Gujarat High Court Directs Return of Seized Diamonds: 120-Day Limit Under Section 132B is Binding and Non-Negotiable
Overview of the Case
The Gujarat High Court, in Ashish Jayantilal Sanghavi Vs ITO (Gujarat High Court), adjudicated upon a significant question concerning the mandatory nature of the statutory time limit prescribed under Section 132B of the Income Tax Act, 1961, for the release of assets seized during search operations. The Court ruled decisively in favour of the writ applicant, ordering the Income Tax Department to return polished diamonds valued at Rs. 92,09,550/- within four weeks. The judgment reinforces the position that the prescribed 120-day window for releasing seized assets carries mandatory force and cannot be treated as a mere procedural guideline.
Background and Factual Matrix
The Business and the Transaction
The writ applicant, Ashish Jayantilal Sanghavi, operated a diamond trading business through his proprietary concern, M/s. Vir Impex. In the course of his trade, he sold polished diamonds valued at Rs. 92,09,550/- to Akash Diamonds Pvt. Ltd., raising Invoice No. 112/19-20 dated 2nd July 2019 for the transaction.
The Search Operation and Seizure
On 8th August 2019, the Income Tax Department conducted a search under Section 132 of the Income Tax Act, 1961, at the business premises of Akash Diamonds Pvt. Ltd. At the time of the search, Parin N. Sheth — an employee of the writ applicant — was present at the premises. He had gone there specifically to collect the signed invoice from the buyer. During the search proceedings, the department found Parin N. Sheth in possession of the polished diamonds, and the relevant invoice was also discovered at the site. The diamonds were accordingly seized from his custody.
Initial Statement and Subsequent Retraction
At the time of the search, Parin N. Sheth made a statement under Section 132(4) of the Income Tax Act, 1961, in which he reportedly claimed ownership of the seized diamonds. However, he subsequently retracted this declaration through an affidavit, clarifying that the diamonds did not belong to him but to the writ applicant's proprietary concern, M/s. Vir Impex.
Applications Filed for Release of Seized Diamonds
First Application — 6th September 2019
The writ applicant promptly filed a written application on 6th September 2019 with the Income Tax Officer, Ward-1(2)(1), Surat, seeking release of the seized diamonds under the first proviso to Section 132B(1)(i) of the Income Tax Act, 1961. In this application, the writ applicant:
- Explained that Parin N. Sheth had visited the premises solely to collect the signed sale invoice
- Stated that the diamonds were the property of his proprietary firm, M/s. Vir Impex
- Disclosed his willingness to surrender income of Rs. 87,50,000/- as additional income for AY 2019-20 and AY 2020-21
- Undertook to pay tax along with applicable interest on such declared income
- Stressed the urgency of release to avoid disruption to trade and liquidity
Affidavit by Parin N. Sheth
Parin N. Sheth separately filed an affidavit retracting his original declaration and confirming that:
- The diamonds had been held by him purely in his capacity as an employee of M/s. Vir Impex
- Ownership of the diamonds vested entirely with the writ applicant's proprietary firm
- He requested that the diamonds be released either to the writ applicant or to himself on the writ applicant's behalf
Affidavit by the Writ Applicant
The writ applicant himself filed an affidavit corroborating the above position and reiterating his offer to pay tax on the disclosed additional income of Rs. 87,50,000/-.
Subsequent Reminders
Despite the initial application, the writ applicant and his employee continued to follow up:
- A second reminder was sent on 16th September 2019
- The employee filed his own reminder on 17th September 2019
- A third reminder from the writ applicant was sent on 6th March 2020
- The employee also sent a final communication on 6th March 2020
At no point did the Income Tax Officer respond to any of these applications, reminders, or affidavits. The complete silence of the department compelled the writ applicant to approach the Gujarat High Court by way of a writ petition under Article 226 of the Constitution of India.