Nayanaben Hasmukhbhai Patel & Ors. vs. Revenue [Special Civil Application No.14635 of 2024]

Background of the Case

A search and seizure operation conducted by the Income Tax Department at the premises of petitioner no. 3, Anandkumar Hasmukhbhai Patel. During the proceedings, jewellery worth Rs. 77.82 lakh was discovered, of which Rs. 42.86 lakh was accepted under CBDT Instruction No.1916 as belonging to his family members and not seized. However, the remaining jewellery worth Rs. 34.96 lakh along with Rs. 7 lakh in cash was seized under Section 132 of the Income Tax Act. Subsequently, the jewellery was subjected to scrutiny during the assessment for AY 2014–15. Though a partial relief of ₹15 lakh was granted, the Assessing Officer added Rs. 19.96 lakh to the taxable income of petitioner no. 3.

This addition was later deleted in full by the CIT(A) on 02.04.2019, a decision that reached finality as no appeal was filed by the department. Despite this, the Income Tax Department did not release the entire seized jewellery, prompting the petitioners to approach the Gujarat High Court under Article 226 of the Constitution.

Arguments by the Appellant

The appellant argued that once the addition had been deleted by the CIT(A), and the penalty amount under Section 271(1)(c) had been duly paid, there remained no outstanding tax liability for AY 2014–15. They contended that the Department’s continued retention of jewellery worth Rs. 16.33 lakh, especially after releasing a portion worth Rs. 18.63 lakh to petitioner no.1, was unjustified. It was also emphasized that the jewellery in question was not owned by petitioner no.3, but by his wife and mother, as evidenced by a joint affidavit submitted on 07.11.2024.

The petitioners invoked Section 132B of the Income Tax Act, asserting that the seized assets could only be retained against liabilities pertaining to the relevant assessment year, and not for future demands. Relying on both statutory provisions and precedents, they pleaded for the immediate release of the remaining seized jewellery and sought interest compensation for the undue retention.

Respondent’s Response

The respondent, Revenue argued that a substantial outstanding demand of Rs. 3.36 crore existed against petitioner no.3 for subsequent assessment years, and that the remaining jewellery was being rightfully retained to safeguard recovery of these dues. The Department took the stand that despite the relief granted for AY 2014–15, the assets were lawfully being adjusted against the petitioner’s overall liability. Thus, they sought validation of the order dated 12.11.2024, through which the partial release of jewellery had been made, while the remainder was retained as security for future recoveries.

Court Findings and Decision

The Gujarat High Court held that the Income Tax Department could not retain jewellery seized for one assessment year against liabilities arising from other assessment years, especially when the assessment in question had concluded without any outstanding demand. The Court noted that the CIT(A)’s order had attained finality and that there was no pending liability for AY 2014–15. Furthermore, the department’s reliance on general instructions could not override the specific statutory limitations of Section 132B as it stood at the relevant time. The Court directed the respondents to release the remaining jewellery and dismissed the justification for withholding the same against unrelated tax dues.

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52 Weeks Entertainment Limited vs. Revenue [W.P. (L) No. 28294 of 2023]

Background of the Case

The appellant, 52 Weeks Entertainment Limited, challenged an order dated 20 September 2023 issued under Section 127(2) of the Income-tax Act, 1961, which proposed to transfer its income tax assessment case from Mumbai to Indore. The appellant challenged this transfer order and, the High Court granted an ad-interim stay on the transfer order after the Revenue (Income Tax Department) sought time to file a reply but failed to do so. Despite multiple hearings, the Revenue repeatedly failed to appear or file a response, leading to extensions of the interim relief.

Shockingly, during the pendency of the petition, the Revenue silently passed a fresh transfer order on 20 February 2025, shifting jurisdiction from one Mumbai circle to another, without informing the court. Additionally, assessment orders were passed in March 2024 and March 2025, seemingly accepting the appellant’s claims without proper scrutiny.

Arguments by the Appellant

The appellant argued that the initial transfer order (Mumbai to Indore) was unjustified and lacked proper reasoning. They highlighted that despite the interim stay, the Revenue continued proceedings in Mumbai, which was a violation of the court’s order. Later, when the Revenue secretly passed a new transfer order (within Mumbai), the appellant claimed they were unaware of it until February 2025. The appellant initially sought to dispose of the petition as infructuous since assessments were now being handled in Mumbai. However, the court observed that if the original transfer order was illegal, any benefits derived from its stay should not stand.

Respondent’s Response

The respondent, Revenue repeatedly failed to appear in court or file replies despite multiple opportunities. When they finally appeared, they opposed the appellant’s request to dismiss the case, insisting that the court should rule on the legality of the original transfer order. Further the Revenue passed a new transfer order (20 February 2025) and completed assessments without court intimation.

Court Findings and Decision

The Bombay High Court, Stated that the interim orders were potentially misused to facilitate a backdoor resolution, undermining judicial oversight and Revenue’s conduct was highly questionable. The assessment orders (March 2024 & 2025) seemed unusually favorable to the appellant, raising suspicions of collusion or undue influence.

The Court, concluded that while the original writ petition had become infructuous due to the new transfer within Mumbai, it could not ignore the broader implications. It therefore directed the CBDT and the Ministry of Finance to initiate a preliminary inquiry into the conduct of officials involved in this case. The Court emphasized the importance of upholding both natural justice and public interest, directing the Chairperson of the CBDT to file a compliance report by 27 June 2025.

Bombay High Court tax relief probe

To download official order, Click Here

“The site is for information purposes only and does not provide legal advice of any sort. Viewing this site, receipt of information contained on this site, or the transmission of information from or to this site does not constitute an attorney-client relationship. The information on this site is not intended to be a substitute for professional advice.”

The post Bombay High Court Flags Misuse of Interim Reliefs and Favorable Assessments; CBDT, Finance Ministry to Probe Irregularities appeared first on Tax Unplug.