DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM, A.P., India

PROJECT TITLE

SEARCH AND SEIZURE UNDER INCOME TAX ACT, 1961

SUBJECT
TAX LAW - 1

NAME OF THE FACULTY

R. VISHNU KUMAR SIR

Name of the Candidate

Roll No. & Semester

SV. Ruthvik
2016089
SIXTH SEMESTER
 ACKNOWLEDGEMENT

The project consumed huge amount of work, research and dedication. Still, implementation
would not have been possible without support of my lecturer. I take this opportunity to express
my profound gratitude and deep regards to my lecturer for his exemplary support, monitoring
and constant encouragement throughout the course of thesis.
 CERTIFICATE OF DECLARATION

I hereby declare that this project titled “SEARCH AND SEIZURE UNDER INCOME TAX
ACT, 1961” undertaken by me is an original work and have duly acknowledged all the
sources of statistics and other relevant information. The project is free from any kind of
plagiarism.

Date:
Place:

Signature of the Student

 TABLE OF CONTENTS

 INTODUCTION
 BACKGROUND OF THE PROVISION
 OBJECTIVE OF SEARCH
 SEZIURE
 PROCEDURE OF SEARCH AND SEIZURE
 LEGISLATIVE DEVELOPMENTS
 PERSONS AUTHORISED TO SEARCH
 TAXPAYER’S RIGHTS AND DUTIES OF PERONS SEARCHED
 STATUTORY PROVISION
 LEGALITY OF SEARCH AND JURISDICTION
 VALIDITY OF SEARCH
 POST SEARCH PROCEDURE
 CONCLUSION
 BIBILIOGRAPHY
 INTRODUCTION

Search means "not looking for something that is produced or opened, but hidden, not obvious",
which in general means "search", which are well-known meanings attributable to the word in
the section 132, as written. Judicially withheld in case law of "Assainar Vs ITO" It also means
taking possession of the registry, etc., for the purpose of inspection. It includes a thorough
inspection of the building, the place, the ship and the aircraft and the person.
'Seizure' means the authority to take possession of records, etc. outside of the possession of the
person. Therefore, it is something that involves a forced extraction or the taking of possession
of the owner or someone who has possession and who is unwilling to part with the possession.
The Income Tax Act of 1961 is the Law, as originally enacted, did not contain any special
provisions related to the assessment in the search cases. For the first time, the legislature
enacted special provisions by introducing Chapter XIV-B into the Finance Act of 1995 which
contains sections 158B to 158BH for the assessment of search cases in which the search was
initiated on or after 1.7. 95. Many litigation arose between taxpayers and tax authorities. Most
of the issues arising from the litigation were settled by various decisions of the Court and the
Superior Courts. However, the legislature, for the best known reasons, promulgated new
provisions by inserting articles 153A through 153C in the Finance Act of 2003 for assessment
in search cases in which the search is initiated u/s132 or make the application u/s 132A.

BACKGROUND OF PROVISION
Before the promulgation of the Constitution of India, the British government passed several
laws. The Sea Customs Act of 1878, the Land Customs Act of 1924 and the Central Excise and
Salt Act of 1944 are important laws in this regard. In these two laws various provisions related
to search and seizure were incorporated. All these laws remained in force even after the
promulgation of the Constitution. During this period several amendments were made to achieve
the objective for which the law was enacted.
One may recollect that in the year 1991, when the Chamber of Income-tax Consultants had
organised the second All India Tax Conference, one of the session was regarding tax payers’
education programme. It was the first time in the history of taxation that the Chamber of Income
tax Consultants had produced a “skit on Search and seizure”. The skit (play) was informative
about how a search was conducted, the common mistakes committed by assesses and the like.
In the year 1991, the Chamber of Tax Consultants also had a unique programme held at Baidas
Hall, where the high income-tax payers of Mumbai were honoured. In this programme also,
the play was enacted and was appreciated by all including the Chairman of the CBDT, the
Commissioners of Income-tax of Mumbai and the officials of the search team. It is worth
considering, subject to permission and precautions, if this play can be posted in the website of
the Chamber of Tax Consultants or could be re-enacted during seminars like this.
One of the important provisions of the Constitution of India is Article 265, which states that
"no taxes shall be collected or collected, except the authority of the law."

Articles 226/227 of the Constitution of India provide that citizens may go to the High Court
when their fundamental rights are violated or when the powers are exercised in a manner not
authorized by law. The search and seizure are an invasion of the privacy of the person. A house,
cottage, house or castle of a person is their personal property and nobody has the right to enter
and disturb the peace without the prior permission of the person employed.
In RK Garg v. UOI 1the Constitutional Bank observed that "Another rule of equal importance
is that laws related to economic activities must be viewed with greater freedom than laws that
affect civil rights, such as freedom of expression, religion, etc. "
It should be recognized and appreciated that the department always makes a lot of preparation
before carrying out the search procedures. The department search and seizure manual contains
several checklists that must be completed by the search parties. In most search cases,
department officials follow the checklists.

Object of search
S.132 elaborates the circumstances under which a search and seizure action can be undertaken.
As per the section 132, a search and seizure action can be undertaken against any person is in
possession of any money, bullion, jewellery or other valuable article or thing and such money,
bullion, jewellery or other valuable article or thing represents either wholly or partly income
or property which has not been disclosed or would not be disclosed for the purpose of this Act
(i.e. to unearth undisclosed income or property)
The search and seizure action can also be taken when there is failure to produce books of
accounts, documents etc. in respect of summons issued or notice issued under section 143(2).
Section 132(1) of the Income Tax Act can be invoked by the Commissioner of Income Tax
or Chief Commissioner or Director General or Director or any other authorized Additional or
Joint Director or Commissioner if he has “in consequence of information in his possession”

1
(1981) 133 ITR 239 (SC) (255)
“has reason to believe”. Generally the specified authorities proceed to search a person etc. not
on mere whims & fancies but only on the basis of some valid and just information and after
duly satisfying itself that the conditions precedent prescribed under sub-section (1) of section
132 are satisfied. None-the-less, there are good number of cases wherein an action to search is
taken not in accordance with law, may be on the basis of mere rumour or suspicion.

‘Information’ is not defined in the Act. Therefore, it will be relevant lo consider first, the
dictionary meaning of ‘information’ and later to see how this word has been considered by the
courts. “information” is defined as a statement of fact employed as an argument to justify or
condemn some act. In Chambers Twentieth Century Dictionary, “information” has been
defined as “intelligence given, knowledge, an accusation given to a Magistrate or a court”.
Courts have considered the meaning and scope of “information” in the context of different
taxing statutes.

SEIZURE:- Seizure is of two kinds –

 Actual Seizure,

 Deemed Seizure.

Actual Seizure:- During the course of search and seizure action, the authorized officer is
expected to go through each and every document and article found at the premises and to
ascertain the relevancy of such documents and articles with the point of view of tax evasion or
undisclosed assets, property as the case may be. If in the opinion of the authorized officer any
money, bullion, jewellery or valuable articles or things represent either wholly or partly the
income or the property of the assessee (tax payer) which has not been or would not be disclosed,
the same will be seized. It is the judgment of the authorized officer. that counts regarding what
should or should not be seized. He is not supposed to take instructions from any of higher
authorities in this matter. But the authorized officer must apply his mind before making the
seizure where there are two alternatives with the authorized officer either to seize or not to
seize, he must adopt the latter. Documents relating to income or assets or property already
disclosed, should not be seized in any condition because it may amount to unreasonable seizure.
 Balwant Singh Vs R.D. Shah, Director of Inspection2

The Delhi High Court in the case of had said that unreasonable seizure can be struck down on
the grounds that it is arbitrary and not in the public interest. This is so because every provision
relating to search and seizure has to be construed in the light of Article 19 of the Constitution.

ITR Vs Seth Brothers3

The Supreme Court in the case of also said-that the aggrieved party may undoubtedly move to
the competent court for an order releasing the document seized. In such a proceeding the officer
who had made the search, will be called upon to prove how the documents seized are likely to
be useful for or relevant to proceeding under the Act.

Under the Income Tax Act, the Income Tax authorities have also been empowered under
section 132A of the Act to take the possession of money, bullion, jewellery, documents etc,
which are seized by the other departments in their preventive action, or such things are in
the custody of a Court of Law. Under this section it is said that the Director General or Director
or the Chief Commissioner of Commissioner, in consequence of information in his possession
may authorize an officer not below the rank of the Income Tax Officer to require the officer
or the authority of that department or Court in whose possession money, bullion, jewellery
or documents are kept, to deliver such things to such authorized officer (also called as
requisitioning officer). After taking the delivery of such things, the requisitioning officer shall
seize them.

Thus, when a person carrying money, bullion, jewellery etc. is arrested by any authority of
police, customs, excise department, generally, these departments hand it over to the Income-
Tax Authorities. They suomotu inform to the Income-Tax Department about such arrest so
that the money or articles may be requisitioned, because keeping or carrying such valuables
may not an offence of the Acts implemental by theses departments but there are always fair
chances of income tax evasion.

Deem seizure:- “Deemed seizure” is a constructive seizure. Where it is not possible to

physically remove the valuable articles or things (such as stock in trade etc) to a safe place due
to its volume, weight or physical characteristics or due to its being of a dangerous nature, the

2
(1969) 71 ITR 550 (Delhi)
3
(1969) 74 ITR 836
authorized officer may serve an order on the owner or the person who is in immediate
possession or control thereof, that he shall not remove, part with or otherwise deal with those
articles or things without the prior permission of the authorized officer. Serving of such an
order of restraint or prohibition is statutorily known as “seizure” (or deemed seizure). After
serving of such an order, if the assessee (tax payer) deals with such an articles, deemed seized,
he may be prosecuted under the Income Tax Act as well as under the Indian Penal Code.

The fiscal authorities (especially the Income-Tax officers) have been making this type of
constructive or deemed seizure very frequently in the course of search and seizure actions.
While making deemed seizure, a prohibitory order is passed by the authorities and the tax payer
is directed by this order not to touch the articles or things or stock or documents etc. unless he
obtains a written permission from the competent authority to do so. In the prohibitory order,
description of the items of deemed seizure is clearly given.

A cross section of people coming across trade and industry have been raising their voices
against the provisions of deemed seizure in the fiscal laws because the fiscal authorities have
been making deemed seizure of their stock in trade and hence they (tax payer) were unable to
do their business for a very long time. In fact, the fiscal authorities, in several cases, did not lift
the order of prohibition for a very long time hence business were unable to deal with the stock
placed under the order of deemed seizure4.

So far as, the valuables, assets, jewellery, article or thing, which are not the stock in trade of
business, are concerned, these may be seized in the search and seizure action. For example, if
search and seizure, action takes place at the business and residence of a jeweler. There can be
two types of jewellery -

(i) Stock in trade of the business.

(ii) Personal jewellery of the family members of the jewellers being searched.

If the authorized officer finds that there is some unrecorded jewellery in the shop. In other
words, there is excess stock of jewellery. “Excess” means more than what is recorded in the
stock register or in other books of accounts. As per the latest amendment the authorized officer
cannot seize this excess jewellery because it is the stock in trade of the business. But the officer
can prepare an inventory of all the stock found in the shop and record the statement of the tax

4
Some aspects of Income Tax Administration of India (1983); by Anil Kumar Jain
payer on the point of excess stock. If the tax payer is unable to explain the excess stock to the
satisfaction of the authorities, the same may be treated as unexplained income of the tax payer.
But, seizer of such stock cannot be made.

So far as, personal jewellery of family member is concerned, if it is not shown in the balance
sheets of these persons or it is not explained by these persons, reasonable seizure out of this
jewellery can be made by the authority because it is not stock in trade of business.

One more thing is worth mentioning here that the

new amendment (discussed supra) says that,

“bullion, jewellery or other valuable articles or things being stock in trades of the business
found as a result of search shall not be seized ......... =

From this amendment it is clear that the cash can be

• seized even if it is stock in trade. For those persons, who do the business of money lending,
etc., cash may be the stock in trade of the business but the plain reading of the amended
proviso makes it clear that “cash” does not come.

PROCEDURE OF SEARCH AND SEIZURE

Generally the searches are conducted in the fiscal statutes for procuring the evidence which
would not be produced by the tax payer or laying hands on the unaccounted assets,
sales/purchases or ascertaining the unaccounted investments already made or expenditure
already incurred or goods manufactures and sold without paying the duties of the government
or goods are imported or smuggled without paying the customs duty etc.

Procedure – When the search party is about to enter in the residential/business places of a tax
payer, the latter may insist on production of warrant of authorization of search. The authorised
has to show the warrant to the person searched or in his absence to any other person present at
the time of the ingress. If the warrant is not signed and sealed by the competent authorizing
authority or the name of the concerned person is not written on it, he may decline the ingress.
The names of the persons and particulars of the premises to be searched should clearly be given
on warrant of authorization. If the warrant of authorization contains any cuttings or
overwriting’s, which are not duly authenticated by the authorizing officer or if the warrant of
authorization is mutilated even then the person to be searched would be within his right to
refuse the ingress. But the assessee cannot ask for the supply of a copy of warrant to him. The
assessee may also insist upon the production of evidence with regard to the identify cards etc.
He may also insist to carry out personal search of each and every member of search team. The
assessee may within is right decline the commencement of search unless two or more
respectable witnesses of the same locality are called by the search team

Legislative Developments:

Search and seizure are the important elements in the assessing the income of assessee or a tax
payer These provisions introduced originally with a view to prevent large scale evasion have
been amended later in order to plug the loopholes which were brought to light by actual
working and consequent to judicial scrutiny and review It is only thus desirable to have a look
at the legislative developments in this regard.

The authorities under the I.T. Act,1922 did not originally possess any powers of search and
seizure. It was only after the Second World War, necessity of this provision was felt to tax the
vast profits made by war profiteers.

Section 37(2) is introduced by Finance Act 1956 to grant powers of search & seizure to the
Income tax Authorities. The same powers and provisions as listed in section 37(2) of the I. T.
Act 1922 were originally embodied in section 132 of the I.T. Act’ 1961.

The introduced provision continued, till section 30 of the Finance Act 1964 replaced section
132 by a completely new elaborately provision. This became necessary as the then existing
provisions in section 37 sub-section (2) of the Income Tax Act 1922 were struck down by
Assam High Court being violative of Articles 14 and 19(1 )(g) of the Constitution. “The
substitution of the section resulted into enlargement of powers of CIT and authorized officers
whereby for the first time an order u/s 132 (1) could be issued only if “reason to believe”
existed that books of account or documents were not produced by the person concerned in
response to statutory notices issued or are not be produced even if summons were to be issued.

The powers under section 132 were further enlarged by an amendment brought about in 1965.
Among other changes made, it enabled the authorities to make a seizure of money, bullion
jewellery or other valuable article or thing if the authorized officer considered it necessary to
satisfy the liability estimated by him but the officer had to pass an order u/s 132(5) within 90
days of the seizure. This power to retain the seized assets has now been diluted as sub-section
(5) of section 132 of the I T. Act retrains no more applicable.

The powers of search and seizure were further extended by Taxation Laws Amendment Act,
1975 inter alia to authorize search if the officer issuing a warrant had, ‘reason to believe’ that
money, bullion, jewellery would not be disclosed by the person concerned for income tax
purposes in future. Also, Commissioners were empowered to permit entry into any building,
place vessel, vehicle or aircraft not within his territorial jurisdiction.

Subsequent amendments were made by Amendment Act’ 1 984 and Finance Act’ 1988
extending time limit to 120 days u/s 132(5) and granting the power to take constructive
possession of the assets seized respectively.

PERSONS AUTHORISED TO SEARCH

In accordance with Section 132 (A) of the IT Law, the Director General or the Director or the
Chief Commissioner or the Commissioner may authorize the Joint Director, the Joint
Commissioner, the Deputy Director / Deputy Director, the Deputy Commissioner / to the
Deputy Commissioner or the Tax Officer. Said person, that is, the person authorized under
Sector 132 (A) is called an authorized officer.
During a raid, the authorized officer has powers to:
1. (i) Enter and search in any residential and commercial establishment, vehicles, bank lockers,
etc. and take account books and other valuables.
2. (ii) Break the lock of any door, box, cabinet, safe, etc., where the keys are not available
3. (iii) Register any person who has left or is in the facilities
4. (iv) Confiscate the books of accounts, money and other valuables found as a result of said
search and make an inventory of said items.
5. (v) Place identification marks or make copies or extract extracts from books or documents,
etc.
Income tax authorities can also request account books and valuables seized by other
government departments for investigation under the Income Tax Law
Taxpayer’s rights and duties of persons searched5 –
Rights of the person searched -

5
(1994) 208 ITR 5 (St.)
(i) To see the warranty order duly signed and sealed by the issuing authority.
(ii) To verify the identity of each member of the search group.
(iii) To have at least two respectable and independent residents of the locality as witnesses.
(iv) To have a personal search of all the members of the search group before the start of the
search and at the conclusion of the search.
(v) To insist on a personal search of female members by another female member only with
strict respect for decency.
(vi) To have a copy of panchnama along with all annexures.
(vii) Put their own stamps on the packages that contain the seized goods.
(viii) A woman who occupies any department, etc., to be registered, has the right to withdraw
before the person conducting the search enters, if according to custom it does not appear in
public.
(ix) Call a doctor if you are not well.
(x) That your children be allowed to go to school, after examining their bags.
(xi) Inspect the seals in various respectable placed in the course of the search and subsequently
reopen with the continuation of the search.
(xii) Have the facilities to have meals, etc., at the normal time.
(xiii) Have a copy of any statement before it is used against him in an evaluation or judicial
process.
(xiv) To inspect account books, etc. seized, or extract extracts from them in the presence of
any of the authorized officers or any other person empowered in this name.
(xv) To make an application objecting to the approval granted by the Commissioner for the
retention of books and documents beyond 180 days from the date of the seizure.

Duties of the person searched

(i) Allow free and unhindered entry into the premises.
(ii) See the warranty of authorization order and put signatures on it.
(iii) Identify all the receptacles in which the assets or accounting books and documents
are kept, and deliver the keys of said receptacles to the authorized official.
(iv) Identify and explain the ownership of the assets, account books and documents
found in the facilities.
(v) Identify each individual in the facilities and explain their relationship with the
people who are being sought. You should not be deceived by impersonation. If he
 cheats by pretending to be someone else or knowingly replacing one person with
another, it is a punishable offense under article 416 of the Indian Penal Code.
(vi) Not allow or encourage the entry of unauthorized persons into the facilities.
(vii) Not remove any item from its place without prior notice or knowledge of the
authorized Official. If you save or destroy any document with the intention of
preventing it from being produced or used as evidence before the Court or the
public servant, you will be punished with imprisonment or a fine, or both, in
accordance with article 204 of the Criminal Code from India.
(viii) Answer all questions truthfully and to the best of your knowledge. You must not
allow any third party to interfere or point while the authorized officer registers
your statement. In doing so, you should also keep in mind that:
(a) If you refuse to answer a question on a topic relevant to the search operation,
you will be punished with imprisonment or a fine, or both, according to section
179 of the Indian Penal Code. (second). Being legally bound by an oath or
affirmation to declare the truth or affirmation to affirm the truth, if you make a
false statement, you will be punished with imprisonment or fine or both u / s 181
of the Criminal Code of India. (do). Similarly, if you provide evidence that is false
and that he knows or believes to be false, he is likely to be punished with code 191
of the Indian Penal Code. To place your signature on the registered declaration,
the inventories and the panchnama.
(ix) Ensure that peace is maintained throughout the search, and cooperate with the
search party in all aspects so that the search is concluded as soon as possible and
in a peaceful manner.
(x) Similar cooperation should be extended even after the search action ends, to allow
the Authorized Officer to complete the necessary follow-up investigations as soon
as possible.
There is no power to authorize any Income Tax officer to arrest an assessee or any other person
for owning unaccounted property. In simple words, at the stage of the raid, a person cannot be
arrested by the authorities of the Income Tax. However, if an Income Tax Officer is assaulted
or is subject to some other crime under the Indian Penal Code, the police may arrest the person
who has assaulted the authorized officer. It is necessary to clarify that the arrest would not be
under the Income Tax Law but would be for the offence under the Penal Code. Arrest at a later
stage is possible. This occurs when all of the Department's proceedings against the assessee is
over and a Certificate of Recovery is issued under Section 222 of the Income Tax Law.

STATUTORY PROVISION
The Finance Act 2017 proposes a vital Amendment in the Income Tax Act 1961 relating to
procedure for searches under the Act. Sub-section (1) and (1A) of section 132 provide that
where an authority mentioned therein, based on the information in his possession, has 'reason
to believe' or 'reason to suspect' of circumstances referred to in the said sub-sections, he may
authorize an authority specified therein to carry out search & seizure.
Article 132 govern the provisions of search and seizure and lays down the circumstances under
which a person can be raided and person who are authorised to conduct such search and seizure.
Powers of the authorities are also laid down, some of them being, search any person who has
got out of or into or is in the premises, break open the lock of any door, box, locker, safe etc.,
where the keys are not available, place marks of identification on or make copies or take
extracts of any books or documents etc.
Rights of an assessee during raid is also provided which includes –
 The assessee has the right to see the search warrant and the identification of the
authorized officers,
 The assessee can make copies and take extracts of the books of accounts or documents
seized. Prosecution proceedings under the Income Tax Act, 1961 can be initiate for
offences that are detrimental to the interest of the revenue and the same are listed from
Section 275 to Section 279 of the Income Tax Act, 1961. These offences are punishable
with rigorous imprisonment and fine for a period not less than 3 months but extending
up to 7 years. Circumstances and grounds for arrest of an assessee has been extensively
provided in the Act.6

Ram Kumar Dhanuka v. UOI7

The court held that even a non-resident Indian can be subjected to a search under this section
if the department has definitive information that the person in question has income earned in

6Search, seizure, survey and Settlement Commission(2004) ; by N. Subramaniam (Retd.

Joint Commissioner of Income

7
(2001) 252 ITR 205 (Raj)(HC)
India that may be subject to taxes under the Act and that they may not have been disclosed or
would not be so declared.

Prabhubhai Vastabhai Patel v. R.P.Meena8

The High Court has discussed the principles for the exercise of the power of search and seizure.
The Court observed that the person who brings gold must satisfy the income tax authorities
that he had the means to purchase said gold and that the income of the sale would be disclosed.
On the facts of that case, the Court held that the seizure of gold from the non-resident Indians
was valid, although the gold was placed within the permissible limit of 5 kg according to the
existing scheme. The Court also noted that,
“We cannot accept the contention raised by Mr. Shah that once the gold was lawfully brought
in and proper custom duty was paid, the same should not have been pursued by the income-tax
authorities. Buying gold in a foreign country and bringing it in to this country after paying
custom duty in foreign exchange does not absolve the person bringing the gold from abroad of
his liability to satisfy that the gold was purchased from income lawfully earned by him and the
income earned out of sale of such gold would be disclosed for the purpose of the Act.”

No arrest or detention can be made under this section.

Mere failure to disclose property purchased is not enough. No power to arrest or restraint in
movement of individual. “There is no power contained in the Act or the Rules where by the
movement of a person against search is ordered can be restricted. By refusing to give
permission to the petitioner to attend his work in effect, it amounted to his confinement which
is not permissible in law”.
Arrests- The power of arrest vests with the Customs, Central Excise and Enforcement Officers.
Income-tax Officers have no powers of arrest. Arrests are generally resorted to in cases where
the detected offence is of a serious nature and the case appears to be fit for criminal prosecution.
Persons are generally not arrested when the intention is only to have departmental proceedings.
Persons are arrested when there is a gravity of offence, evidence of personal culpability, a
strong and prima facie case and a likelihood of person tampering with evidence by remaining
at large or absconding.

8
(1997) 226 ITR 781(Guj.)(HC)
Can survey be converted in to search?
Under normal circumstances, “no”. However, in exceptional cases, “yes”.
A survey undertaken under section 133A can be subsequently converted into a search if the
conditions of this section are satisfied.

Vinod Goel v. UOI9

Where survey action u/s 133A was taken at the business and consequent search u/s 132 was
authorized at the residential premises without recording independent reasons for satisfaction,
the search was declared illegal.

Dr. Nalini Mahajan and others v. DIT10

Survey operation converted into search and seizure – No reason given for such conversion –
No independent application of mind –Search and seizure operation was held to be invalid –
Hospital premises belongs to Trust and not assessee.

Legality of search and Jurisdiction

ITO v. Seth Brothers & Ors.11

If the action of the officer issuing the authorization or of the designated officer is challenged,
the Officer concerned must satisfy the court about the regularity of his action. If the action is
maliciously taken or power under the section is exercised for a collateral purpose, it is liable to
be struck down by the court. If the conditions for the exercise of the power are not satisfied,
the proceedings are liable to be quashed. But, where the power is exercised with bonafide
intention and in furtherance of the statutory duties of the tax officer, any error of judgement on
the part of the officers will not vitiate the exercise of the power.

Pooran Mal v. DIT12

The provision relating to the search and confiscation in section 132 and Rule 112 of the Income
Tax Rules of 1962 does not violate fundamental rights under article 19 (1) (f) / (g) of the

9
(2001) 252 ITR 29(P&H)(HC)(40)
10
(2002) 257 ITR 123 (Delhi)(HC)
11
(1969) 74 ITR 836 (SC)
12
(1974) 93 ITR 505 (SC)
Constitution of the India. The restrictions imposed by any of the provisions of section 132,
section 132A or rule 112A are reasonable restrictions on freedom under these Articles. The
evidence obtained in the search made in contravention of the provisions may be used, unless
there is a prohibition expressly or necessarily implied in the Constitution or other law, the
evidence obtained as a result of an illegal search or seizure is not susceptible to being rejected.

Dr. Pratap Singh and Anr v. Director of Enforcement and ors 13

"The illegality of a search does not vitiate the evidence collected during the illegal search. The
only requirement is that the Court or the authority before whom such material or evidence is
placed must be cautious and prudent in dealing with such material or evidence. "

Prakash V. Sanghvi v. Ramesh G., Major, DDIT14

The court held that, in the case of trespassing of as property, delinquent officers can be
prosecuted by a competent criminal court. However, the court order issued warrant was
considered valid.
The Act does not invest in the Deputy Director, the power to have a camp office at the residence
of the assessee and call the assesses attendance in connection with proceedings under the Act.
The allegation that the Deputy Director trespassed into the house of the assessee and, thereafter,
issued the notice to him was not controverted. Therefore, the Deputy Director without the
authority of law, having trespassed into the house of the assessee deserved to be prosecuted
before a competent criminal court, if so advised.

However, the order preceded the search. The assessee had time until March 15, 2012 to pay
the advanced tax and, subsequently, time to file his return of the previous year 2011-12
(assessment year 2012-13), but that did not mean that the authorities did not have the
jurisdiction to issue a search and seizure order under section 132.

DCIT v Mahesh Kumar Agrawal15

Before issue of warrant of authorization, they record the satisfaction and reasoning. Court
cannot sit in appeal over the opinion formed. Existence of materials to be looked into, Court

13
(1985)155 ITR 166 (SC)
14
(2013) 356 ITR 426 (Karn) (HC),
15
(2003) 262 ITR 338 (Cal) (HC)
has to examine whether on such material a reasonable man can form opinion. Change in life
style of assessee not a material for purpose of formation of opinion.
Search and seizures: New Ground rules for search and seizure, framed in the year 1986,
prescribes the guidelines to be followed in the course of a search and seizure.

It is desired that the said charter may be published in all national languages and when the search
and seizure action is carried out, the same must be given to the person in the language known
to him and in which he is comfortable. If the department is not equipped with resources to
translate the charter in different languages, associations like the Chamber or BCAS may print
the copies and may give to the Director General of Income-tax so that he can hand it over to
the person in charge of the search party.
Stock in trade cannot be seized

S.132(1)(iii) Seize any such books of account, other documents, money, bullion, jewellery
or other article or thing found as a result of such search.
Provided that bullion, jewellery or other valuable article or thing being stock in trade of the
business, found as a result of such search shall not be seized but the authorized officer shall
make a note or inventory of such stock in trade of the business.
As per the third proviso to section 132 1)(v), stock in trade cannot be seized even in case of
deemed seizure given in the second proviso.

Sri Pushpa Rajan Sahoo v. ACIT 16

On a writ petition, the court directed the authorities to release the stock in trade and return to
the party, in view of specific provision contained in proviso to section 132(1)(iii) and third
proviso to section 132 (1)(v).

Validity of search - If the search is not in accordance with the law, it can be challenged by
way of a writ. The burden to prove so is on the assessee. Before approaching the court, assessee
must be very cautious. As per section 132(13), the provisions of the Code of Criminal
Procedure 1973, relating to search and seizure apply as far as may be applicable, to search and
seizure proceedings under the Income–tax Act, 1961. By analyzing some of the decided cases

16
(2012) 252 CTR 113/ 75 DTR 341 (Orissa) (HC),
one may be able to take the decision whether it is worth approaching the court. Some of the
instances where the writ petitions can be considered-
Where there is no rational nexus between the information on record and reason to believe that
books of account or other documents would not be produced or the assets representing the
income will not or would not be disclosed – Existence of alternate remedy is no bar when action
is taken without jurisdiction and affects fundamental rights.

Vindhya Metal Corporation and ors v. CIT17

Where the search is conducted for collateral purposes or as a matter of policy decision and not
as a result of cogent information in relation to a particular assessee. Allegation against
advocates were that most of them were submitting estimated income

H. L. Sibal v. CIT18
Where the search is directed on the basis of information that a particular person is in possession
of various assets etc., without any reason to believe that those assets represent concealed
income of that person – Probe into the wealth of assessee – Non application of mind –Search
and seizure action was held to be illegal.

Anand Swaroop v. CIT19

Where there is no application of mind by the Officers of the department who authorized the
search, search was held to be not valid.

Dwaraka Prasad Agrwalla v. CIT20

Where the information on the basis of which a search is conducted on based on conjectures
and surmises or on vague information. Mere rumor that Doctor was charging high fees and
living in posh house – Search and seizure was held to be invalid.

17
(1985) 156 ITR 233 (All) (HC)
18
(1975) 101 ITR 112 (P&H) (HC)
19
(1976) 103 ITR 575 (P&H) (HC)
20
(1982) 137 ITR 456(Cal.)(HC)
 Dr. Nand Lal Tahiliani v. CIT21
Where the warrant of authorization is blank or proper name and address is not recorded-Blank
warrant of authorization without filing up the name was issued by the Commissioner-Search
warrant was quashed and the respondents were directed to return the articles recovered from
the possession of the petitioners.

Jagmohan Mahajan & Anr. v. CIT22

Sealing of business premises-Cannot be done-Alternative remedy –Not an absolute bar to the
issue of Writ. Sealing of business premises during the course of survey or section 132,133A,
or any other provision of the IT Act is not permitted, as it would amount to violation of the
fundamental right guaranteed under Article 19(1)(g) &300A of the Constitution of India.
“That the sealing of the business premises, for which there was no provision of law in violation
of the fundamental rights guaranteed to a citizen under article 19(1)(g) of the Constitution of
India which guarantees right to practice any profession, or to carry on any occupation, trade or
business and also under article 300A of the Constitution of India in as much as the same
amounted to temporary deprivation of property without authority of law.”

In the case of Nand Lal Gandhi-vs-ACIT23 search was conducted on 28.7.97 in the course of
which certain incriminating materials including shares and jewellery were found which were
invented. Valuation of jewellery was also made. A panchnama was prepared in which it was
mentioned that only books of account and documents were being seized and the search was
stated to be temporarily concluded. A prohibitory order was issued u/s 132(3) in respect of the
shares and jewellery which was lifted on 8.9.97. A panchnama was also prepared on that day
which merely stated that search was concluded. The block assessment was concluded on
30.9.99. The question before the Tribunal was whether assessment was time barred.
The tribunal, by majority opinion, held that panchnama dated 8.9.97 as well as restraint order
were invalid and therefore, the period of limitation was to be counted from the end of the month
of July 97. Hence, the assessment was time barred. The reason given by the tribunal was that
every act of search was completed on 28.7.97 and nothing remained to be done with reference
to the shares & jewellery since the same had already been inventorised and valued. Further

21
(1985) 170 ITR 592 (All.)(HC)
Affirmed by Supreme Court in CIT v. Dr. Nand Lal Tahiliani (1988) 172 ITR 627 (SC)
22
(1976) 103 ITR 579 (P&H)(HC)
23
115 ITD 1(Mum)(TM),
nothing was done on 8.9.97 except lifting the order. Therefore, the order u/s 132(3) was invalid
in view of Bombay High Court judgment in the case of Sandhya Naik (supra

Post Search Procedure:-

After the search and seizure operation is over, post search enquiry will start. in this enquiry all
the seized documents and articles are scrutinized for ascertaining the correct amount of
undisclosed income and property etc. Difference, of what has already been disclosed in the
returns and what has not been disclosed, is worked out and accordingly tax is charged. Under
the POCAct, prosecution is launched by the agencies conducting the search.

In the Income Tax Act, new procedure of block assessment was brought in 1995 for completing
the assessment of search and seizure cases. Under this procedure there is a block of six years ,
which goes six years back from the date of search action. The Income Tax Authorities cannot
do anything of an undisclosed income if it relates to prior to six years of the date of search.
Immediately after the completion of search, the tax payer is supposed to take the Xerox copies
of the seized documents and compute his correct undisclosed income for last six years on the
basis of seized documents.

Within 45 days of the date of search he has to file his returns of block period and pay the tax
at the rate of 60 % on the undisclosed amount. This undisclosed income shown in the block
return is as per the opinion of the tax payer, which may or may not be correct, hence it is
scrutinized by the department after taking into consideration all the seized materials. The
assessing officer cannot be below the rank of the assistant Commissioner), will scrutinize this
return along with the documents seized and find out the correct amount of undisclosed income
and then pass the assessment order within 2 years of the date of search.

If the undisclosed income shown by the assessee in his block return is found correct, in the
scrutiny by the assessing officer, the file of the case will close but if the assessing officer finds
that the undisclosed income shown by the assessee in the block return is not correct and it is
less than what it should be as per the seized materials, (the assessing officer) shall compute the
correct undisclosed income. If the amount of undisclosed income computed by the assessing
officer is more than the amount of undisclosed income shown by the assessee in his block
return then, on the difference of the two, the tax payer will have to pay the tax @ 60% penalty.
The amount of penalty in such cases may be minimum equal to the amount of tax and maximum
equal to three times of tax depending on the discretion of the assessing officer24.

For E.G, if a tax payer after scrutinizing each and every paper computes his undisclosed
income of block period (i.e. six years) at Rs.100/-, he will show undisclosed income in his
block returns at Rs.100/- and pay tax @ 60 % which will be at Rs.60. This is called as Returned
income. But the assessing officer during the course of security finds that the undisclosed
income of the assessee of block period should have been at Rs.150 instead of Rs.100 then he
will pass the assessment order at the undisclosed income of Rs.150 This is called as the
Assessed income.

Difference of these two is at Rs.50 and tax on this Rs.50 @ 60% will be at Rs.30. The amount
of penalty on this sum may be minimum at Rs.30 and maximum at Rs.90/-. Now suppose,
minimum penalty i.e. Rs.30 is levied, then the amount of tax and penalty will be at Rs.60 (30
+ 30). Thus, though the amount of undisclosed income detected by the assessing officer is at
Rs.50, the assessee (tax payer) will have to pay on this undisclosed amount at Rs.60, which is
more than the amount undisclosed. It is the contention of some of the tax practitioners that if
the amount of tax and penalty is more than the amount of actual concealment, it is unreasonable
and hence is violative of Article 14 of the Constitute because the state cannot make the liability
more than the asset concealed. Though this has never been raised before any court of law by
the any assessee (tax payer) in the past yet in the Finance Act, 2003, provisions of block
assessment have been omitted and new procedure of the assessment of search and seizure has
been introduced. Under this procedure, if concealment of income is detected by the Income-
Tax Authorities in the search and seizure action, the tax payer shall have to go through
following consequences: -

 He shall pay tax @ 30% on the concealed amount of income.

Penalty for the concealment may also be levied under - Section 271(1)(c) of the Income-Tax
Act, 1961. The minimum of sum of this penalty is equal to the amount of tax sought to be

24Search, seizure, survey and Settlement Commission(2004) ; by N. Subramaniam (Retd.

Joint Commissioner of Income
evaded and maximum sum may be equal to the amount of these times of tax sought to be
evaded.

(iii) Prosecution for the willful attempt to evade tax, may also be launched in the court of the
Judicial Magistrate First Class under section 276C of the Income-Tax Act, 1961. Under
this section, a tax payer shall be punishable.
(a) In a case where the amount sought to be evaded exceeds one hundred thousand rupees,
with rigorous imprisonment for a term which shall not be less than six month but which
may extend to seven years and with fine.
(b) In any other case (i.e. if the amount sought to be evaded is less than Rs.100,000/-), with
rigorous imprisonment for a term which shall not be less than three months but which may
extend to three years and with fine.

The Central Board of Direct Taxes made it compulsory to file the prosecution in those cases
where the amount of tax sought to evaded is Rs.25,000/- or more and penalty of such
concealment is upheld by the Commissioner of Income-Tax (Appeals) or the Income Tax
Appellate Tribunal. Earlier in the block assessment, the provisions of prosecution were not in
the Act.
 CONCLUSION

Search and seizure under income tax act – Basically search and seizure will be conducted by
the IT professionals under Section 132 of Income tax act, 1962 which generally provides the
procedure should be followed in conducting raids in the assessee house or industry or
organization. Before the implementation of the specific provision in the income tax act i.e.
before the existence of the search and seizure concept there are so many instances where the
wrongdoers or the persons with alleged incomes got free from the search of the wrongful assets
of the persons who possessed such assets. By implementing this particular provision in the act
which provides effective procedure that should be followed by the such persons who is
conducting the income tax raids. As the problem of the black money been increasing day by
day the government should take more necessary steps in reduction of such black money, so
that government should make enough effective legislations or implement other provisions also
which guide the search and seizure of the income of the assessee.

The government should also implement the strict punishments for the persons who convicted
for the unaccounted incomes, so that it will imbibe the fear in the minds of the tax payers of
the punishment, so that the persons will pay the tax and maintain the clear and fair accounts
with the accounted balance sheets. Still the laws relating to the search and seizure should be
made stringent so that the cases of the misappropriation of money, and unaccounted money
will get reduced.
 BIBILIOGRAPHY

 Search, seizure, survey and Settlement Commission(2004) - by N. Subramaniam (Retd.

Joint Commissioner of Income)

 Indian Kanoon

 Manupatra

 Extra ordinary Gazette of India (Service : Union Public Service commission) - As per
notification of the Central Govt. (Implementation of FERA)

 Extra ordinary Gazette of India (Service : Union Public Service commission)