Punjab and Haryana High Court slams IT Department for seizing jewellery from bank lockers

The Punjab and Haryana High Court recently criticised the Income Tax authorities for the arbitrary manner in which it seized and later refused to release jewellery belonging to a luxury jewellery company from its bank lockers [Dillano Luxurious Jewels Limited v. Deputy Director Income Tax Investigation Bathinda and another]..The Division Bench of Justice Sanjeev Prakash Sharma and Justice Sanjay Vashisth pointed out that Section 132 (1)(B)(iii) of the Income Tax Act bars the seizure of such stock in trade.The Court added that the jewellery recovered from a bank locker belonging to the jewellery company cannot be presumed to be that of any individual director instead of the company's stock in trade. If such a view were accepted, it may result in the company’s assets being claimed by an individual director, which cannot be allowed, the Court explained.It concluded that the IT Department had acted in an arbitrary, illegal and unjustified manner in seizing the stock in trade of the company in 2023.“Any jewellery recovered from the locker belonging to the company, would have to be presumed to be that of the company and it [IT Department] cannot be allowed to contend that the jewellery belongs to any individual director. If such an attempt is allowed to be accepted, dispute would arise regarding the stock of the company itself ... We find that the adamancy being shown for not releasing the jewellery was wholly unwarranted," it said. .The Court was hearing Dillano Luxurious Jewels’ plea to release jewellery seized from its bank lockers in Delhi by the Income Tax (IT) Department.The company deals in the sale and purchase of jewellery and other ornaments. It challenged the IT Department's act of seizing two of the company's lockers at the South Indian Bank, Punjabi Bagh, following a search and seizure operation at the company's premises. In response, the IT department said that the bank lockers were seized as it could not be ascertained whether the items held in them were part of the company's stock in trade or held by the directors in their personal capacity..Finding the action illegal, the Court said the Income Tax Act bars seizure of stock in trade found as a result of a search. The authorities can only make a note and inventory of such stock used in trade, it added.The Court said since the locker in the present case was in the name of the company, the logical conclusion would be that the jewellery lying in it would also be part of its stock.“There was no occasion for the respondents to have seized the said jewellery and diamonds which were recovered from the concerned locker and upon the demand letter, the same should have been released to the company which is engaged in the business of jewellery,” it observed..The Court, therefore allowed Dillano's plea and directed the IT Department to forthwith release the jewellery..Senior Advocate Radhika Suri with advocate Abhinav Narang and Pranika Singla represented the Dillano Luxurious Jewels.Senior Standing Counsel Saurabh Kapoor, Junior Standing Counsel Pridhi Sandhu and advocate Muskaan Gupta represented the IT Department..[Read Judgment]