PCIT Can Verify Seized Jewellery During Section 263 Revision: Calcutta High Court Ruling in Miraj Digvijay Shah Vs ACIT

Overview

The Calcutta High Court, in Miraj Digvijay Shah Vs ACIT, examined whether the Principal Commissioner of Income Tax (PCIT) can direct inspection of jewellery and bullion seized during a Section 132 search while exercising revisional powers under Section 263 of the Income Tax Act 1961.

The assessee challenged multiple inspection notices on the ground that:

• No reasons or “information” justifying inspection were shared.
• The seized jewellery had already been inventoried and valued during the original search.
• Appeal against the assessment order was pending before CIT(A), and therefore, revision under Section 263 was allegedly barred on certain issues.
• Inspection would disturb the “chain of custody” of the sealed assets.

The High Court rejected these objections and held that:

• In a Section 263 proceeding, the PCIT is statutorily authorised to make or cause any inquiry “as he deems necessary”. Inspection of seized assets is one such permissible inquiry.
• Under Rule 112(13) of the Income Tax Rules 1962, sealed packages containing seized valuables may be opened “for any of the purposes of the Act” after giving reasonable notice to the person from whose custody they were seized.
• There is no legal requirement to disclose the “information” or “reasons” that prompted such inspection, as long as the inspection is for a purpose under the Income Tax Act and proper notice is given.
• The impugned notices were valid and not arbitrary; the writ petition was dismissed.

Factual Background

Search and seizure under Section 132

1. A search under Section 132 was conducted on June 21, 2022 and on subsequent dates:

   • At the residence and office premises of the petitioner, Miraj Digvijay Shah.
   • At bank lockers belonging to the petitioner and his family members.

2. During the search, jewellery and bullion (“seized assets”) were:

   • Inspected, measured and serially numbered.
   • Valued by valuers approved by the Income Tax Department.
   • Dealt with strictly in accordance with the prescribed search and seizure procedure and the Search and Seizure Manual of the Central Board of Direct Taxes (CBDT).

3. The seized jewellery and bullion were placed in sealed packages as mandated by Rule 112(10) of the Income Tax Rules 1962 and kept in the strong room of the department.

Assessment and appeal

4. The assessee filed his Income Tax Return (ITR) for Assessment Year 2023-24. The ITR was processed under Section 143(1) on September 17, 2023.

5. The case was later selected for compulsory scrutiny. Notices under Section 143(2) and Section 142(1) dated October 04, 2023 required the assessee to:

   • Reconcile the seized jewellery and bullion with his books of account and, where relevant, wealth tax returns.

6. The assessee responded on January 03, 2024:

   • Furnishing a reconciliation and a “master list” explaining the alleged sources of the seized assets.
   • Claiming that the jewellery and bullion belonged to him and his family members.
   • Asserting that a significant portion of the seized items belonged to his father‑in‑law, who allegedly kept them with the assessee’s wife due to a family dispute with the assessee’s brother‑in‑law.

7. The Assessing Officer (AO) passed an assessment order on March 30, 2024:

   • Partly accepted the assessee’s explanation.
   • Reduced the quantum of unexplained assets from Rs.14,00,31,943/- to Rs.12,33,34,445/-.

8. The assessee filed an appeal against this assessment order under Section 246A.

   • That appeal remained pending.
   • According to the assessee, the entire issue of addition relating to seized jewellery and bullion was already sub judice before the appellate authority.

Initiation of Section 263 revision proceedings

9. During pendency of the appeal, the PCIT issued a notice dated March 07, 2025 under Section 263(1):

   • Alleged that the AO had passed the March 30, 2024 assessment order without conducting adequate inquiry or verification regarding the source of the seized assets.
   • Stated that the order was “erroneous in so far as it is prejudicial to the interests of the revenue” within the meaning of Section 263.
   • Called upon the assessee to show cause why the assessment order should not be revised.

10. The assessee submitted a detailed reply to the Section 263 show cause notice on March 07, 2025.

Notices for inspection of seized jewellery

11. Subsequently, the department issued an inspection notice dated October 24, 2025:

• Informing the assessee that inspection of the seized jewellery and bullion had been scheduled on October 29, 2025.
• Asking the assessee to appear in person or through authorised representative, along with two independent witnesses, at the strong room at Aayakar Bhawan, Annex Building, 1st Floor, P-7, Chowringee Square, Kolkata-700069 at 12 P.M.

12. On October 28, 2025, the assessee responded:

• Claimed inability to attend due to “a medical condition” causing bleeding from legs, arms and other parts of the body.

13. On October 29, 2025, the department issued a further communication:

• Rescheduled the inspection to November 04, 2025.
• Offered alternative dates of November 06, 2025 and November 07, 2025.

14. On November 04, 2025, the assessee again expressed inability to attend on any of the proposed dates:

• Cited ongoing medical issues and argued that there was no urgency, given that the jewellery had been in departmental custody for about thirty‑eight months.
• Emphasised that in “matters of this nature”, his personal presence could not be effectively substituted by an authorised representative who may not know the particulars of the seized items.
• Asserted that the non‑attendance was not an attempt to delay or obstruct proceedings.
• Promised to inform the department once medically fit.

15. On the same date, via e-mail, the assessee also:

• Formally objected to the proposed inspection.
• Contended that issues of “source/ownership of seized jewellery, mapping to the owners, their explanation and addition u/s 69A” were already before the Commissioner of Income Tax (Appeals).
• Argued that in light of Explanation 1(c) to Section 263, the PCIT could not invoke Section 263 on matters forming part of pending appellate proceedings.