Jewellery Worth Over ₹90 Lakh Seized by Income Tax Department Vanishes from Bank Locker; High Court Orders Taxpayer to Be Compensated

Jewellery Worth Over ₹90 Lakh Seized by Income Tax Department Vanishes from Bank Locker; High Court Orders Taxpayer to Be Compensated

Issue: Whether the Income Tax Department is liable to compensate a taxpayer for the loss of gold and jewelry worth over ₹90 lakh that was seized during a search operation and subsequently vanished or was stolen while being kept under the Department’s custody in a bank locker.

Facts:

• The Income Tax Department conducted a search and seizure operation against the petitioner (taxpayer).
• During the search, the Department seized a significant amount of jewelry, valued at over ₹90 lakh, and placed it in a bank locker under the Department’s seal and control (known as Departmental Custody).
• The jewelry subsequently disappeared or was stolen from the locker while it was still under the effective custody of the Income Tax Department and the concerned bank.
• The taxpayer sought relief, arguing that the Department was responsible for the safekeeping of the seized assets.

Decision:

The High Court ruled in favor of the taxpayer and directed the Income Tax Department to compensate the petitioner for the entire value of the jewelry that had vanished while in the Department’s custody.

Key TakeDowns:

• Liability of Custodian: The Court held that once the Income Tax Department seizes assets and places them in a locker under its seal, the Department assumes the responsibility of a custodian. The loss of the seized property while under official custody amounts to a breach of that custodial duty.
• Absolute Liability: The ruling implies an absolute liability on the Department for the value of the seized assets, regardless of whether the physical loss was due to negligence by the bank or the Department itself. The taxpayer cannot be made to suffer the loss of assets that were legitimately held and taken away by the authority.
• Compensation Ordered: The compensation order ensured that the taxpayer receives financial recourse for the loss, affirming the principle that government agencies must be accountable for the assets seized and held during investigation or assessment proceedings.