IN HIGH COURT OF DELHI AT NEW DELHI Date of Decision:- 09.01.2020 W.P.(C) 5343/2019 KHEM CHAND MUKIM ..... Petitioner Through: Mr. Inder Paul Bansal and Mr. Vivek Bansal, Advs. versus PR. DIRECTOR OF INCOME TAX, (INV.)-2, A.I.U. & ORS. ..... Respondents Through: Ms. Vibhooti Malhotra, Sr. Standing counsel with Mr. Shailendra Singh, Adv. CORAM: HON'BLE MR. JUSTICE VIPIN SANGHI HON'BLE MR. JUSTICE SANJEEV NARULA SANJEEV NARULA, J (Oral): 1. Petitioner-proprietor of M/s Shrimati Gems and Jewels has filed present writ petition impugning search and seizure action carried out under Section 132 of Income Tax Act (hereinafter Act ) including order whereby his stock-in-trade (jewellery) was seized. 2. facts in brief, as set out in petition are that Petitioner - is in business of trading in jewellery since 2010. He travelled from Delhi to Guwahati to attend jewellery exhibition which was held from 07.09.2018 to 09.09.2018. On his return, he was stopped by Respondent No. 2 at Indira W.P.(C) 5343/2019 Page 1 of 28 Gandhi International Airport, New Delhi and search was conducted on him. jewellery found in his possession was valued by Revenue through Registered Government Valuer at Rs. 1,58,62,924/- and same was seized and panchnama dated 11.09.2018 was drawn in this behalf. Subsequently, Assistant Director of Income Tax (INV)-2 issued summons to Petitioner under Section 131(1A) of Act, dated 10.09.2018 and 11.09.2018, calling upon him to furnish details regarding seized jewellery. Later, on 13.09.2018, another summon was issued calling upon him to give certain information and documents. In response to above summons, Petitioner filed reply dated 17.09.2018, submitting details as required by ADIT, Investigation (AIU). He also made request for release of jewellery, asserting that same was his stock- in- trade and seizure has resulted in hampering his business. This was followed by reminder dated 17.09.2018, submitted with department on 20.09.2018. On 09.10.2018, similar request was made to Pr.CIT-18 calling his attention to fact that one month had expired since seizure of stock-in- trade. Petitioner protested against seizure, pleaded for immediate release of seized stock-in-trade as he had been deprived of his source of livelihood. 3. At later date, when Petitioner made further requests to Tax Officers, he was informed that all documents furnished by him had been submitted to Investigation Officer of AIU Wing, who would examine same and furnish report to Assessing Officer, whereafter stock-in-trade would be released. However, such representations did not have desired outcome and Petitioner continued to make representations to other Tax W.P.(C) 5343/2019 Page 2 of 28 Officers. On 18.10.2018, ACIT asked further information which was duly furnished vide letter dated 27.12.2018. Since then, there has been no response from Income Tax Department, constraining Petitioner to file present writ petition, impugning action of search, inter alia, on ground that it is contrary to mandate of Act as pre-conditions laid down in Clauses (a) to (c) of Section 132 (1) have not been fulfilled. 4. Learned counsel for Petitioner has contended that to initiate valid search, it is mandatory for Respondents to form reason to believe and one of three conditions enumerated in Clauses (a) to (c) of Section 132 (1) of Act must be satisfied to enable authority to issue valid search warrant. Since, Petitioner was in possession of jewellery, only Clause, if any, that can be attracted is clause (c) . In any event, said Clause is also not applicable since Petitioner is carrying on business of sale and purchase of jewellery, and he was legitimately carrying same as his stock-in-trade, from Delhi to Guwahati for exhibition. In such situation, no circumstance existed justifying initiation of action of search. Furthermore, evidence of participation in exhibition at Guwahati is based on documents that had been furnished to authorities. It conclusively establishes that jewellery seized is Petitioner s stock-in- trade. This is also corroborated by books of account and supporting vouchers, which were produced before concerned authorities. Despite justifying lawful possession of jewellery, unlawful seizure continues. 5. He further argued that once Petitioner was able to demonstrate that W.P.(C) 5343/2019 Page 3 of 28 jewellery in question was his stock-in-trade, continuation of seizure is against law viz. proviso to Clause (iii) of Section 132 (1) of Act and 3rd proviso to Section 132(1)(v) of Act. In support of his submissions, learned Counsel for Petitioner relied upon decision of Puspa Ranajan Sahoo vs Assistant Director of Income Tax (INV), [2012] 210 Taxman 217 (Orissa)(MAG). 6. Ms. Vibhooti Malhotra, learned senior standing counsel for Revenue, assisted by Mr. Shailendra Singh, on other hand, opposed petition by arguing that Investigation Wing of Income Tax Department was in possession of credible information, on basis whereof AO formulated reason to believe that Petitioner was in possession of jewellery, representing its undisclosed income and, therefore, search was valid exercise of power under Section 132 (1)(c) of Act. It was further submitted that in terms of Section 132 (1)(b)(iii), Respondent No.2 was competent to seize jewellery found as consequence of search. Petitioner has erroneously sought to take refuge under proviso to said provision which prohibits seizure of stock-in-trade of business. He was afforded adequate opportunity to present evidence so as to demonstrate that jewellery found was part of his regular stock-in-trade, but he failed to do so. Respondent No.2 had conducted on spot verification of Petitioner s business premises wherein he had failed to produce stock register and delivery challans. In fact, during course of recording his statement under Section 132(4) of Act, specific query was raised seeking Petitioner s explanation for non-availability of stock register and delivery challans. query remained unresolved, as Petitioner cited his inability W.P.(C) 5343/2019 Page 4 of 28 to provide said details. In absence of any material forthcoming from Petitioner to suggest that jewellery seized was indeed his stock-in-trade, benefit of proviso relied upon cannot be availed by him. Petitioner had onus to produce adequate material so as to make evident that items seized were part of his regular stock-in-trade, and since he failed to do same, seizure is valid and justified. 7. Ms. Vibhooti Malhotra also referred to Section 132B of Act to argue that said provision unequivocally provides that items seized during course of search would be applied towards any pre-existing demand or liability determined as consequence of post-search assessment. said provision provides for release of seized goods on satisfaction of two conditions, namely; (a) nature and source of acquisition has to be explained to satisfaction of AO, and; (b) amount of existing liability may be recovered from seized item, and remaining, if any, may be released. She also argued that since, despite several opportunities, Petitioner failed to prove nature and source of seized jewellery, release of seized articles was not permitted. 8. Ms. Malhotra next argued that AIU (Inv.), New Delhi acted on specific information in respect of Petitioner, gathered from office of AIU, Guwahati. statement of Petitioner was recorded on oath under Section 131(1A) of Act and search and seizure action was well within jurisdiction of competent authority conducting proceedings, emanating from statement recorded on oath under Section 131 (1A) of Act and by virtue of incriminating documents found during spot W.P.(C) 5343/2019 Page 5 of 28 verification conducted on Petitioner s business premises. 9. We have given our thoughtful consideration to submissions advanced by learned counsels for parties and have carefully evaluated facts of case and also material placed on record. There cannot be any dispute that Petitioner is in business of sale and purchase of jewellery and is being assessed regularly for income tax. In support of this contention, returns of income from AY 2015-16 to AY 2018-19 have been filed along with petition. In backdrop of facts noted above, we have to examine validity of search and seizure action by Respondents under Section 132 of Act. At outset, it would thus be apposite to refer to Section 132 of Act, to extent same is relevant for purpose of deciding present petition. same reads as under: 132. Search and seizure.-(1) Where Principal Director General or Director General or Director or Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or Additional Director or Additional Commissioner, or Joint Director or Joint Commissioner in consequence of information in his possession, has reason to believe that- (a) any person to whom summons under sub-section (1) of section 37 of Indian Income Tax Act, 1922 (11 of 1922), or under sub-section (1) of section 131 of this Act, or notice under sub-section (4) of section 22 of Indian Income Tax Act, 1922 (11 of 1922), or under sub-section (1) of section 142 of this Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account, or other documents W.P.(C) 5343/2019 Page 6 of 28 as required by such summons or notice, or (b) any person to whom summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which will be useful for, or relevant to, any proceeding under Indian Income Tax Act, 1922 (11 of 1922), or under this Act, or (c) any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been, or would not be, disclosed for purposes of Indian Income Tax Act, 1922 (11 of 1922), or this Act (hereinafter in this section referred to as undisclosed income or property), then,- (A) Principal Director General or Director General or Director or Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as case may be may authorise any Additional Director or Additional Commissioner or Joint Director, Joint Commissioner, Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income Tax Officer, or (B) such Additional Director or Additional Commissioner or Joint Director or Joint Commissioner, as case may be, may authorise any Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income Tax Officer, (the officer so authorised in all cases being hereinafter referred to as authorised officer) to- (i) enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such books of account, other W.P.(C) 5343/2019 Page 7 of 28 documents, money, bullion, jewellery or other valuable article or thing are kept; (ii) break open lock of any door, box, locker, safe, almirah or other receptacle for exercising powers conferred by clause (i) where keys thereof are not available; (ii-a) search any person who has got out of, or is about to get into, or is in, building, place, vessel, vehicle or aircraft, if authorised officer has reason to suspect that such person has secreted about his person any such books of account, other documents, money, bullion, jewellery or other valuable article or thing; (ii-b) require any person who is found to be in possession or control of any books of account or other documents maintained in form of electronic record as defined in clause (i) of sub-section (1) of Section 2 of Information Technology Act, 2000, to afford authorised officer necessary facility to inspect such books of account or other documents; (iii) seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as result of such search: Provided that bullion, jewellery or other valuable article or thing, being stock-in-trade of business, found as result of such search shall not be seized but authorised officer shall make note or inventory of such stock-in-trade of business. (iv) place marks of identification on any books of account or other documents or make or cause to be made extracts or copies therefrom; (v) make note or inventory of any such money, bullion, W.P.(C) 5343/2019 Page 8 of 28 jewellery or other valuable article or thing: Provided that where any building, place, vessel, vehicle or aircraft referred to in clause (i) is within area of jurisdiction of any Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, but such Principal Chief Commissioner or Chief Commissioner] or Principal Commissioner or Commissioner] has no jurisdiction over person referred to in clause (a) or clause (b) or clause (c), then, notwithstanding anything contained in Section 120, it shall be competent for him to exercise powers under this sub-section in all cases where he has reason to believe that any delay in getting authorisation from Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner having jurisdiction over such person may be prejudicial to interests of revenue: Provided further that where it is not possible or practicable to take physical possession of any valuable article or thing and remove it to safe place due to its volume, weight or other physical characteristics or due to its being of dangerous nature, authorised officer may serve order on owner or person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it, except with previous permission of such authorised officer and such action of authorised officer shall be deemed to be seizure of such valuable article or thing under clause (iii): Provided also that nothing contained in second proviso shall apply in case of any valuable article or thing, being stock-in- trade of business. Provided also that no authorisation shall be issued by Additional Director or Additional Commissioner or Joint Director or Joint Commissioner on or after 1st day of October, 2009 W.P.(C) 5343/2019 Page 9 of 28 unless he has been empowered by Board to do so. Explanation.-For removal of doubts, it is hereby declared that reason to believe, as recorded by income-tax authority under this sub-section, shall not be disclosed to any person or any authority or Appellate Tribunal. [Emphasis Supplied] 10. Before proceeding further, we must note that on 08.11.2019, we had directed Respondents to file additional affidavit in response to statement filed along with writ petition, whereby Petitioner had co- related seized articles as per description given in inventory prepared by registered valuer, with entries in his books of account. endeavour was to verify Petitioner s contention that each seized article had been accounted for and already included in books. At time of hearing, Respondents also produced satisfaction note for perusal of this Court, recording reason, for authorizing search. original file containing satisfaction note was tendered in sealed cover. same was de-sealed and perused, and retained for perusal at time of dictation of order. 11. satisfaction note is claimed to be privileged. We, however, do not find anything confidential in same, as virtually entire content thereof has been reproduced in counter affidavit filed by Respondents and, therefore, we consider it appropriate to extract facts alluded to in counter affidavit which forms entire basis for authorizing search. same reads as under: W.P.(C) 5343/2019 Page 10 of 28 a. It is submitted that Petitioner namely, Sh. Khem Chand Mukim while travelling from Guwahati to Delhi was intercepted by Air Intelligence Unit (AIU) Team at Terminal- ID, IGI Airport, New Delhi and search under section 132 of Income Tax Act, 1961 was conducted on Petitioner. During search, Petitioner was found carrying jewellery of Rs. 1,58,62,924/. On interrogation, Petitioner stated that he was proprietor of M/s Shrimati Gems and Jewels, Ansari Road, Daryaganj, Delhi and said jewellery belonged to his entity. In order to verify said claim, summons under section 131(1 A) of Act dated 10.09.2018, was issued to M/s Shrimati Gems and Jewels whereby it was asked to produce stock register and delivery challan issued to Petitioner. b. Thereafter, on spot verification made at address of business place provided by the. Petitioner viz. M/s Shrimati Gems and Jewels at 4835, Ansari Road, Daryaganj, Delhi, it was revealed that there was no entry for "stock in transit" in stock summary nor any copy of delivery challan issued to Petitioner was available. Consequently, warrant under section 132(1) of Act was executed against Petitioner. Petitioner was also required to furnish copies of delivery challans which he failed to do so. During course of on-spot verification at business place of Petitioner, statement of Sh. Vidit Jain, (staff of Shrimati Gems & Jewels) under section 132(4) of Act dated 11.9.2018 was recorded. However, no evidence w.r.t stock in transit could be provided. Further, no other supporting document of any kind was made available in this regard. [Emphasis Supplied] 12. Let s now refer to case law on this issue. Supreme Court in its decision in Director General of Income Tax (Investigation), Pune vs. Spacewood Furnishers Private Limited and Ors., 2015 SCC OnLine SC W.P.(C) 5343/2019 Page 11 of 28 481, laid down principles that must be adhered to for authorizing search and seizure under Section 132 of Act. relevant portion is reproduced hereunder: 8.1. authority must have information in its possession on basis of which reasonable belief can be founded that (a) person concerned has omitted or failed to produce books of account or other documents for production of which summons or notice had been issued Or such person will not produce such books of account or other documents even if summons or notice is issued to him Or (b) such person is in possession of any money, bullion, jewellery or other valuable article which represents either wholly or partly income or property which has not been or would not be disclosed. 8.2. Such information must be in possession of authorised official before opinion is formed. 8.3. There must be application of mind to material and formation of opinion must be honest and bona fide. Consideration of any extraneous or irrelevant material will vitiate belief/satisfaction. 8.4. Though Rule 112(2) of Income Tax Rules which specifically prescribed necessity of recording of reasons before issuing warrant of authorisation had been repealed on and from 1-10-1975 reasons for belief found should be recorded. 8.5. reasons, however, need not be communicated to person against whom warrant is issued at that stage. W.P.(C) 5343/2019 Page 12 of 28 8.6. Such reasons, however, may have to be placed before Court in event of challenge to formation of belief of authorised official in which event court (exercising jurisdiction under Article 226) would be entitled to examine relevance of reasons for formation of belief though not sufficiency or adequacy thereof. [Emphasis Supplied] 13. On plain reading of sub section (1) of Section 132, it emerges that for taking action of search and seizure, concerned authority must have reason to believe that any of circumstances provided under Clauses (a) to (c) of sub section (1) of Section 132 of Act is fulfilled in consequence of information in his possession. In other words, it is imperative and mandatory requirement of law that in order to authorize action of search and seizure, at least one of conditions precedent, as set out in said provision exist in fact, and such reasons have to be recorded in writing before authorization is issued to conduct search and seizure. reason to believe as recorded should be on basis of relevant materials which have bearing on formation of believe as search warrants cannot be issued for making fishing and roving enquiry. Only if such conditions are fulfilled, action of authorization can be said to have been validly exercised. Manual of Office Procedure Volume -III Chapter 5 - Search and Seizure, further confirms strict compliance adherence of procedure and preconditions in regards of search and seizure of jewellery, bullion and stock in trade. 14. In present case, Respondents have sought to validate exercise of power under Clause (c) of sub section (1) of Section 132 of Act. This is W.P.(C) 5343/2019 Page 13 of 28 evident from following averments made in counter affidavit: It is submitted that said search was valid exercise of power under Section 132(1)(c) of Income Tax Act (hereinafter referred to as 'the Act"),conducted by Respondent No. 2. Investigation wing of Income Tax Department was in possession of credible information and thereafter formulated its reason to believe that Petitioner was in possession, of, jewellery representing its undisclosed income or property. 15. satisfaction note recorded on 11.10.2018, notes that information was received on 10.09.2018 by AIU team at IGI Airport, Delhi that one Shri Khem Chand Mukim is carrying jewellery amounting to Rs.1.5crores, weighing around 8586.7 grams. On basis of this information, Shri Khem Chand Mukim was intercepted on 10.09.2018 and he admitted to be in possession of jewellery. He clarified that he was proprietor of M/s Shrimati Gems & Jewels and had travelled on 06.09.2018 from Delhi to Guwahati for participating in exhibition with jewellery. Since copy of stock register was not submitted at that time, spot inquiry was conducted and summons were issued to collect copy of stock register from M/s Shrimati Gems & Jewels. Shri. Vidit Jain was found at showroom of M/s Shrimati Gems & Jewels, but since he failed to produce any documentary evidence in support of jewellery found in possession of Shri Khem Chand Mukim, ADIT (INV),(AIU, New Delhi) formulated reason to believe, noting that Shri Khem Chand Mukim was in possession of jewellery which is not related to M/s Shrimati Gems & Jewels and which is not disclosed and would not be disclosed for purpose of Act and accordingly, invoked W.P.(C) 5343/2019 Page 14 of 28 provision of Section 132 (1) of Act and sought warrants of authorization. Principal DIT (Inv) and DGIT (Inv) after perusing satisfaction note considered it to be fit case for search and seizure under Section 132 (1) of Act and issued warrants of authorization. 16. division bench of this Court in L.R Gupta vs. Union Of India, [1992] 194 ITR 32/[1991] 59 Taxman 305 (Delhi), while discussing scope of exercise of jurisdiction under Section 132 held as under: (33) expression ''information" must be something more than mere rumour or gossip or hunch. There must be some material, which can be regarded as information, which must exist on file on basis of which authorising officer can have reason to believe that action under Section 132 is called for any of reasons mentioned in Clauses (a), (b) or (c). When action of issuance of authorisation under Section 132 is challenged in Court it will be open to petitioner to contend that on facts or information disclosed, no reasonable person could have come to conclusion that action under Section 132 was called for. opinion which has to be formed is subjective and, Therefore, jurisdiction of Court to interfere is very limited. Court will not act as Appellate Authority and examine, meticulously, information in order to decide, for itself, whether action under Section 132 is called for. But Court would be acting within jurisdiction in seeing whether act of issuance of authorisation under Section 132 is arbitrary or mala fide or whether satisfaction which is recorded is such which shows lack of application of mind by Appropriate Authority. reason to believe must be tangible in law and if information or reason has no nexus with belief or there is no material or tangible information for formation of belief, then in such case action taken under Section 132 would be regarded as bad in law. W.P.(C) 5343/2019 Page 15 of 28 xxxx (36) SUB-CLAUSE (c) refers to money, bullion or jewellery or other valuable articles which either wholly or partly should have been income of assessed which has not been disclosed for purpose of Act. said sub-clause pertains only to moveable and not Immovable assets. Secondly it pertains to those assets which wholly or partly represent what should have been income. expression "which has not been or would not be, disclosed for purposes of Income Tax Act" would mean that income which is liable to tax, but which assessed his not returned in his Income Tax return or made known to Income Tax Department. sub Clause itself refers to this as "undisclosed income or property". In our opinion words "undisclosed", in that context, must mean income which is hidden from Department. Clause (c) would refer to cases where assessed knows that moveable asset is or represents income which is taxable but which asset is not disclosed to Department for purpose of taxation. Those assets must be or represent hidden or secreted funds or assets. Where, however, existence of money or asset is known to Income Tax Department and where case of assessed is that said money or valuable asset is not liable to be taxed, then, in our opinion, provisions of sub-Clause (c) of Section 132(1) would not be attracted. assessed is under no obligation to disclose in his return of income all moneys which are received by him which do not partake of character of income or income liable to tax. If assessed receives, admittedly, gift from relation or earns agricultural income which is not subject to tax, then he would not be liable to show receipt of that money in his Income Tax return. Non- disclosure of same would not attract provisions of Section 132(c). It may be that opinion of assessed that receipt of such amount is not taxable, may be incorrect and, in law, same may be taxable but where, Department is aware of existence of such asset or receipt of such Income by assessed then Department may be fully Justified in issuing notice under Section 148 of Act, but no action can be taken W.P.(C) 5343/2019 Page 16 of 28 under Section 132(1)(C). Authorisation under Section 132(1) can be issued if there is reasonable belief that assessed does not want Income Tax Department to know about existence of such Income or asset in effort to escape, assessment. Section 132(1)(c) has been incorporated in order to enable Department to take physical possession of those moveable properties or articles which are or represent undisclosed income or property. words "undisclosed income" must mean income which is liable to be taxed under provisions of Income Tax Act but which has not been disclosed by assessed in effort to escape assessment. Not disclosed must mean intention of assessed to hide existence of income or asset from Income Tax Department while being aware that same is rightly taxable. [Emphasis Supplied] 17. One of questions that arises for our consideration is whether in present case, provisions of Section 132(1)(c) Act were satisfied, or not, before authorizing search. On perusal of satisfaction note as well as counter affidavit on behalf of Respondent Nos. 3 and 4, it is evident that sole ground for action of search and seizure is that Investigation Wing of Income Tax department was in possession of credible information that Petitioner was in possession of jewellery which represents his undisclosed income or property. Apart from mere reproduction of said words, no cogent basis for arriving at this conclusion is discernible from satisfaction note. There is plethora of case law holding that term reason to believe cannot be interpreted and construed as reason to suspect . reason to suspect that Petitioner has undisclosed assets, and that there is likelihood that same would not be disclosed, does not amount to saying that there are reasons to believe that W.P.(C) 5343/2019 Page 17 of 28 Petitioner is in possession of undisclosed assets, and intends to evade tax. This is fundamental flaw in action initiated by Respondent No. 2and we have no hesitation to say that entire exercise is vitiated and unlawful. 18. facts as they have transpired, show that search party comprising ADIT (INV), AIU and ITO (INV), (AIU), has executed warrant to search at Terminal-1 (T-1) of Indira Gandhi International Airport, New Delhi. warrant of authorization is dated 11.09.2018 - issued under Section 132 of Act. This was issued pursuant to satisfaction note recorded on 11.09.2018. search commenced on 11.09.2018 at 08:40 p.m. and closed on same day at 10:20 p.m. panchnama was also drawn on 11.09.2018. At same time, it is critical to note that Petitioner was, admittedly, intercepted on 10.09.2018. government registered valuer for jewellery, prepared inventory and valued same. valuation note is also dated 10.09.2018, and was served on Petitioner on 11.09.2018 at 02:00 A.M, prior to commencement of search. Assistant Director of Income Tax also affixed his signatures on same on 11.09.2018. Assistant Director of Income Tax (INV), Air Intelligence Unit (Respondent No.4), issued summon dated 10.09.2018 under Section 131(1A) of Act for appearance of Petitioner and served on him at 11.30P.M on 10.09.2018. Thus, concededly Petitioner was intercepted on 10.09.2018 at night, and proceedings apparently continued during night up to 2:00 a.m. on 11.09.2018. For Respondents to have intercepted and conducted search on person of Petitioner on 10.09.2018, reasons to believe were required to be formed prior to action of search W.P.(C) 5343/2019 Page 18 of 28 and seizure. However, mandatory reasons to believe and search authorization were obtained subsequent to action of search. satisfaction note is dated 11.09.2018, and its contents clearly disclose that formulation of reason to believe is post search and seizure. 19. Interestingly, reasons, inter alia, record that Acting upon information, Sh. Khem Chand Mukim was intercepted on 10.09.2018 and preliminary enquiry was made inside terminal. and Shri Khem Chand Mukim is in possession of jewellery which is not related to M/s Shrimati Gems & Jewels and which is not disclosed and would not be disclosed for purpose of Income Tax Act, 1961 . This purported reasoning recorded in note reinforces fact that same was prepared after search was carried out, and Shri Khem Chand Mukim was found to be in possession of jewellery and it was assumed that same is not related to M/s Shrimati Gems & Jewels and is undisclosed asset. This is plainly ex-post facto formation and recording of reason to believe, subsequent to act of intercepting and conducting search and seizure on Petitioner at Airport. Further when Petitioner explained that he was participating in exhibition with his jewellery, summons were issued to collect copy of stock register from M/s Shrimati Gems & Jewels and, concurrently, warrant of authorization was sought by invoking Section 132 (1) of Act on premise that Mr. Khem Chand Mukim was in possession of jewellery which did not relate to M/s Shrimati Gems & Jewels. mere possession of jewellery ipso facto cannot be sufficient for officer to form belief that same had not been, or would not be disclosed for purpose of this Act. satisfaction as required under Section 132, must be formed on W.P.(C) 5343/2019 Page 19 of 28 basis of material on record and on objective assessment of such material. Under no circumstances, on basis of information that is seemingly relied upon by officer, can reasonable person come to conclusion that ingredients contained in Clause (c) of sub Section (1) of Section 132 were met. 20. If search action was indeed subsequent to interception, as Revenue wants us to believe, even then we would say - it is evident that officer in question has completely misdirected himself and acted in arbitrary manner. proviso to Section 132(1)(iii) and 3rd proviso of Section 132 (1) (v) of Act deals with bullion, jewellery or other valuable article or things being stock-in-trade of business found as result of search shall not be seized. words in statute are precise and unambiguous, and we are bound to uphold and expound these words in natural and ordinary sense. officer was already aware that jewellery found in Petitioner s possession was his stock-in-trade and, consequently, he was entitled to protection provided in proviso appearing after sub clause (iii) to sub Section (1) of Section 132 of Act. officer failed to take this provision into consideration. Further, sub Section (v) of sub Section (1) of Section 132 of Act, additionally provides that officer is only required to inventorize money, bullion, jewellery or other valuable article or thing which is found during course of search and seizure. This was also ignored. proviso to Section 132(1)(iii) has been added with effect from 01.06.2003 with obvious intent that stock-in-trade ought not be seized but, instead, should be inventorized so that same can be used at time of assessment and for other follow up actions. Further, proviso W.P.(C) 5343/2019 Page 20 of 28 appearing after sub clause (v) of sub Section (1) of Section 132 also provides that where it is not possible or practical to take physical possession of any valuable article or thing, and removal of it to safe place is not possible or practical due to its volume, weight or other physical characteristics, authorizing officer may serve order on owner, or person who is in immediate possession or control thereof that he shall not remove it, part with or otherwise deal with it, except with previous permission of such authorized officer, and such action of authorized officer shall be deemed to be seizure of such valuable article or thing under clause (iii). 3 rd proviso to section 132 (1) provides that nothing in second proviso shall apply in case of any valuable article or thing being stock-in-trade of business. Circular No.8 of 2003 dated 18.09.2003 issued by CBDT explains purpose behind insertion of aforesaid proviso which reads as under: "60. Amendment in Section 132 to provide that stock-in-trade not to be seized during search: 60.1 XXXX 60.2 Finance Act, 2003, has amended Section 132 to provide that any bullion, jewellery or other valuable article or thing being stock-in-trade of business, found as result of search shall not be seized but authorized officer shall make note or inventory of such stock-in-trade. Thus, stock-in-trade of business cannot be seized during search and seizure operations conducted on or after June 1, 2003. 60.3 XXXX 60.4 Finance Act, 2003, has inserted third proviso providing that nothing contained in second proviso shall apply in case of any valuable article or thing, being stock-in- W.P.(C) 5343/2019 Page 21 of 28 trade or business. 60.5 These amendments will take effect from June 1. 2003 [Section 59(a)]" [Emphasis Supplied] 21. crux of matter is that reasons were, firstly, not recorded before undertaking search and was, therefore, completely unauthorized and high-handed action on part of Respondents. Respondents do not state that jewellery was concealed, or was kept by Petitioner surreptitiously. Merely because assessee was in possession of same, it cannot be said that same represents income or property which has not been disclosed or will not be disclosed. Section 132(1) as noted above is serious invasion on privacy of citizens, and has to be resorted to when there are pre-existing and pre-recorded good reasons to believe that action under section 132(1) is called for. While revenue can argue that element of surprise is critical and essential for successful operation of search and seizure, nevertheless, it has be cognizant that to balance rights of citizens, legislature has built in sufficient safeguards. This is to ensure that undue hardship and harassment should not be caused by arbitrary and unfounded action of raiding party. Moreover, as discussed above it is not imperative that every article found as result of search has to be seized. For this purpose, provision itself restrains and curbs authority to make seizure of stock-in-trade. 22. We have no hesitation to observe that officer in this case has completely ignored mandate of law. It is also to be mentioned that despite unlawful action, Petitioner has been denied release of jewellery, regardless of his repeatedly representations made to W.P.(C) 5343/2019 Page 22 of 28 department. provision for dealing with release of seized assets is provided under Section 132 (B) (1) of act which reads as follows: 132B. (1) assets seized under section 132 or requisitioned under section 132A may be dealt with in following manner, namely: (i) amount of any existing liability under this Act, Wealth- tax Act, 1957 (27 of 1957), Expenditure-tax Act, 1987 (35 of 1987), Gift-tax Act, 1958 (18 of 1958) and Interest-tax Act, 1974 (45 of 1974), and amount of liability determined on completion of assessment under section 153A and assessment of year relevant to previous year in which search is initiated or requisition is made, or amount of liability determined on completion of assessment under Chapter XIV-B for block period, as case may be (including any penalty levied or interest payable in connection with such assessment) and in respect of which such person is in default or is deemed to be in default, or amount of liability arising on application made before Settlement Commission under sub-section (1) of section 245C, may be recovered out of such assets : Provided that where person concerned makes application to Assessing Officer within thirty days from end of month in which asset was seized, for release of asset and nature and source of acquisition of any such asset is explained to satisfaction of Assessing Officer, amount of any existing liability referred to in this clause may be recovered out of such asset and remaining portion, if any, of asset may be released, with prior approval of Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, to person from whose custody assets were seized: Provided further that such asset or any portion thereof as is referred to in first proviso shall be released within period of one hundred and twenty days from date on which last of authorisations for search under section 132 or for requisition W.P.(C) 5343/2019 Page 23 of 28 under section 132A, as case may be, was executed; (ii) if assets consist solely of money, or partly of money and partly of other assets, Assessing Officer may apply such money in discharge of liabilities referred to in clause (i) and assessee shall be discharged of such liability to extent of money so applied; (iii) assets other than money may also be applied for discharge of any such liability referred to in clause (i) as remains undischarged and for this purpose such assets shall be deemed to be under distraint as if such distraint was effected by Assessing Officer or, as case may be, Tax Recovery Officer under authorisation from Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner under sub-section (5) of section 226 and Assessing Officer or, as case may be, Tax Recovery Officer may recover amount of such liabilities by sale of such assets and such sale shall be effected in manner laid down in Third Schedule. (2) Nothing contained in sub-section (1) shall preclude recovery of amount of liabilities aforesaid by any other mode laid down in this Act. (3) Any assets or proceeds thereof which remain after liabilities referred to in clause (i) of sub-section (1) are discharged shall be forthwith made over or paid to persons from whose custody assets were seized. XXXX [Emphasis Supplied] 23. first proviso to Section 132B provides that in case where person concerned has made application to AO within 30 days from end of month, in which asset was seized, for release of asset and source of acquisition of any such asset is explained to satisfaction of AO, amount of any existing liability referred to under W.P.(C) 5343/2019 Page 24 of 28 Section 132B(1)(i) may be recovered out of such asset and remaining portion, if any, of seized asset may be released with prior approval of Principal Chief Commissioner/Commissioner, to person from whose custody asset is seized. second proviso provides deadline of 120 days from date of authorization for search under Section 132 or requisition under Section 132A, as case may be, was executed. 24. Further, Manual of Office Procedure Volume -II Chapter 3 Assessment Procedure (Search and Seizure) provides under clause 3(ii), also mandates release of assets within 120 days, which is reproduced hereunder: "3. Custody and release of seized material: following points have to be borne in mind with regard to custody and release of seized material: - i. XXX ii. U/s 132B, explained assets except those required to meet any existing liability should, with prior approval of prescribed authority, be released within 120 days from the, date of search. AO should give assesse adequate opportunity to furnish his explanation and evidence in support thereof. [Emphasis Supplied] 25. After seizure, Petitioner has been endlessly writing to Respondents for release of seized articles. He had furnished all necessary documents to explain as to how articles seized are indeed his stock-in-trade. In fact, as noted in preceding paragraphs, we had called upon Respondents to give specific response by way of affidavit to chart giving details of books of account provisioning for articles seized. In response thereto, Respondents have no plausible explanation W.P.(C) 5343/2019 Page 25 of 28 and with intent to deny relief to Petitioner, they have contended that purchase invoices of Petitioner are of bulk goods and cannot be identified with individual seized items. 26. Obviously, when Petitioner - who is in business of making jewellery, would necessarily have certain items as purchases in bulk for purpose of molding them into specific jewellery articles such as ear rings, ear tops, sets etc. Petitioner had placed material on record to substantiate fact that jewellery found in his possession at time of search was his stock-in-trade. Since Respondents did not raise any serious dispute in their counter affidavit or in additional affidavit, therefore, in view of mandate contained in proviso to Section 132B(1)(i), Respondents have no authority to retain seized jewellery beyond said period. outer limit of 120 days as provided under Section 132B has also expired in month of January 2019. 27. Before parting we may add that opinion which has to be formed is subjective, and though jurisdiction of Court to interfere is very limited, and we are not to act as Appellate Court and meticulously examine information in order to decide whether action under Section 132 is called for, yet at same time we may emphasize that power to search person is stringent power provided by law and this requires officers to scrupulously follow mandate and rigor of law prior to authorizing such action, and unless conditions to exercise such power are shown to exist, we would have no hesitation in striking down such action. We are compelled to interfere as there was complete lack of W.P.(C) 5343/2019 Page 26 of 28 information prior to action of search, exhibiting gross non application of mind and arbitrariness by appropriate authorities. reason to believe in present case was nonexistent prior to search. Even after search, there was no material to conclude that no such disclosure had been made, or that no disclosure would be made so as to satisfy prerequisites of Section 132 of Act. Respondents have merely acted on basis of surmises and conjectures, and without due authorization. Their actions are in contravention of law, making action of search and seizure bad in law. 28. We may also record that very feeble attempt was made by Respondents during course of arguments to contend that there was no search or seizure at Airport and, after preparing inventory, jewellery articles were given back to Petitioner and continued to remain in his possession. It was also argued that mere suspicion that income is concealed, or is likely to be concealed, is sufficient to trigger exercise of power under Section 131 (1) of Act for making enquiry or investigation relating thereto, and that action of interception was under Section 131 (1) of Act. Though rigor of law under Section 131 (1) of Act - which permits officers to make enquiry or investigation, when contrasted with authorization for search and seizure under Section 132 (1) is different, however, in present case, verbal arguments advanced by counsels are desperate attempt to somehow sustain and justify action. record produced before us does not show that any action has been taken under Section 131 (1) of Act. satisfaction note is for issuance of warrant of authorization under Section 132 (1) of Act, and there cannot be any two views about same. Officer, present in W.P.(C) 5343/2019 Page 27 of 28 Court, vaguely submitted that certain information was received prior to interception. However, when confronted with specific queries in this regard, he admitted that he cannot disclose even to us in confidence, as to what was information received, and by whom, and conceded that there is no recording of such information. 29. For foregoing reasons, petition succeeds and is accordingly allowed. impugned search and seizure and ex post facto warrant of authorization dated 11.09.2018 issued by Respondent No.2 under Section 132 of Act is hereby quashed. Consequently, all actions taken pursuant to such search and seizure are declared illegal. Respondents shall forthwith return to Petitioner, jewellery seized. Since action of Respondent is found to be grossly arbitrary, and entire action is vitiated, in order to discourage Respondents from resorting to unwarranted action of search, we are inclined to saddle Respondents with costs which are quantified at Rs.50,000/-. costs shall be payable to Delhi Legal Service Authority within four weeks of copy of this decision being served on them. SANJEEV NARULA, J VIPIN SANGHI, J JANUARY 09, 2020 Pallavi W.P.(C) 5343/2019 Page 28 of 28 Khem Chand Mukim v. Pr. Director of Income-tax (Inv.)-2, A.I.U. & Or