Department Cannot Retain Seized Jewellery for Joint Holder’s Tax Dues After Assessee Settles Own Liability under Vivad Se Vishwas Scheme
ISSUE
Whether the Assessing Officer (AO) is justified in continuing to detain gold and diamond jewellery seized from a joint locker (held by the assessee and her mother-in-law) on the ground of outstanding demands against the mother-in-law, even after the assessee has fully settled her own tax liability under the Direct Tax Vivad Se Vishwas (VSV) Act, 2020 and received Form-5.
FACTS
The Seizure: During a search operation under Section 132, jewellery was seized from lockers jointly held by the assessee and her mother-in-law.
The Assessment: The AO made additions on a substantive and protective basis. Initially, the ownership was presumed to be 50:50.
Appellate Relief: The Commissioner (Appeals) rejected the 50:50 presumption and recorded categorical findings regarding the specific ownership of the jewellery, separating the assessee’s share from her mother-in-law’s. The AO passed an appeal effect order quantifying the specific addition for the assessee.
The Settlement: The assessee opted for the Vivad Se Vishwas Scheme, paid the determined tax of Rs. 72,241, and received Form-5 (Certificate for Full and Final Settlement).
The Dispute: despite the settlement, the AO refused to release the assessee’s jewellery, citing pending tax demands against the mother-in-law (the joint locker holder).
HELD
Finality of Settlement: The High Court held that once the assessee filed the declaration under the VSV Act and Form-5 was issued, the tax dispute qua the assessee stood conclusively resolved.
No General Lien: The Department cannot detain the property of Person A (Assessee) to recover the dues of Person B (Mother-in-law), even if they shared a locker. Since the CIT(A) had already demarcated ownership, the AO could not revert to the “joint holder” argument.
Illegal Detention: The continued detention of the jewellery after the issuance of Form-5 was termed illegal, perverse, and without jurisdiction.
Verdict: The Court directed the immediate release of the jewellery to the assessee. [In Favour of Assessee]
KEY TAKEAWAYS
Form-5 is Binding: Issuance of Form-5 under the Vivad Se Vishwas Act signifies the full and final closure of the tax arrear. The Department cannot invent new reasons to hold back seized assets related to that dispute.
Joint Lockers $\neq$ Joint Liability: Holding a locker jointly does not make one person liable for the other’s tax debts. Once ownership of the contents is segregated (e.g., by appellate order or wealth tax records), the Department can only attach the portion belonging to the defaulting taxpayer.
Specific Ownership Findings: The CIT(A)’s order separating the ownership was crucial here. In search cases involving family lockers, always strive to get a specific finding on “who owns which item” based on Stridhan, gifts, or purchase bills, rather than accepting a flat pro-rata division.
HIGH COURT OF GUJARAT
Jigishaben Minesh Patel
v.
Assistant Commissioner of Income, Central *
A.S. Supehia and Pranav Trivedi, JJ.
R/SPECIAL CIVIL APPLICATION NO. 2861 of 2023
DECEMBER 1, 2025
Tushar Hemani, Sr. Adv. and Ms. Vaibhavi K. Parikh, Adv. for the Petitioner. Karan G. Sanghani for the Respondent.
JUDGMENT
A.S. Supehia, J.- Since a very short issue is involved, the matter is taken up for final hearing.
2. RULE. Learned Senior Standing Counsel Mr. Karan G. Sanghani for the respondents waive service of notice of rule on behalf of the respondents.
3. By way of present writ petition, the petitioner is seeking release of her seized jewellery during the course of search carried out on 02.12.2015 under Section 132 of the Income Tax Act, 1961 (for short ‘the Act’) at the business and residential premises of the petitioner. Despite the fact that the entire demand in relation to addition made in respect of the alleged unexplained jewellery has already been paid.
Facts of the Case
4. A search action under Section 132 of the Act was carried out in Bipinchandra Patel Group of cases including the petitioner on 02.12.2015. During the course of search gold, diamond jewellery worth Rs.1,53,35,538/- were found belonging to the petitioner and her family members. Out of such jewellery and valuables, the department had seized certain jewellery and valuables (gold weighing 3473.700 grms and diamond weighing 6.97 carat) worth Rs. 87,85,338/-. Pursuant to the search, proceedings under Section 153(A) of the Act were initiated. Eventually, the assessment for the assessment year 2016-17 was framed under Section 143(3) of the Act, vide order dated 29.12.2017, whereby the then Assessing Officer held that an addition of Rs.1,03,86,88/- was required to be made on account of unexplained investment in jewellery and such addition was to be made case of the petitioner and “Manjuben B. Patel, the mother-in-law of the petitioner. However, no person wise or item wise bifurcation was provided to the department. Therefore, out of the total sum of Rs.1,03,86,888/-, 50% i.e. (Rs.51,93,444/-) was added on substantive basis and the balance 50% (Rs.51,93,444/-) was made on protective basis in the hands of the petitioner. Accordingly, a total addition of Rs.1,03,86,888/- was made in the hands of the petitioner. A similar addition was also made in the hands of Manjuben Patel vide order dated 29.12.2017 passed under Section 143(3) of the Act.
4.1 An appeal was preferred against the Assessment Order dated 29.12.2017, before the Commissioner of Income Tax (Appeals) [for short ‘CIT(A)’], who, vide order dated 07.01.2019 enhanced the addition made in respect of unexplained jewellery and issued certain directions to the Assessing Officer. Consequently, the Assessing Officer passed the appeal effect order dated 11.03.2019, whereby the addition in respect of unexplained jewellery, as per the directions of the CIT(A), was quantified at Rs. 1,04,83,953/-.
4.2 The petitioner, by way of letters dated 20.03.2019 and 28.03.2019 addressed to the Assessing Officer and the Commissioner of Income Tax respectively, for the release of jewellery seized during the course of the search proceedings. The petitioner, vide letter dated 07.08.2020, addressed to the Principal Commissioner of Income Tax (Central Circle), Surat (for short ‘PCIT’), requested the said authority to issue appropriate directions for the release of the jewellery in question. The petitioner, vide letter dated 24.09.2020, addressed to the Chief Commissioner of Income Tax, Vadodara, filed a grievance petition seeking release of the jewellery in question.
4.3 During the pendency of the second appeal before the Income Tax Appeallate Tribunal (for short ‘ITAT’), the Government of India introduced the Vivad Se Vishwas Act, 2020 (for short “VsV”). The petitioner decided to settle the appeal under the said Act and, accordingly, filed a declaration by submitting the prescribed Forms – 1 and 2. Pursuant thereto, Form – 3 was issued by the Department on 14.12.2020, whereby the amount payable by the petitioner for settling the Second Appeal pending before the ITAT was determined at Rs. 72,241/- (if paid on or before 31.03.2021).
4.4 The petitioner paid the said amount of Rs. 72,241/- on 28.12.2020 and filed the intimation in Form 4 on 07.01.2021. Consequently, the Department issued a certificate in Form 5 on 02.02.2021, whereby the declaration made by the petitioner for settling the appeal pending before the ITAT was accepted.
4.5 Thus, it is an established fact that the petitioner has paid the requisite amount of tax in relation to the addition made in respect of the unexplained investment in the jewellery found and seized during the course of the search proceedings.
4.6 Even after, the department issued a certificate under Form -5 under the v. Scheme since her jewellery was not released, the petitioner addressed a letter dated 25.02.2021 to the Prime Minister Grievance Cell and vide letter dated 08.07.2021to the Assessing Officer. It is pertinent to note that the petitioner has already paid additional sum of Rs. 7,540/-, which was claimed to be an outstanding amount vide challan dated 23.06.2021. However, her jewellery was not released hence, she was constrained to again write a letter dated 26.07.2021 and also a reminder letter to the Assessing Officer, requesting to release the jewellery. Further communications were also written by her and ultimately, pursuant to the letter dated 24.01.2022 the PCIT, vide notice dated 28.02.2022, afforded an opportunity of hearing for release of the seized jewellery. The petitioner accordingly cooperated and filed a detailed representation dated 24.06.2022 and 30.06.2022. Thereafter, a reminder application was also submitted on 13.02.2023, for release of the jewellery, however, vide communication dated 04.01.2022, issued by the Assistant Commissioner of Income Tax Central Circle (1) Vadodara, (for short ‘ACIT’), the petitioner was informed that the jewellery could not be released in view of the existing demand in case of her mother-in-law Manjulaben Patel, who is a joint holder of the locker, from where the said jewellery was seized. The petitioner further approached the authorities, however the jewelleries were not released and hence the petitioner has been constrained to file the present writ petition.
5. At the outset learned senior advocate Mr. Tushar Hemani for the petitioner has fairly pointed out that the details of the jewellery mentioned in the Assessment Order as well as in the Appellate Order that the CIT Appeals in the appellate order has categorically recorded that the jewellery which were seized from the lockers nos. 440 and 836 and 729 belongs to the present petitioner. He has submitted that the details of the jewellery was also recorded by the CIT in its order, more particularly, at paragraph no.5.6. It is submitted that the CIT(A) has ultimately made the addition to the total income and directed the Assessing Officer to issue fresh notice for the enhanced addition. It is contended that on the introduction of the Vivad se Vishawas Scheme, the petitioner filled up Form no. 3 giving all the requsite details and the amount payable under the Scheme and ultimately, Form – 5 under the Scheme was certified. Accordingly, an amount of Rs. 72,241/- has already been paid towards full and final settlement by the petitioner, which was determined in the order dated 14.12.2020 for the Assessment Year 2016-17. Thus, it is submitted that everything got finalized on the issuance of Form- 5, even though her jewellery were not released despite making numerous requests and ultimately by placing reliance on the Circular dated 21.01.2009, in view of the existing demand of her mother-in-law Mrs. Manjulaben Patel, the jewellery has not been released. It is therefore submitted that the aforesaid inaction on the part of the respondents is contrary to the findings recorded by the CIT (A) and also runs contrary to the Scheme introduced by the Central Government, therefore respondents may be directed to release the seized jewellery of the present petitioner.
6. Per Contra, learned Senior Standing Counsel Mr. Karan Sanghani, appearing for the respondents while pointing out the averments made in the affidavit-in-reply along with the Circular dated 21.01.2009 has submitted that in accordance with paragraph no. 3(b)(i) &(ii) of F.No.286/6/2008-IT (Inv.II), the Assessing Officer was precluded from releasing the seized jewellery of present petitioner in view of pending demand of her mother-in-law as the jewellery was seized from the locker jointly owned with the present petitioner. Thus, it is submitted at this stage, the jewellery which had been seized cannot be released.
7. We have heard the learned advocates appearing for the respective parties, at length.
8. The aforesaid proceedings after the search action conducted at Bimpinchandra Patel group on 02.12.2015 and the seizure of the jewellery of the present petitioner along with her mother-in-law is not in dispute. Two individual Assessment Orders qua present petitioner as well as her mother-in-law Mrs. Manjulaben Patel were passed in respect of unexplained jewellery seized from the lockers no. 17, 440, 836 and 729. The details of the jewellery in both the Assessment Orders are verbatim similar. Ultimately, the petitioner thereafter challenged the Assessment Orders before the Commissioner of Income Tax Appeals by filing an Appeal No. CIT(A) – 12 / 320 / CC 1/2017-18. The CIT(A) heard the appeal of the petitioner and ultimately in its decision has deprecated the approach of the Assessing Officers in presuming that 50% of the jewellery belonged to the petitioner and the remaining 50% belongs to her mother-in-law. Accordingly, the addition made on presumption on the ground of protective as well as substantive basis in the ratio of 50:50 ownership in the case of the petitioner and her mother-in-law, was declared invalid. The CIT(A) has categorically held that the Assessing Officer proceeded the assessment in a very cursory and mechanical manner, devoid of any rationale. The appeallate order also contains the details of the seized jewellery during the seizure which are mentioned at paragraph no.5.6, which reads thus:-
| “a. | The jewellery found during the search from residences and locker is owned by her and her family members (husband, father-in-law, mother-in-law and also belong to her daughter) |
| b. | Gold jewellery weighing 426.200 grams and silver jewellery weighing 600 grams found from locker No.17, the explanation already submitted in the case of Shri Bipin Patel. |
| c. | Submitted bills/vouchers for purchase of jewellery during the relevant assessment years weighing 119.95 grams. |
| d. | Jewellery weighing 24.30 grams belongs to Parul Patel. Confirmations are awaited. |
| e. | As per Instruction No.1916, 1700 grams of jewellery is allowed to be held by all the family members. |
| f. | Balance jewellery weighing 3242.95 grams is received as gifts confirmations for the same are awaited. |
| g. | Jewellery weighing 1269.40 grams declared under VDIS 1997 on29/12/1997 by Smt. Manjulaben B Patel |
| h. | Silver items weighing 23.880 kg received as gifts. |
| i. | Submitted bills and vouchers for purchase of diamond jewellery weighing 17.95 Ct. during the relevant A.Yrs.” |
8.1 After considering the details furnished by the petitioner, the CIT(A) has recorded as under:
“V. I find that jewellery of 1269.40 grams of gold was declared in VDIS 1997 by Smt. Manjulaben Patel for which the relevant certificate has been filed before me and it has been claimed by the appellant to have been received as gift from her. In the submission. I also find that a notice u/s 17(1) of the WT Act 1957 side dated 29/03/2018 was issued by the AO and a copy of WT Return (WTS Form ElA for the A. Y. 201112 verified on 25/04/2018 by the appellant (albeit without any stamp of receipt of the return by the Deptt) has been enclosed which shows net wealth of Rs.28.98.810/- fas on the valuation date 31/03/2011) for gold ornaments of 1395 grams. Even assuming that the valuation carried out for the purpose of said WT return is correct, it will be natural presumption that the disclosure made of jewellery of 1269.40 grams in the VDIS 1997 and received as gift is included in the said WT valuation dated 31/03/2011 and these jewellery and ornaments of 1395 grams. may be treated as explained for the purpose of IT proceedings and that these will also include all the gifts received till 31/03/2011.
***
VII. The appellant has claimed benefit of 1700 grams of gold jewellery and ornaments on account of CBDT’s instruction No.1916 for 2 married ladies (herself and her mother-in-law, Smt. Manjulaben Patel, for two unmarried girls (Ms. Amisha Patel and Ms. Natasha Patel) and for two (2) male members (her husband, Shri Minesh Patel and her father-in-law, Shri Bipin Patel). I am of the view that 500 grams of gold jewellery on her own account has to be excluded and there should be no dispute about such exclusion. I am also of the considered view that if the appellant has claimed the ownership of entire jewellery found during the course of search, the benefit of the CBDT’s Instruction cannot be extended on account of other members of the family though it may appear very strange that Smt. Manjulaben Patel will not have any jewellery belonging to her and that there will be no jewellery at least for the unmarried girls in the family. But the appellant having owned up the entire jewellery found during the course of search, I am of the considered view that the other members of the family have to be excluded for the benefit of CBDT’s instruction.
VIII. In view of all these the jewellery and ornaments 1550.10 gram of gold and 6.38 Ct. of diamond (130.8 grams of gold and 5.33 Ct. of diamond being purchased, 24.30 grams of gold and 1.050 Ct. of diamond belonging to Ms. Parul Patel, appellant’s sister and 1395 grams of gold as per the WT return along with the VDIS 1997 disclosure) can be treated as explained in the hands of the appellant over and above 426.20 gram of gold found from the locker No.17 which is not the subject matter of the present appeal. Thus jewellery of 3537.10 gram gold and 26.98 Ct. of diamond remains unexplained and these having been owned up by the appellant, she has to explain them that they are disclosed for the purpose of Income-tax. If not so established, the value thereof has to be treated as unexplained investment made out of undisclosed income of the appellant and such amount has to be added. while computing the total income of the appellant.
***
5.11 Thus according to me, jewellery and ornaments of 3537.100 gms. of gold and 26.98 ct of diamond remains unexplained. The silver jewellery and articles of 24.900 kg (25.500 kg found unexplained. And as all these have been owned up by the appellant, value thereof 600 gms. found in Locker no.17) also remain as per the valuations during the course of search will be liable for addition as income on account of these unexplained investments.
5.12 The AO is directed to make the addition to the total income as above in place of the substantive addition of Rs.51,93,444/- and protective addition of Rs.51,93,444/- made in the impugned assessment order. The AO is also directed to issue a fresh notice u/s 274 r.w.s. 271(1)(c) for the enhanced addition after the appeal effect”
9. Thus, a bare reading of the findings recorded by the CIT (A) it is held that the jewellery in ornaments weighing 3537.100 grms of Gold and 26.98 carat of Diamond remains unexplained and the same are owned by the petitioner. Accordingly, the Assessing Officer was directed to issue Fresh Notice under Section 274 read with Section 271(1)(c) of the Act for the enhanced addition.
9.1 An order dated 11.03.2019 was passed by the Joint Commissioner of Income Tax (OSD) Central Circle-1, Vadodara, giving effect to the order of CIT Appeal and revised income of Rs.1,32,83,753/- was determined. The petitioner vide communication dated 20.03.2019 partly paid the demand and requested that the rest of the demand would be paid in installments on 25.06.2019. Thereafter, the petitioner requested for release of the jewellery after the payment of the outstanding amount. Further communications were also made by her to release the amount.
9.2 It appears that during the intervening period due to introduction of Vivad se Vishwas Scheme she approached for voluntary disclosure and filled the Form-3 under Rule 3 of Vivad se Vishwas Rules, 2020 framed under Vivad se Vishwas Act, 2020 declaring the amount payable under the said scheme. Ultimately the petitioner has discharged the entire tax liability determined in the order dated 14.12.2020 for the Assessment Year 2016-17, culminating in the issuance of Form – 5 by the competent authority accepting the full and final settlement. Thus, upon issuance of Form – 5, the entire liability which arose from the order dated 14.12.2020 was laid quietus, however, the jewellery of the petitioner was never released and she was constrained to further request the Prime Minister Grievance Cell and the Respondent Officers.
9.3 Various communications are addressed by the petitioner and the last communication was on 24.09.2021 that was by the mother-in-law of the present petitioner, wherein she has subjected that the she has no objection for release of jewellery to the present petitioner. Ultimately, by the communication dated 04.01.2022, the Assessing Officer refused to released the jewellery since the demand in case of her mother-in-law Mrs.Manjula Patel, who was the joint owner of the lockers was still in existance. The petitioner again clarified the entire aspects and pointed out the order passed by the CIT(A) and the issuance of Form-5 under the Vivad se Vishwas Scheme.
9.4 The respondent authorities has refused to release the seized jewellery by placing reliance on the Circular dated 21.01.2009, the relevant paragraphs read thus:
“3(a) Where the nature and source of acquisition of seized assets is explained by the assessee to the satisfaction of the assessing officer, such seized assets should be released subject to recovery of outstanding arrear demand and fulfillment of other requirements contained in sub- section (1) of section 132B of the Income Tax Act (hereinafter called the ‘Act’).
(b) Where the seized asset are not released under sub-section (1) of section 132B of the Act, such seized assets should be released within one month of passing of the last search and seizure assessment orders u/s 153A/153C, 143(3), 148 or 158BC/15880 of the Act the seized assets should be released only with the prior approval of Commissioner of income tax or Chief Commissioner of income tax, However, no approval should be given for release of
(i) that part of the seized assets, the value of which is sufficient to adjust any existing liability and the amount of liability determined on completion of the search and seizure assessments; and also
(ii) that part of seized assets which is sufficient to meet the expected liability on account of the penalty imposable in cases where penalty proceeding connected with search assessments have been initiated.”
10. We are of the considered opinion, that the respondent-0fficer has traveled beyond the intention of the aforesaid Circular by roping in the demand of mother-in-law for refusing the release of the seized jewellery of the present petitioner even after categorical finds of CIT Appeals and also issuance of Form-5 under the Vivad se Vishawas Scheme. By taking shelter under Circular dated 21.01.2009, in fact, the respondents have questioned the findings recorded by the CIT Appeals and also issuance of Form-5 by the competent authority. The provisions of paragraph no.3(b) (i) &(ii) cannot be invoked in case of the petitioner for denying the seized jewellery in wake of the fact of the findings recorded by the CIT Appeals as well as issuance of Form- 5 unequivocally establish that the jewellery belongs to the petitioner. The liability of the petitioner was already determined and ultimately the same was determined and culminated by issuance of Form – 5 by the competent authorities. Therefore, the approach of the respondents in denying the release of the seized jewellery is not only illegal, but perverse and also runs contrary to the intention of the Vivad se Vishwas Scheme as well as the findings by the CIT(A). The petitioner has been made to suffer for all these years only because of the obstinate attitude adopted by the department for release of the seized jewellery that too after passing the order by the CIT Appeals and issuance of Form- 5 by the competent authority. Thus, we find that this is a fit case for imposing an exemplary cost for acting in defiant manner that too in over reaching the findings of the CIT Appeal as well as over reaching the decision taken by the competent authority while issuing the Form- 5 towards full and final settlement of the tax liability.
11. The respondent had no authority to further detain the jewellery of the present petitioner after the issuance of Form no.5 that too on the pretext of the liability of her mother-in-law which was in fact determined and culminated in the findings of the CIT Appeals. The CIT Appeals had taken care of all the aspects and the ownership of the jewellery which belong to the present petitioner which was found from the lockers as mentioned in the said order.
12. Hence, the present writ petition succeeds. The impugned action of the respondents in detaining the jewellery of the present petitioner after passing of the order of CIT Appeals and the issuance of Form- 5 by the competent authority is declared as illegal and perverse. The respondentDepartment is directed to release the jewellery as prayed by the petitioner in the writ petition being 3473.700 grams of Gold and 6.97 carat of Diamond within a period of two weeks from the date of receipt of this order. We further direct that a cost of Rs.10,000/- shall also be paid to the petitioner while releasing the jewellery. We further direct that in case, the jewellery is not released within the prescribed time limit specified by us, the respondent authority shall pay an amount of Rs.1000/- for each delayed day to the petitioner, which shall be recovered from the erring officer.
13. With the aforesaid directions, the present writ petition stands allowed. Rule is made absolute.