders for custom-made jewellery.
The petitioner in collboration with an associate planned an exhibition at Ranchi in Jharkhand and for this purpose, sent two employees to travel by train carrying pieces of jewellery along with requisite documents, including transfer memos and certificates.
However, on deboarding from train upon arrival, the employees were intercepted by RPF personnel. The jewellery and accompanying documents were confiscated and taken to the RPF office. Subsequently, the Income Tax Officials interrogated the employees. Summons under Section 131(1A) of the said Act were served and the jewellery was taken to the Income Tax office. The employees were also detained.
The very next day, a government-approved valuer assessed the jewellery worth. A purported search warrant under Section 132 of the said Act was shown but not provided to the employees. The valuation and seizure were documented in a Panchnama, which incorrectly stated the valuation was done at the RPF office rather than the Income Tax office. The jewellery was eventually sealed at the RPF office.
Before the Hon’ble High Court, the Petitioner submitted that the seizure of its jewellery was arbitrary, unlawful and in violation of the provisions of the Income Tax Act, 1961. The jewellery in question was stock-in-trade and was being transported for a legitimate business purpose, supported by requisite documents.
It was submitted that the IT Officials had no jurisdiction to seize the jewellery without proper authorization under Section 132A of the said Act. Furthermore, RPF’s involvement in the seizure process was beyond its legal authority.
Further, it was stated that the government-approved valuer’s valuation of the jewellery and the subsequent Panchnama were procedurally flawed. The discrepancies in the location of the valuation and the preparation of the Panchnama highlight the irregularities in the process.
It was submitted that the refusal of the Income Tax Authority to release the seized jewellery, despite multiple representations and the submission of supporting documents, constituted a grave miscarriage of justice. The petitioner had been deprived of its stock-in-trade, resulting in significant financial loss and reputational damage.
The Hon’ble High Court observed that the detained employees could only produce a letter issued by the company accountant and five transfer invoices, which were insufficient to substantiate their claim. They failed to provide stock registers, books of accounts or any written communication with exhibition associates regarding the exhibition. They also admitted to not carrying a bill book or any mechanism to generate cash memos for the private exhibition. The absence of a bill book or alternative billing mechanism heightened suspicion, as it indicated that sales could not be appropriately recorded in the company’s books of accounts.
The Hon’ble High Court further observed that DDIT(Investigation) issued summons to in reply thereto the Accountant claimed that the detained jewellery was recorded in the company’s books. However, he failed to reconcile the seized goods with the company’s stock registry, stating that the company director would address the discrepancy. Later, the company director produced some registers, including the purchase, sales, manufacturing, and stock registers, but requested additional time to reconcile the jewellery. Despite being given two days, she could not provide sufficient evidence to match the seized items with the company’s stock.
The Hon’ble High Court further observed that the detained employees and company representatives claimed the jewellery weighed 4307 grams. However, upon verification, the actual gross weight of the seized gold was found to be 5441 grams, revealing a significant discrepancy.
The Hon’ble High Court following the Wednesbury’s principle opined that the income tax authorities had reasonable grounds to suspect that the gold ornaments being transported by the petitioner’s employees were not properly accounted for in the company’s records. Credible information was received from the Post Commander of the Railway Protection Force (RPF), , which raised justifiable concerns regarding the nature of the jewellery being carried without the requisite documentation.
The Hon’ble High Court opined that the absence of crucial records, such as a bill book or alternative means for generating cash memos, gave rise to substantial suspicion regarding the legitimacy of the goods in transit. The authorities, therefore, acted within the scope of their legal mandate and had valid grounds to believe that the jewellery might have been unlawfully transported or unaccounted for, justifying the seizure.
The Hon’ble High Court in view of the petitioner’s failure to substantiate the legitimacy of the jewellery, the discrepancies in documentation and weight and the reasonable belief of the respondent authorities in potential wrongdoing, held that the seizure of the jewellery was valid and in compliance with the provisions of said Act. The actions of the IT authorities were undertaken within their jurisdictional powers and in good faith.
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