Income Tax Dept. can Inspect Seized Jewellery amid Pending S.263 Proceedings Without Disclosing Reasons: Calcutta HC [Read Order]

The Calcutta High Court recently delivered a notable judgment, ruling that the Income Tax Department is not required to provide all information and reasons to inspect jewellery and bullion that was seized during a search operation and kept in custody, as part of a pending revision proceeding under Section 263 of theIncome Tax Act, 1961.

The ruling was delivered while considering a writ petition filed by Miraj Digvijay Shah challenging a series of notices issued by the Income Tax Department proposing inspection of jewellery and gold bars that was seized during a search conducted at the residence and office of the petitioners and kin.

The seized assets were inspected, measured, inventoried, valued, sealed, and deposited in the custody of the Department in accordance as per prescribed procedure and requirements of the Search and Seizure Manual issued by the Central Board of Direct Taxes.

The petitioner thereafter filed his return of income for the Assessment Year 2023-24 which was processed and later picked for compulsory scrutiny.

During the course of assessment proceedings, the petitioner was called upon by the department to reconcile the seized assets with his books of account and explain their sources. While the Assessing Officer partly accepted the explanation furnished, additions were made in respect of unexplained jewellery and bullion. The assessment order was carried in appeal by the petitioner and remained pending before the appellate authority.

While the appellate proceedings remained sub-judice, the Principal Commissioner of Income Tax initiated revision proceedings, asserting that the assessment order was erroneous and prejudicial to the interests of the Revenue. The petitioner was thus intimated that the department sought to inspect the seized jewellery and bullion kept in sealed packages in the Department’s strong room. The instant writ petition has been lodged against the inspection.

Counsel for the petitioner contended that the notices proposing inspection lacked statutory basis, and that inspection without disclosure of the information or reasons prompting such action violated principles of natural justice and posed a risk to the chain of custody of the seized assets.

Opposing the writ petition, the Revenue submitted that Section 263 empowers the Principal Commissioner of Income Tax (PCIT) to make or cause to be made any inquiry deemed necessary and pass order.

It was argued that the Revenue is not bound to indicate any reason to validate such inspection, relying on the Supreme Court’s ruling in Commissioner of Income Tax v. Amitabh Bachchan (2016). The Revenue further contended that affording the petitioner an opportunity to be present during the inspection satisfies all statutory requirements to effectuate the inspection as well.

Justice Om Narayan Rai noted that Rule 112(13) permitted reopening of sealed packages “for any of the purposes of the Act” and that such power is not predicated upon any information or reasons to the person from whose custody the assets were seized.

It was also clarified that section 263 of the Income Tax Act empowered the PCIT to conduct such inquiry as is deemed necessary to rule out any prejudice to the interests of the Revenue.

Reiterating that the petitioner is given full opportunity to appear and be present during the inspection, the High Court found no arbitrariness or illegality in the impugned notices.

The writ petition was accordingly dismissed, while granting liberty to the Department to issue fresh inspection notices in accordance with law due to lapsing of the earlier notices.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates