The Commissioner of Income Tax-IV vs. M/s. Labhan Finanve Limited

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE C.T.RAVIKUMAR WEDNESDAY, THE 12TH DAY OF NOVEMBER 2014/21ST KARTHIKA, 1936 Crl.MC.No. 484 of 2010 ( ) --------------------------- AGAINST THE ORDER IN CMP 3644/2008 of JUDL.M.F.C.-I,ERNAKULAM DATED 23-06-2009 PETITIONER: -------------- THE DEPUTY DIRECTOR OF INCOME-TAX (INV)-II, O/O.THE ADDL. DIRECTOR OF INCOME-TAX(INV) MADAPARAMBIL BUILDINGS, SOUTH RAILWAY STATION ROAD ERNAKULAM, KOCHI-16. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENTS: ------------------ 1. STATE OF KERALA, REPRESENTED BY THE PUBLIC PROSECUTOR, HIGH COURT OF KERALA. 2. SHRI VAJARAM, S/O. MANAKLAL, DEWASI KA BASS, VILLAGE & POST DUJANA, PALI DISTRICT RAJASTHAN. 3. SHRI. RAJESH.B.MEHTA, S/O. BHAGECHAND MEHTA, MEHTA VASS, KHAD PALI DISTRICT, RAJASTHAN. R1 BY PUBLIC PROSECUTOR SRI.PHILIP T.VARGHESE THIS CRIMINAL MISC. CASE HAVING BEEN FINALLY HEARD ON 12-11-2014, ALONG WITH CRMC. 675/2010, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:

Crl.MC.No. 484 of 2010 ( ) APPENDIX PETITIONER'S EXHIBITS: ANNEXURE I: TRUE COPY OF THE PETITION FILED BY THE PETITIONER BEFORE THE HON'BLE COURT OF FIRST CLASS MAGISTRATE IN CMP NO.3644/2008. ANNEXURE II: TRUE COPY OF THE STATEMENT FILED BY THE PETITIONER BEFORE THE HON'BLE COURT OF FIRST CLASS MAGISTRATE. ANNEXURE III: TRUE COPY OF THE SURVEY REPORT. ANNEXURE IV: TRUE COPY OF THE STATEMENT FILED BY THE PETITIONER BEFORE THE HON'BLE COURT OF FIRST CLASS MAGISTRATE. ANNEXURE V: TRUE COPY OF THE ORDER OF THE JUDICIAL FIRST CLASS MAGISTRATE'S COURT I, RNAKULAM DATED 23.6.2009. // TRUE COPY // TKS P.S. TO JUDGE

C.T.RAVIKUMAR, J. ----------------------------------- Crl.M.C.Nos.484 & 675 of 2010 ----------------------------------- Dated 12 th November, 2014 ORDER Since these Criminal Miscellaneous Cases have matrix from Annexure-V common order in C.M.P.Nos.3644 & 3834 of 2008 in Crime No.51 of 2008 of South Railway Police Station these matters are taken up for joint consideration and disposal. To be precise, Crl.M.C.No.484 of 2010 is directed against the order in C.M.P.No.3644 of 2008 filed by the Income Tax Department and Crl.M.C.No.675 of 2010 is directed against the order in C.M.P.No.3834 of 2008 filed by the first respondent in the said Crl.M.C. In fact, both the aforesaid CMPs were disposed of along with C.M.P.No.3628 of 2008 as per order dated 23.6.2009 by the Court of Judicial First Class Magistrate-I, Ernakulam as per Annexure-V order. The bone of contentions in these cases is 7664.5 grams of gold in the form of gold bars and ornaments seized from accused Nos.1 and 2 in the aforesaid crime, on 21.11.2008. The Intelligence Officer attached to the Department of Commercial Taxes was the petitioner in C.M.P.No.3628 of 2008. The said petitioner and the petitioner in the captioned Criminal Miscellaneous Case viz., the Income Tax Department alleged that those goods were transported without any valid documents

Crl.M.C.Nos.484 & 675/2010 2 to show their ownership. Further, it is alleged that the tax due to the State of Kerala was not paid by the accused in relation to the gold ornaments. In the said circumstances, to initiate the proceedings under the Kerala Value Added Tax Act petitions were filed by them to have custody of the gold ornaments produced in Crime No.51 of 2008. In fact, C.M.P.Nos.3628 and 3644 of 2008 were filed in that regard. The first respondent in the latter Crl.M.C. filed C.M.P.No.3834 of 2008 and expressed his willingness to furnish guarantee for the gold seized from accused Nos.1 and 2 on 21.11.2008 raising the contention that it belonged to him. Evidently, all the aforesaid C.M.Ps were filed under Section 451 Cr.P.C. for the purpose of getting interim custody of the aforesaid quantity of gold. In C.M.P.No.3644 of 2008 the Department of Income Tax contended that the accused persons did not disclose the source of income by which the gold ornaments were purchased and therefore, they claimed for custody of the gold ornaments for the purpose of enquiry under the provisions of the Income Tax Act. To lend support to the claim for interim custody the first respondent in the latter Crl.M.C. produced 9 documents before the court below. After hearing the three petitions they were disposed of as per Annexure-V order as hereunder:-

Crl.M.C.Nos.484 & 675/2010 3 “(1) 7664.5 grams of gold seized by the Railway police in crime 51/08 will be released on interim custody to the petitioner in CMP.3834/08 (Lalit Kumar Bhagchand Mehta @ Lalit B.Mehta) on condition that he shall furnish security for 90% of the value of the said gold, as per the value of gold on the date of furnishing security as guarantee for realisation of Income Tax due to the Government, if any. (2) The Income Tax Authority will have the right to realise the amount due to the Government, if any, as income tax from the said Lalit B.Mehta, from the said guarantee. (3) The release of the gold to the Lalit B.Mehta will not in any way affect the power of Income Tax Authority to continue with the proceedings u/s.132A of the Income Tax Act. (4) The Sales Tax Authority will have the right to realise the tax amount, if any, due to the State from the guarantee for Rs.2,29,128/- furnished towards the same by Lalit B.Mehta. (5) The said Lalit B.Mehta shall produce the gold, in the same condition, as and when required by this court. (6) The petitioner shall execute a bond equivalent to the value of the gold ornaments with two solvent sureties each for the like sum.” It is aggrieved by the orders in C.M.P.Nos.3644 and 3834 of 2008 that the aforementioned Crl.M.C.s were filed by the Income Tax Department. Various contentions have been raised by the petitioner in these Crl.M.Cs and also the first respondent in the latter Crl.M.C. Though notice in this proceedings was served on respondents 2 and 3 in these Crl.M.Cs they

Crl.M.C.Nos.484 & 675/2010 4 have not chosen to enter appearance and to resist the case. 2. I have heard the learned counsel for the petitioner, the learned counsel for the first respondent in the latter Crl.M.C. and also the learned Public Prosecutor. 3. The learned counsel appearing for the petitioner in these cases relied on the decisions of this Court in Ibrahim Othayoth v. Sub Inspector of Police and Others ((1998) 232 ITR 320), Rajiv Agrawal v. State of Gujarat ((2007) 290 ITR 449 (Guj)) and Krishnagopal v. Director of Income Tax (Investigation) ((2009) 308 ITR 273 (MP)) to canvass the position that the normal practice when claim applications were filed by the Income Tax or Sales Tax Departments either under Section 451 or 457 Cr.P.C. is to release the articles seized to any of the Department unless sufficient materials prima facie establishing their ownership was produced by the other claimant. It is submitted by the learned counsel for the petitioner that in C.M.P.No.3644 of 2008 a specific contention has been raised by the Department to the effect that its Mumbai unit conducted a survey under Section 133A of the Income Tax Act and prepared Annexure-III report which would reveal that the claim made by the first respondent in the

Crl.M.C.Nos.484 & 675/2010 5 latter Crl.M.C. is a bogus one as M/s.Swarna Sagar Jewellers under his proprietorship was maintaining only an inflated book stock without having corresponding physical stock and in the said circumstances it is contended that M/s.Swarna Sagar Jewellers were in the line of providing accommodation entries to persons with undisclosed assets, when such assets are detected. It is contended that those aspects were not properly gone into by the court below while passing the impugned common order. Evidently, the common impugned order was passed as early as on 23.6.2009 and though these Crl.M.Cs were admitted as early as in the year 2010 no interim order staying the operation of the order was passed. It is submitted by the counsel on both sides that pursuant to the order dated 23.6.2009 the gold bars and the gold ornaments were released to the interim custody of the first respondent in the latter Crl.M.C. subject to the conditions in the said order. It is also submitted that in compliance with the said order 90% of the value of the seized gold was furnished by him. Taking into account the aforesaid circumstances and also taking into consideration of the fact that the power of the Magistrate under Section 451 Cr.P.C. does not extend to the determination of ownership of the property seized and what was done under the impugned order is only granting the interim custody of the seized gold bars and ornaments to the first respondent in the latter

Crl.M.C.Nos.484 & 675/2010 6 Crl.M.C. subject to the conditions in the order I do not think it necessary, at this distance of time viz., more than five years since the order, to interfere with the impugned order. I am of the view that these Crl.M.Cs can be disposed of by issuing further orders to safeguard the interest of the Department. A perusal of Annexure-V order would reveal that the court below itself made it clear that the release of gold to the first respondent in the latter Crl.M.C. would not in any way affect the power of Income Tax Authority to continue with the proceedings under Section 132A of the Income Tax Act and also the right to realise the amount due to Government, if any, as income tax from him out of the guarantee. In the said circumstances, while retaining the conditions imposed under the impugned order dated 23.6.2009 it is made clear that the pendency of the criminal proceedings in Crime No.51 of 2008 of South Railway Police Station and all further actions pursuant thereto will not stand in the way of the Income Tax Department in initiating appropriate proceedings for the purpose of assessing tax liability of the persons concerned including the first respondent in the latter Crl.M.C., in accordance with law, besides the proceedings under Section 132A. It is also made clear that if such proceedings are initiated by the Department it shall be concluded as expeditiously as possible and the gold seized in connection with Crime No.51 of 2008 of South Railway Police Station and in respect of which

Crl.M.C.Nos.484 & 675/2010 7 Annexure-V order was passed with conditions shall be released finally only subject to the outcome of such proceedings. It is also made clear that if any such proceeding is finalised pending the further proceedings in the above crime then it will be open to the Income Tax Department to move the learned Magistrate through appropriate petition. Subject to the above, these Crl.M.Cs are disposed of.

Sd/- C.T.RAVIKUMAR Judge TKS