In a recent judgment, the Punjab and Haryana High Court reprimanded the Income Tax (IT) Department for unlawfully seizing jewellery from a company's bank locker, deeming the action "arbitrary" and "illegal." The court ordered the immediate release of the seized items, emphasizing the legal protections afforded to a company's stock-in-trade under the Income Tax Act.
Background of the Case
The case involved M/s Dillano Luxurious Jewels Limited, a company engaged in the jewellery business. In July 2023, the IT Department conducted a search operation and seized jewellery and diamonds from the company's bank locker. The company filed a petition challenging the seizure, arguing that the confiscated items constituted its stock-in-trade and, therefore, should not have been seized under the provisions of the Income Tax Act.
Court's Analysis and Observations
The High Court examined Section 132 of the Income Tax Act, which governs search and seizure operations. Subsection 1(B)(iii) specifically prohibits the seizure of stock-in-trade found during such searches; instead, authorities are permitted only to make a note and inventory of these items. The court noted that the jewellery and diamonds seized from the company's locker were part of its stock-in-trade, and thus, the IT Department's action violated this statutory provision.
The bench, comprising Justice Sanjeev Prakash Sharma and Justice Sanjay Vashisht, stated: "Respondents have acted in an arbitrary, illegal, and unjustified manner in seizing the stock-in-trade of the petitioner company." The court emphasized that any jewellery recovered from the company's locker should be presumed to belong to the company, not to any individual director. Allowing the IT Department's contention that the jewellery belonged to an individual director could lead to disputes regarding the company's assets and undermine the legal distinction between corporate property and personal belongings.
Implications of the Judgment
The court's decision underscores the importance of adhering to statutory provisions during search and seizure operations. By highlighting the prohibition against seizing stock-in-trade, the judgment reinforces legal safeguards designed to protect businesses from overreach by tax authorities.
Furthermore, the ruling clarifies that assets held by a company cannot be arbitrarily attributed to individual directors. This distinction is crucial in maintaining the integrity of corporate structures and ensuring that personal liabilities are not wrongfully imposed on company officials.
Conclusion
The Punjab and Haryana High Court's reprimand of the IT Department serves as a reminder of the legal boundaries within which tax authorities must operate. The judgment not only protects the rights of businesses but also upholds the rule of law by ensuring that statutory provisions are respected during enforcement actions. The ordered release of the unlawfully seized jewellery reaffirms the judiciary's role in checking administrative excesses and safeguarding corporate rights.
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