Gold Seizure Dispute: Court Awaits Tax Appeal Outcome

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Case Name:

New Lakshmi Jewellers Vs. Principal Commissioner of Income Tax and Ors. (High Court of Bombay)

Writ Petitions No. 2928 of 2019

Date: 22nd December 2020

Key Takeaways:

• The court refrained from making a decision due to a pending appeal with the Commissioner of Income Tax (Appeals).
• The case highlights the importance of clear documentation and proof of ownership in disputes involving seized assets.
• The decision underscores the procedural aspect of tax law, where appeals must be resolved before further legal action.

Issue

The central legal question is whether the 7 kg of gold seized from Gaurav Surana belongs to New Lakshmi Jewellers and should be released to them.

Facts

• New Lakshmi Jewellers, a partnership firm in Tamil Nadu, trades in gold jewelry and claims the gold was part of their inventory, issued to a job worker, Gaurav Surana, for processing.
• On November 28, 2016, Surana was apprehended at Mumbai Airport with 8 kg of gold, 7 kg of which New Lakshmi Jewellers claims as theirs.
• The gold was seized by tax authorities due to lack of documentation, and Surana admitted it was unaccounted for.
• New Lakshmi Jewellers filed a writ petition after their application for the gold’s release was rejected by the Principal Commissioner of Income Tax.

Arguments

• Petitioner (New Lakshmi Jewellers): Argued that the gold was part of their business inventory, supported by vouchers and bank documentation. They sought the release of the gold and exclusion from Surana’s tax assessment.
• Respondent (Principal Commissioner of Income Tax): Argued that the ownership of the gold was not proven by New Lakshmi Jewellers, and the gold was seized as unaccounted income from Surana.

Key Legal Precedents

The case primarily revolves around the application of Section 132B of the Income Tax Act, 1961, which deals with the release of seized assets. The court did not cite specific past cases but focused on procedural compliance and the pending appeal.

Judgement

The court declined to exercise its writ jurisdiction under Article 226 of the Constitution of India due to the pending appeal before the Commissioner of Income Tax (Appeals). The court directed the CIT(A) to expedite the appeal process, emphasizing the need for a resolution within three months.

FAQs

Q1: Why didn’t the court make a decision on the gold’s ownership?

A1: The court chose not to intervene because the appeal regarding the tax assessment of the gold is still pending with the Commissioner of Income Tax (Appeals).

Q2: What does this mean for New Lakshmi Jewellers?

A2: They must wait for the outcome of the appeal to potentially reclaim the gold, depending on the appeal’s decision.

Q3: What was the main reason for the gold’s seizure?

A3: The gold was seized due to a lack of documentation proving its source and ownership, leading to its classification as unaccounted income.

Q4: What happens next in this case?

A4: The Commissioner of Income Tax (Appeals) will review the case, and their decision will determine the next steps regarding the gold’s release.

1. Heard.

2. By this Petition filed under Article 226 of the Constitution of India, 1950, Petitioner is seeking to set aside the impugned order dated 31st July, 2019 passed by Respondent No.1 on Petitioner's application under Section 132 (B) of the Income Tax Act, 1961 (the “Act”), for release of 7kg of gold seized by the authorities on 28th November 2016 from Respondent No. 5.

3. Prayers made by the Petitioner in this Petition are as under:

“A. Issue a Writ of Certiorari or a writ in the nature of Certiorari or any other appropriate writ, order or direction under Article 226 of the Constitution of India, calling for the records of the Petitioner’s case and after going into the validity and legality thereof to quash and set aside the impugned order dated 31.07.2019 passed by the Principal Commissioner of Income Tax – 32, Mumbai,

B. Issue a Writ of Mandamus or a Writ in the nature of Mandamus or any other appropriate writ, order or direction under Article 226 of the Constitution of India directing the Respondents to

a. forthwith release the 7 kgs of gold seized from Mr. Gaurav Surana on 28.11.2016.

b. exclude the 7 kgs of sized gold belonging to the Petitioner from the assessment of Mr. Gaurav Surana.”

4. Petitioner is a partnership firm engaged in the business of trading in gold jewellery in Tiruchirappalli, Tamil Nadu. In the usual course of business, Petitioner obtains metal gold loans from Banks and gets the same converted into gold jewellery through job-workers for onward sale to end customers either in India or abroad. It is stated that gold is procured from the Banks under loan agreements/delivery challans and such gold forms part of Petitioner’s inventory after which the required quantity of gold is issued to job-workers under vouchers for jewellery making. After it is made, the job worker returns the jewellery to the Petitioner who then sells it to its end customers.

5. Respondents Nos.1 to 4 are officers of the Union of India exercising powers and discharging duties under the provisions of the said Act. Respondent No. 5 is the Job Worker for the Petitioner from whom the gold was seized. However, it is submitted that no prayers are sought against him.

6. It is the Petitioner’s case that it obtained 5 kgs of gold from Bank of Nova Scotia and 2kgs from State Bank of India pursuant to documentation with the respective banks after which it had issued the said 7kgs of gold to Respondent No. 5 for further job work processing under two separate vouchers.

7. Respondent No. 5 was apprehended on 28th November, 2016 at Mumbai Airport with 8kgs of gold, 7kgs of which, it is submitted, belongs to the Petitioner as also confirmed by Respondent No. 5. The said gold was seized by the income tax officials on the ground that as no valid documents could be shown, the seized gold formed part of the unaccounted income of Respondent No. 5. Statements of Respondent No. 5 were recorded. It is submitted that the said 7kgs of gold belonged to the Petitioner and 1kg was for the stock-in-trade of Respondent No.5 for his business purpose.

8. Petitioner made application for release of the seized gold to Respondent No.1 on 4th October, 2017.

9. However, since the Principal Commissioner had failed to decide the said application dated 4th October, 2017 for release of 7kgs of seized gold even after 23 months, Petitioner filed Writ Petition No. 1202 of 2019 before this Court seeking similar reliefs as in this petition.

10. On 24th June, 2019, this Court had passed the following order in the said writ petition:

“1 The above Writ Petition is filed by the petitioner seeking directions against the respondents to release 7 Kgs. of gold belonging to the petitioner and seized from Shri Gaurav Surana. The petition has also sought further directions not to include the petitioner’s stock-in-trade in the assessment of Gaurav Surana. The petitioner has annexed an application dated 4.10.2017 made to the Principal Commissioner of Income Tax-32 seeking redressal of their grievance. They have stated in the Writ Petition that the Principal Commissioner has failed to decide the application even after 23 months. The petitioner has through his Advocate, therefore, prayed for appropriate reliefs.

2. In view of the above, it would be appropriate to issue necessary directions to the Principal Commissioner of Income Tax-32 to decide the application filed by the petitioner dated 4.10.2017 at the earliest. In the circumstances, the following order is passed:-

(i) The Principal Commissioner of Income Tax-32 is directed to dispose of the application dated 4.10.2017 filed by the petitioner and pending since the last several months, within a period of six weeks from the date of this order.

(ii) The Principal Commissioner shall give personal hearing to the petitioner if they so desire. 3 All contentions of the parties are kept open.”

11. Pursuant to the aforesaid order, Petitioner was given an opportunity to file submissions vide letter dated 10th July, 2019 after which written submissions dated 18th July, 2019 and 30th July, 2019 were filed by the Petitioner before the Principal Commissioner.

12. Thereafter, vide order dated 31.07.2019, Respondent No.1 has rejected the Petitioner’s application dated 04.10.2017, which is reproduced as under:

OFFICE OF THE PRINCIPAL COMMISSIONER OF INCOME-TAX- 32, MUMBAI.

Room No.741, 7th Floor, Kautilya Bhavan, “G” Block, Bandra Kurla Complex, Bandra (E), Mumbai 400 051.

No.Pr.CIT-32/Petition u/s. 132B/2019-20/190 Date: 31.07.2019

“To,

The Principal Officer, M/s. New Lakshmi Jewellery, #3, Chinnakadai Street, Malvasal,

Triuchirapalli – 620 002.

Sir,

Sub: Petition u/s. 132B in your case – PA?N AADFN5890L-reg.

Ref: Your application dated 04.10.2017. Please refer to the above.

2. The brief facts of the case is that the gold bullion weighing 8000.00 gms. and valued at Rs.2,32,00,000/- approx. was seized from Shri Gaurav Vinod Surana, on 28.11.2016, and he, in his statements u/s 132 & 131 of the Act dated 28.11.2016, has stated that he was not able to produce any document related to mode of acquisition, payment details, job work description with regard to procurement of 8 Kg. of gold being carried by him from Coimbatore. He confirmed that the 8 Kg gold may be treated as unaccounted and from undisclosed sources, as he could not submit the relevant documents during the search proceedings. Even on the premises of M/s. Asher Eternity Bless Jewel, 68/72, 4 th Floor, Ambika CHS, Champa Gali, Office no.406/B, Kalbadevi Road, Mumbai 400 002, neither the details related to the gold seized was available nor the details were provided by Shri Gaurav Vinod Surana.

3. In this respect, a report was called from the ACIT-32(1), Mumbai, in which he has observed as under:-

“(i) It is found from the Exhibit ‘G’ of the Writ petition no.1202 of 2018 filed by the applicant that the applicant in reply to the Question no.9 of the statement u/s. 131 dated 28.11.2016 has stated as under:- “I submit the issue vouchers given to Asher for 2 kgs on 01.11.2016 and for 5 kg on 26.11.2016. Further, on 26.11.2016 another 2 kg gold was given to him along with necessary voucher. The 2 kg issued on 01.11.2016 was converted into new gold ornaments and received from M/ s. Asher Eternity Bless Jewel, Mumbai on 22.11.2016 at Trichy. I also submit the necessary transactions entered in our books of accounts viz. Gold Manufacturing account, Finished ornaments Stock book.”

(ii) Shri. Gaurav Vinod Surana in his statement u/s. 132(4) dated 28.11.2016 has stated in reply to Q.11 under:-

“I got a call from M/s. New Lakshmi Jewellary, 3, Chinnakdai Street, Tiruchirapalli-620002, Tamilnadu on 01.11.2016 for the manufacturing of gold jewellery pertaining to 2 KG of 24 KT bullion, which I agreed for job work. Accordingly, voucher for manufacture was raised by M/s. New Lakshmi Jewellery, Tiruchirapalli on 01.11.2016.

Further, again on 26.11.2016 I received another call from M/s. New Lakshmi Jewellery, 3, Chinnakdai Street, Tiruchirapalli- 620002 for the manufacturing of gold jewellery pertaining to 5 KG of 24 KT bullion, which I agreed for job work. Accordingly, voucher manufacture was raised by M/s. Lakshmi Jewellery, Tiruchirapalli on 2.11.2016. With respect to the remaining 1 KG bullion, I do not have any supporting document.”

(iii) Shri. Gaurav Vinod Surana in his retraction affidavit dated 09.12.2016 submitted by the petitioner as Exhibit ‘D-1’ in para xii has stated as under;

“Later on they asked me to show the papers for the same. That is when I searched my bag I found only one voucher of 5000 gms dated 26-11-2016 along with other voucher of 2000gms dated 01-11-2016 which accidentally I carried in my bag from Mumbai and I couldn’t locate the other voucher No.2014 of 2000gms dated 26-11-2016. That is when I knew that I have missed the voucher at M/s. New Lakshmi Jewellery Tiruchirapalli.

(iv) On careful perusal of the above three parts of the applicant’s and Shri Gaurav Vinod Surana’s declaration, it is observed that the petitioner has claimed that he received the gold ornaments on 22.11.2016 with respect to the gold bullions issued vide voucher 01.11.2016, however, Shri. Gaurav Vinod Surana has not confirmed the same in any of his declaration and has claimed that he was carrying the gold bulllions with respect to vouchers dated 01.11.2016 & 26.11.2016 total 7 Kgs on 28.11.2016 at the time he was apprehended. Thus, the versions of both the parties are not consistent with each other and are not in consonant with the facts of the case.

(v) In view of the above, it is found that the ownership of the gold bullions was not proved to be related to the applicant. Further, Shri. Gaurav Surana has never applied for release of the seized gold. It may be noted that the gold was not seized from the applicant, M/s. New Lakshmi Jewellery, neither it has been proved to be belonging to the applicant during the proceedings, hence the provisions of 132B of the Act is not applicable.”

4. An opportunity was also given to the applicant i.e. M/s. New Lakshmi Jewellery vide letter dated 10.07.2019 to file submissions before the Pr.CIT-32, Mumbai as per the directions of the Hon’ble Bombay High Court’s order dated 24.06.2019. In response to the letter, the assessee vide his written submission dated 18.07.2019, $ 30.07.2019 has stated the seized material forms part of the stock-in-trade handed over to the proprietor Asher Eternity Bless Jewel, Mumbai for doing job work of making ornaments. This fact has been verified by the Assistant Director of Income Tax (Investigation), Trichy on the date it was seized at the Airport. He had also confirmed that the stock had been purchased by the petitioner and a report as to the genuineness of the transaction had also been submitted in this regard and also prayed for release of the seized gold.

5. I have gone through the submissions of the assessee and the report of the ACIT-32(1), Mumbai. On perusal of the above, it is found that the gold bullion has not been seized from the hands of the claimant i.e. M/s. New Lakshmi Jewellery. It being the unaccounted and unproved gold bullion seized from the assessee Shri Gaurav Surana on 26.11.2016. The application u/ s. 132B has been filed in this office on 04.10.2017 i.e. after ten months for the release of the seized gold bullion which itself proves that it is an afterthought and completely violation of the principles laid down in the section 132B of the Act for filing application for release of seized money/ bullion before the concerned Pr. Commissioner of Income Tax. It is pertinent to note that the seized assets in any form can be released only after the recovery of any liability emanating out of it. It is further added that no report regarding the genuineness of transaction has been received in this office from the ADIT (Inv.), Trichy as claimed by the applicant M/s. New Lakshmi Jewellery, Trichirapalli. It is self declaration by the applicant that the seized gold bullion of 8kg pertaining to his business only. However on the contrary, the facts are not coincided as the assessee Sh. Gaurav Surana himself admitted that the gold of 8 kg. is to be treated as unaccounted and from undisclosed sources and in absence of any satisfactory documentary evidence,it has been seized.

5.1 The assessment in the case of Shri Gaurav Surana has been completed in this case vide dated 28.12.2018 u/s. 143(3) of the Income Tax Act, 1961 wherein he was not able to prove the source of procurement of the bullion of 8 kg. bank account statements showing payments and related documents for job work given by M/s. New Lakshmi Jewellery, Tiruchirappalli to him and accordingly, the same 8 kg gold bullion of Rs.2,32,00,000/- was added in the total income of the assessee as unexplained investment u/s. 69B of the Act.

5.2 Also it is stated that the assessee Shri Gaurav Surana has filed an appeal before the CIT(A) against the order of the Assessing Officer. The said appeal is pending for disposal as on date.

5.3 Therefore in view of the above, it can be concluded that the seized assets will be subject matter of release, if any, only after the recovery of the tax liability including penalty and interest and subject to the outcome of the appeal before the Ld. CIT(A), Mumbai. Accordingly, the matter is subjudiced as on date. Since the time limit available under the provisions of section 132B has lapsed, therefore, the petition u/s. 132B of the I.T. Act is hereby dismissed.

5.4 This order is passed in compliance to the directions of the Hon’ble Bombay High Court’s order in the Writ Petition No.1202 of 2018 dated 24.06.2019.”

13. Being aggrieved by the said order of rejection, Petitioner has filed the present writ petition seeking the reliefs set out above.

14. Respondent Nos.3 and 5 have filed their reply affidavits.

15. In its reply, Respondent No.5 has stated that the Intelligence Unit Officer at the Mumbai Airport had not considered the requisite voucher regarding 7kgs of gold received from the Petitioner. His statements were recorded in duress and he has retracted the statements given to the tax authorities. He had also made a request to conclude the assessment and return the 8kgs of seized gold. Following the seizure, the Income Tax Department completed the assessment of Respondent No.5 for A.Y 2017-18 and raised a demand of Rs.2,26,52,883/- as tax payable by Respondent No.5. On that basis, the seized gold has not been released by the Respondent authorities. Against the order of assessment, Respondent No.5 has filed appeal. During the hearing, copy of the assessment order as well as copy of the appeal memo filed by Respondent No.5 against the assessment order has been placed before the Court.

16. Respondent No. 3 has submitted that he is not aware of the factual details of the Petitioner since it is not assessed under him and he is not the assessing officer of the Petitioner. Therefore, he does not have the particulars of the Petitioner and is unable to comment on the gold loans availed of by the Petitioner nor has he examined the documents submitted by the Petitioner. He has denied that the seizure is in violation of section 132(1)B(iii) of the Act. He has confirmed the seizure of 8kgs of gold from Respondent No.5 on 28th November, 2016 as he was unable to explain the source thereof stating that the confirmation letter dated 12th January, 2017 of Respondent No.5 appears to be an after thought as the seizure had occurred on 28th November, 2016. It is stated that the assessment was made on the returns filed by Respondent No.5 and since he was not in a position to explain the source of the gold, the same was added to his income and the assessment completed.

17. We have heard learned Counsel for the parties, perused the papers and proceedings and also given our anxious consideration to the matter.

18. We observe from the above that there is a dispute on the factual aspects of the matter regarding ownership of the seized gold, the varying versions of the parties pertaining to the vouchers on the basis of which Respondent No.5 was carrying the gold bullion when he was apprehended, examination of evidence, regarding source of the 8kg bullion, the genuineness of the transaction etc. We also observe from paragraph 5.3 of the impugned order as also confirmed by Counsel for Respondent No.5 that the said Respondent has filed appeal against the assessment order and that the said appeal is pending before the Commissioner of Income Tax (Appeals), (for short “CIT[A]”), Mumbai. Copy of the memo of the said appeal in Form 35 dated 11th January, 2019 has also been placed before this Court.

19. In view of the pendency of appeal of Respondent No.5 before the CIT(A) Mumbai, who is the competent authority to render findings on the factual aspects of the matter, we do not deem it fit to interfere in the matter at this stage. Therefore, we decline to exercise our writ jurisdiction under Article 226 of the Constitution of India in view of pendency of the appeal before the CIT(A). However, in the interest of justice and considering that the seized gold has been lying with the income tax authorities since 28th November, 2016, we direct CIT(A), Mumbai to decide the appeal filed by the Respondent No.5 expeditiously and at any rate not later than three months from the date of receipt of a copy of this order.

20. The petition is accordingly disposed of with the above direction. No order as to costs.

21. This order will be digitally signed by the Personal Assistant of this Court. Associate of this Court is permitted to forward the parties copy of this order by e-mail. All concerned to act on digitally signed copy of this order.

[ABHAY AHUJA, J.] [UJJAL BHUYAN, J.]