IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.R.RAMACHANDRA MENON THURSDAY, THE 3RD JUNE 2010 / 13TH JYAISTHA 1932 WP(C).No. 3589 of 2010(W) ------------------------- PETITIONER(S): --------------- SRI.P.M.SATHYAN, PROP.AISWARYA JEWEL CRAFTS, CHERPU P.O., TRICHUR. BY ADV. SRI.P.BALAKRISHNAN (E) SRI.MOHAN PULIKKAL RESPONDENT(S): --------------- 1. THE COMMISSIONER OF INCOME TAX, (CENTRAL), ERNAKULAM. 2. THE DIRECTOR OF INCOME TAX (INV), ERNAKULAM. 3. THE DEPUTY DIRECTOR OF INCOME TAX (INV), ERNAKULAM. 4. THE ADDL.DIRECTOR OF INCOME TAX (INV), ERNAKULAM. 5. THE ASST.DIRECTOR OF INCOME TAX INV)-II, O/O. THE ADDL.DIRECTOR OF INCOME-TAX (INV)-II, COCHIN. 6. THE DY.COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, THRISSUR. 7. THE UNION OF INDIA, REPRESENTED BY THE SECRETARY, MINISTRY OF FINANCE DEPARTMENT OF REVENUE, NORTH BLOCK, NEW DELHI. * R7 DELETED VIDE ORDER DATED 15.02.2010 IN I.A. 1886/2010 ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 03/06/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C) NO. 3589/2010 APPENDIX PETITIONER'S EXHIBITS:- EXHIBIT P1 : TRUE COPY OF THE PANCHANAMA DATED 23.07.2009 IN THE CASE OF OLD RESIDENTIAL PREMISES AT CHERPU. EXHIBIT P2 : TRUE COPY OF THE PANCHANAMA DATED 23.07.2009 IN THE CASE OF AISWARYA JEWEL CRAFTS, CHERPU. EXHIBIT P3 : TRUE COPY OF THE PANCHANAME DATED 23.07.2009 IN THE CASE OF RESIDENTIAL PREMISES OF SRI.P.M.SATHYAN, POOTHENY HOUSE, CHERPU P.O., THRISSUR. EXHIBIT P4 : TRUE CPY OF PANCHANAMA DATED 31.07.2009 IN THE CASE OF AISWARAY JEWEL CRAFTS, CHENNAI 27. EXHIBIT P5 : TRUE COPY OF THE SWORN STATEMENT OF SRI.P.M.SATHYAN (THE PETITIONER) RECORDED UNDER SECTION 132 (4) ON 23.07.2009. EXHIBIT P6 : TRUE COPY OF THE SWORN STATEMENT OF SRI.UMESH KRISHNAN, ACCOUNTANT, RECORDED UNDER SECTION 132 (4) ON 23.07.2009. EXHIBIT P7 : TRUE COPY OF THE SWORN STATEMENT OF SRI.C.RAMAKRISHNAN, MANAGER RECORDED UNDER SECTION 132 (4) ON 23.07.2009. EXHIBIT P8 : TRUE COPY OF THE SWORN STATEMENT OF SRI.C.RAMAKRISHNAN, MANAGER RECORDED UNDER SECTION 131 ON 27.08.2009. EXHIBIT P9 : TRUE COPY OF THE SWORN STATEMENT OF SRI.P.M. SATHYAN (THE PETTIONER) RECORDED UNDER SECTION 131 ON 27.08.2009. EXHIBIT P10 : TRUE COPY OF THE SWORN STATEMENT OF SRI.P.M. SATHYAN (THE PETITIONER) RECORDED UNDER SECTION 131 ON 29.09.2009. EXHIBIT P11 : TRUE COPY OF LETTER DATED 13.08.2009 ADDRESSED TO THE ADDITIONAL DIRECTOR OF INCOME TAX (Inv) II, COCHIN. EXHIBIT P12 : TRUE COPY OF LETTER DATED 21.08.2009 ADDRESSED TO THE DIRECTOR OF INCOME TAX (Inv) EXHIBIT P13 : TRUE COPY OF LETTER DATED 27.08.2009 ADDRESSED TO THE DEPUTY DIRECTOR OF NCOME TAX (Inv) EXHIBIT P14 : TRUE COPY OF LETTER DATED 09.12.2009 ADDRESSED TO THE COMMISSIONER OF INCOME TAX (CENTRAL), COCHIN. EXHIBIT P15 : TRUE COPY OF LETTER DATED 09.12.2009 ADDRESSED TO THE COMMISSIONER OF INCOME TAX (CENTRAL), COCHIN. P.R.RAMACHANDRA MENON, J -------------------------------------------- WP(C) NO. 3589 OF 2010 -------------------------------------------- Dated this the 3rd day of June, 2010 JUDGMENT The petitioner is running a jewelery business in the name and style 'Aiswarya Jewel Crafts', stated as engaged in purchasing old gold items, remaking and distributing it to various parties, besides exporting the same. The petitioner is having two residential buildings at Cherpu in Thrissur District. Besides the business premises situated therein, there is also another business premise in Chennai. 2. While so, a search was conducted under Section 132 of the Income Tax Act, 1961 on 23.7.2009 at the two residential premises as well as the business premises of the petitioner at Cherpu and similar search was conducted on 31.7.2009 in the business premises in Chennai. There was no seizure of any material from the business premises in Chennai, as well as from the residential premises in Cherpu. However, in the course of the search conducted in the other residential buildings situated in Cherpu, 5393.610 grams of gold was seized consisting of 449 long chains. The proceedings in this regard are discernible from Exts.P1 to P4 mahazars, among which, Ext.P3 relates to seizure of gold items from the above residential premises. 3. In connection with the seizure of the articles, Exts.P5 to P7 2 WP(C) No. 3589/2010 sworn statements were taken on the very same date of seizure, while Exts.P8 to P10 sworn statements were taken on the subsequent dates. Thereafter the petitioner filed Ext.P11 representation before the fourth respondent seeking to release the gold articles seized. The petitioner filed a petition under the 1st proviso to Section 132B(1)(i). The said representation was followed by other representations, as borne by Exts.P12 to P15. The case of the petitioner is that despite filing the said petitions and reminders, the gold articles, which were seized from the petitioner, which according to the petitioner is 'stock-in-trade', have not been returned by the authorities concerned, in spite of the expiry of 120 days as contemplated under the 'second proviso' to Section 132B(1)(i), which made the petitioner to approach this Court by filing this Writ Petition for appropriate reliefs. 4. The respondents have filed a statement rebutting the averments and allegations raised in the Writ Petition contending that, the Writ Petition is devoid of any merit or bonafides and that the gold articles seized are not liable to be reckoned as 'stock-in-trade' under any circumstances. It is stated that, the seized materials clearly indicated that neither the stock statement nor the sales figure disclosed by the assessee was correct and that large scale of suppression of income received as ''making charges'', up to 4% of the price of the gold was quite evident. It is 3 WP(C) No. 3589/2010 further stated that the making charges are fixed as a percentage of the quantity and is not an 'ad valorem rate' on the price of gold, which according to the Department constitutes taxable income of the assessee from the business. It is also asserted that the seized articles were nothing but personal assets of the assessee and very much distinguishable from the 'stock-in-trade'. Various other contentions have also been raised, stating that the assessee has not been maintaining proper books of accounts and that he is suppressing receipts and profits. 5. Sri.P.Balakrishnan, the learned counsel for the petitioner submits that the seizure of the materials is not sustainable in the eye of law, as the seized gold articles clearly amounted to the 'stock-in-trade', which stands excluded from the purview of seizure, as stipulated in the proviso to Section 132 (1)(A)(B) (iii). The second contention is that there is violation of the statutory requirement, particularly for not having acted upon in tune with the mandate as provided under the 'first' and 'second' proviso to Section 132 (B) (1) (i) and the statutory period is already over. Besides the above legal contentions, assertion is also made with regard to the factual position that the items seized were actually kept apart, for the purpose of export. 6. The basic question to be considered in this case is whether the seized articles stand exempted from the purview of seizure and 4 WP(C) No. 3589/2010 whether the contention raised by the petitioner that it is 'stock in trade' can be accepted or not. The learned standing counsel for the respondents submits that the entire capital asset of the petitioner is not liable to be reckoned a 'stock in trade'. The term 'stock in trade' is obviously not defined under the Income Tax Act and applying the meaning in the common parlance and the field of accounting, it is only be the stock which is reflected in the books of account. There is no case for the petitioner/assessee that the seized goods was accounted any where in the books of accounts. That apart, the said material was seized not from the business premises, but from the residential premises and this being the position, even by the farthest stretch of imagination, it cannot be considered as part of 'stock in trade', submits the learned standing counsel. Reliance is also placed on the decision rendered by the Apex Court reported in Commissioner of Income Tax, Patiala Vs. Groz- Beckert Saboo Ltd. [116 ITR 125], wherein some specific observations are there with regard to the item which could be treated as 'stock in trade'. In the said case, the raw materials and the semi finished needles which originally were stated as obtained as gift items in April were subsequently entered in the books of accounts only in September, as part of the 'stock in trade', virtually making it clear that the item could not have been considered as 'stock in trade' before entering the same in the books of 5 WP(C) No. 3589/2010 accounts. The applicability of decision is seriously disputed from the side of the petitioner, referring to the facts and circumstances in the said case and the distinction sought to be made with regard to the factual position available in the present case. The learned counsel further submits that the residential building from where the articles were seized is situated in close proximity with the business place of the petitioner and hence that there was nothing wrong for having kept the said articles at the residence and that, such course by itself will not take it outside the purview of the 'stock in trade'. Reference is also made to the deposition of the petitioner as well as the witnesses produced before this Court as Exts.P5 to P10. The version of the petitioner is sought to be controverted from the part of the department, by referring to some incriminating answers elicited from the witnesses, as contained in the very same Exhibits. Going by the materials on record, this Court finds that this is a question which requires to be considered and adjudicated on the basis of the evidence by the appropriate authority in the due course. 7. Coming to the question of release of the gold articles to the petitioner, it is brought to the notice of this Court by the learned counsel for the petitioner that the liability, if at all any, can only be with regard to the element of 'tax' in respect of the un-disclosed income, which is stated as returned by the petitioner in the form of gold and that the entire gold seized 6 WP(C) No. 3589/2010 from the petitioner is not liable to be detained at the hands of the department in this regard. The scheme of the statute is also projected, with reference to the course to be pursued, under the 'first' and 'second' proviso to Section 132 (B) (1) (i), which shows that, it is not open to the department or the state to have the custody of the seized articles for ever and that the statute very much envisages the release of the materials, on satisfying the requirements as prescribed; simultaneously adding that the petitioner has filed a petition as contemplated in the 'first proviso' within 30 days which is to be acted upon and finalised within 120 days as provided in the '2nd proviso'. It is assured from the part of the petitioner that the petitioner will co-operate with the finalisation of the proceedings as above, which accordingly is recorded. 8. The learned counsel for the petitioner submits that, because of the retention of the seized gold articles at the hands of the department, the entire business operations of the petitioner have come to a stand still and that the petitioner is not in a position to satisfy the demand and the liability towards the customers. Taking note of the rival contentions, this Court finds that an early adjudication of the proceedings is very much essential to safeguard the interest of both the sides. 9. In the above particular facts and circumstances, this Court directs the respondents to finalise the adjudication proceedings pursuant to 7 WP(C) No. 3589/2010 Exts.P1 to P4 in accordance with law, as expeditiously as possible, at any rate, within three months from the date of receipt of a copy of this judgment. Release of the articles seized from the petitioner shall be subject to the outcome of the decision to be rendered by the appropriate authority concerned. The Writ Petition is disposed of as above. P.R.RAMACHANDRA MENON JUDGE dnc