Under common law, a house of a citizen was considered as his
castle and nobody including the State could invade the privacy or his privacy
in it. As a matter of fact, search and seizure is a serious invasion on the
rights of the citizens. Under common law, earlier search and seizure were not
known. However, as there was great tax avoidance by unscrupulous citizens, it
was felt necessary to give powers of search and seizure to the State. With that objective, search and
seizure proceedings were included as part of the regular law.
Before
the law was amended, tax authorities possessed only such powers as were
ordinarily possessed by civil courts under the Code of Civil Procedure, such
as, powers of discovery and inspection, enforcing attendance of witnesses, examining
them on oath, compelling the production of books and documents, issuing
commissions, etc. In order to curb the tendency of tax evasion by businessmen
to secret and keep their profits outside the books and to invest them in shares
and real estate, it was considered expedient in public interest to tax income
or profits thus escaping taxation.
Originally the authorities under the
Income Tax Act were not vested with the powers of search and seizure. Under the
erstwhile Indian Income Tax Act, 1922, there was also no power to search and
seize. They had only the ordinary powers of Civil Court under the Code of Civil
Procedure as provided in section 131 of the Income Tax Act, 1961 (hereinafter referred as “the Act”) or
section 37 of the Indian Income Tax Act, 1922 viz. powers of discovery and
inspection, enforcing attendance of witnesses, examination of witnesses on
oath, compelling the production of books of accounts and documents, issuing of
commissions, etc.
Taxation
on Income (Investigation Commission) Act, 1947
Strange but true, upto 1947, search
and seizure action under the law of Income Tax was unknown in India. For this
purpose Taxation on Income (Investigation Commission) Act, 1947, was enacted
with vast powers to deal with cases of substantial evaders of tax. For the
first time, the income-tax authorities were invested with vast powers of search
and seizure with the object of assisting the Investigation Commission to help
to apprehend tax evaders.
On recommendations of Investigation
Commission set up in 1948 to bring to book huge profits, earned during second
world war and kept secret from Income Tax Department, powers of search and
seizure were, for the first time, vested in Income Tax authorities under a new
enactment called, “Taxation of Income Investigation Commission (Amendment) Act,
1948”
However, the provisions contained in
the said Act were declared ultra vires by the Hon’ble Supreme Court in Suraj
Mall Mohta & Co. v. A. V. Vishvanath Sastri (1954) 26 ITR 1 held that the
provisions of the Act are discriminatory legislature and in violation of
Article 14 of the Constitution of India.
Section
37 of the Indian Income Tax Act, 1922
As such, the Act lost all its teeth, but as tax evasion
continued unabated, the Central Government appointed the Taxation Enquiry
Commission 1956 to look into this matter and on the recommendations received
from the Commission, section 37 in the 1922 Act was recast, so as to confer
powers of search on the Income-tax Officers specially authorised by the
Commissioners in that behalf. The powers were limited to search and seize books
of account and other documents which in his opinion would be useful or relevant
for proper assessments under the Indian Income Tax Act, 1922.
Finance Act, 1964, vesting of powers of search and seizure
for the first time in Income tax Department
It was since 1956 that the
provisions of search and seizure made its first entry into the Income Tax Act.
Section 132 was totally substituted by the Finance Act, 1964. Section 132 of
the Income Tax Act was amended and enlarged by the Finance Act, 1964, section
30 of the Finance Act, 1961 substituted the then existing provisions of section
132 by new provisions by which the Commissioner (Now Director General/Principal
Director/Director or Chief Commissioner or Commissioner) may authorize any
Inspecting Assistant Commissioner (Now Addl./Joint Director) or any Income Tax
Officer (Assessing Officer) to make a search of premises and seize books of
accounts, documents etc. If he has reason to believe in consequence of
information in his possession.
Income
Tax (Amendment) Act, 1965 – Enabling seizure of cash etc.
Provision of section 132 were refined. The powers of seizure
of unaccounted cash, bullion or jewellery of other valuables or articles or
things were conferred on the tax authorities.
Taxation Law (Amendment) Act, 1965
Enlarging the scope of search to cover
vessel, vehicle and aircraft, incorporating section 132(1)(iia) so as to search
any person present in the premises during search or going out or entering into
the premises (with effect from 01.10.1975)
Taxation
Laws (Amendment) Act, 1975 – Enlarging thescope of place(s) of search to cover
vessel, vehicle and aircraft, making provision for application of the seized
assets etc. to effectively combat the growing menace of black money
Later on, on the recommendations of the Wanchoo Committee,
Taxation Laws (Amendment) Act, 1975 was enacted to introduce several amendments
to section 132. It inserted a new section 132A and the existing section 132A
was renumbered as section 132B. The Amending Bill introducing these amendments
was known popularly as Black Money Bill. The above amendments were made with a
view to enlarge the powers of search and seizure vested in the Income-tax
authorities. The powers earlier vesting in the Directors of Inspection or the
Commissioners were extended to vest even in such Deputy Directors of Inspection
and Deputy Commissioners as may be specially empowered by the Board for that
purpose.
Direct Tax Laws (Amendment) Act, 1987
The Amending Act, 1987 has inserted
an Explanation to section 132(3) to clarify that a prohibitory
order under section 132(3) does not amount to seizure. Further, there was no
time limit up to which such a prohibitory order can be in force. This causes
inconvenience to the assessee, as the authorised officer can keep the books of
account, documents, valuable articles, etc., under prohibitory order for an
indefinite period and there was no recourse left to the person, if the
prohibitory order continues for an unduly long period. Several Courts have held
that the absence of mention of time limit in section 132(3) does not mean that
the authorised officer can subject any asset to such prohibition for indefinite
period of time. To remove this difficulty, the Amending Act, 1987 had
introduced a new sub-section (8A) in the section 132 to provide that a
prohibitory order will not be operative for a period exceeding 60 days from the
date of the order unless the authorised officer records reasons in writing
and obtains the approval of the Commissioner to such extension. It is further
provided that the Commissioner shall not approve the extension of the period
beyond the expiry of 30 days after the completion of all the proceedings under
the Act in respect of the years for which the books of account, documents,
money, bullion, jewellery or other valuable articles or things are relevant.
Finance Act, 1988 :
The Concept of Deemed or constructive Seizure was
incorporated by the
Finance Act, 1988 with effect from 01.04.1989 by insertion of second
proviso to section 132(1)
Text of Second proviso
to Section 132(1)
The concept of deemed seizure was
incorporated by insertion of second proviso to section 132(1).
Provided further that where it is not possible or
practicable to take physical possession of any valuable article or thing and
remove it to a safe place due to its volume, weight or other physical
characteristics or due to its being of a dangerous nature, the authorised
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 it, except with the previous permission of such authorised officer
and such action of the authorised officer shall be deemed to be seizure of such
valuable article or thing under clause (iii).
Finance Act, 1988
Concept of block assessment was
introduced by inserting Chapter XIVB under the Income Tax Act, 1961. Concept of
passing order under section 132(5) making summary assessment to decide the
retention of seized assets was dispensed with.
Finance Act, 2002 [with effect from 01.06.2002]
Clause (iib) had been introduced so
as to empowers the authorized Officer to inspect books and other documents kept
in electronic form.
Finance Act, 2003 [with effect from 01.06.2003]
Providing not to seize stock in trade
of the business so that normal business operations are not disturbed.
The whole
procedure of assessment in the case of search was amended by introducing new
assessment procedure under section 153A, 153B and 153C.
Constitutional validity affirmed
The constitutionality of the
provisions contained in section 132 came to be considered by the Supreme Court
in Pooran Mal v. Director of Inspection (1974) 93 ITR 505 (SC) wherein it was
held that the provisions relating to search and seizure in section 132 of the
1961 Act and rule 112 of the 1962 Rules do not violate the fundamental rights
under Articles 19(1)(f) and (g) of the Constitution of India as these
provisions impose reasonable restrictions. The exercise of power of search and
seizure though very wide are not arbitrary, as they provide a reasonable
guidance in the matter of their exercise.
It was held that search and seizure
provisions contained in Section 132 and the rules framed thereunder are not
violative of the Provisions of the Constitution. Section 132 of the Income-tax
Act, 1961. is neither
incompetent nor invalid as infringing any of the fundamental rights guaranteed
under Articles 14, 19, 21 and 31 of the Constitution.
[Bhupendra
Ratilal Thakkur v. CIT (1976) 102 ITR 531 (SC)]
Search and Seizure vis-a-vis Fundamental Rights of the
Citizen
In Balwant Singh & Others v. R. D. Shah, Director of Inspection, the court referring to the fundamental rights said that: As a matter of fact search and seizure is a serious invasion on the rights of the subjects. The search and seizure was really not known at earlier stage of common law. When it was for the first time introduced it was confined only to stolen foods but its usefulness soon forced its recognition and was form time to time extended to such like searches and seizures.
In Balwant Singh & Others v. R. D. Shah, Director of Inspection, the court referring to the fundamental rights said that: As a matter of fact search and seizure is a serious invasion on the rights of the subjects. The search and seizure was really not known at earlier stage of common law. When it was for the first time introduced it was confined only to stolen foods but its usefulness soon forced its recognition and was form time to time extended to such like searches and seizures.
Thus through an amendatory process the ownership of concealed income was
sought to be subjected to an identical treatment as fallen are subjects to for
stolen foods concealed by them. In short the chapter was born amidst
controversial circumstances and against stiff opposition. The provisions ex
facie impugned on the same time on court fundamental rights guaranteed under
the Constitution. In fact this shield acted as a catalyst for fermenting the
controversies. Recognizing the fact that in United States, the right of the
people to be secured in their persons, Houses, papers and effect against
unreasonable searches and seizures are inviolable and that warrants for search
are not issued unless the prosecutor testifies on oath the probable cause and
in particular describes the place to be searched and the persons or thing to be
seized, litigants at home insisted on a stricter application of the chapter.
They also marshaled the following observations of the great British Jurist Lord
Denning in support of their contention that the chapter must receive a strict
construction:
“None would wish that any of those who defraud the revenue should be free. They should be found out and brought to justice. But it is fundamental in our law that the means which are adopted to this ends should be lawful means. The means must not be such as to offend against the personal freedom, the privacy and fundamental rights of property. Every man is presumed to be innocent until he is found guilty. If his house is to be searched and his property seized on suspicion of an offence, it must be done by due process of law and the process involves that there must be a valid warrant specifying the offence of which he is suspected and the seizure is limited to these things authorized by the warrant.”
“None would wish that any of those who defraud the revenue should be free. They should be found out and brought to justice. But it is fundamental in our law that the means which are adopted to this ends should be lawful means. The means must not be such as to offend against the personal freedom, the privacy and fundamental rights of property. Every man is presumed to be innocent until he is found guilty. If his house is to be searched and his property seized on suspicion of an offence, it must be done by due process of law and the process involves that there must be a valid warrant specifying the offence of which he is suspected and the seizure is limited to these things authorized by the warrant.”
Sections dealing with Income Tax
Search
|
S. No.
|
Section
|
Contents
|
|
(i)
|
131(1)
|
Power regarding discovery, production
of evidence, etc. (AO)
|
|
(ii)
|
131(1A)
|
Power regarding discovery, production
of evidence, etc. (Inv. wing)
|
|
(iii)
|
132(1)
|
Search - When Possible Situation under section 132(1)
|
|
(iv)
|
First Proviso
to Section 132(1)
|
Empowers any Chief CIT or CIT, who has jurisdiction
over the area in which the search premises are situated but having no
jurisdiction over the person to be searched
|
|
((v)
|
Second
Proviso to Section 132(1)
|
Deemed or
constructive Seizure
|
|
(vi)
|
132(1A)
|
Extension
of Authorisation
|
|
(vii)
|
132(2)
|
Power to
requisition service of a police officer or officer of the Central
Government
|
|
(viii)
|
132(3)
|
Restraint
Order 132(3) with explanation and section 132(8A)
|
|
(ix)
|
132(4)
|
Examination
of any person on oath
|
|
(x)
|
132(4A)
|
Presumption
of ownership and control of books of accounts and assets and its truthfulness
|
|
(xi)
|
132(5)
|
Omitted by the Finance Act, 2002, with
effect from 01.06.2002
|
|
(xii)
|
132(6)
|
Omitted by the Finance Act, 2002, with
effect from 01.06.2002
|
|
(xiii)
|
132(7)
|
Omitted by the Finance Act, 2002, with
effect from 01.06.2002
|
|
(xiv)
|
132(8)
|
Retention
of books of account and other documents
|
|
(xv)
|
132(8A)
|
An order under section 132 (3) shall
not be in force for a period exceeding sixty days from the date of the order.
|
|
(xvi)
|
132(9)
|
Right to make copies or take extract of
extract of books of account and documents
|
|
(xvii)
|
132(9A)
|
Handling
over of seized books and assets to assessing officer
- Where the Authorised Officer is not the Assessing Officer of the person
searched
|
|
(xviii)
|
132(9B)
|
Provisional attachment of Property
|
|
(xix)
|
132(9C)
|
Time limit of Provisional attachment
of Property
|
|
(xx)
|
132(9D)
|
Reference to a Valuation Officer in
section 142A
|
|
(xxi)
|
132(10)
|
Power of
the Board to pass an order
|
|
(xxii)
|
132(11)
|
Omitted by the Finance Act, 2002, with
effect from 01.06.2002
|
|
(xxiii)
|
132(11A)
|
Omitted by the Finance Act, 2002, with
effect from 01.06.2002
|
|
(xiv)
|
132(12)
|
Omitted by the Finance Act, 2002, with
effect from 01.06.2002
|
|
(xv)
|
132(13)
|
Provisions of the Code of Criminal
Procedure, 1973 relating to searches and seizure shall apply, so far as may
be, to search and seizure
|
|
(xvi)
|
132(14)
|
Power of Board to make rules
|
|
(xvii)
|
132A
|
Powers to requisition books of
account, etc.
|
|
(xviii)
|
132B
|
Application
of seized or requisitioned assets (Release
of Asset)
|
|
(xxix)
|
153A
|
Assessment in case of search or
requisition
|
|
(xxx)
|
153A(1)(a)
|
Notice for filing return
|
|
(xxxi)
|
153A(1)(b)
|
Assessment in case of search
or requisition
|
|
(xxxii)
|
First proviso to section 153A(1)
|
Separate assessment of six
assessment year
|
|
(xxxiii)
|
153B
|
Provides the time limit for completion of search
assessments
|
|
(xxxiv)
|
153B (1)(a)
|
Time
limit of completion of assessment of 6 assessment year
|
|
(xxxvi)
|
153B (1)(b)
|
Time
limit of completion of assessment year relevant to the previous year in which
search is conducted , or requisition is made
|
|
(xxxvii)
|
153C
|
Assessment of Undisclosed Income not belonging to
assessee
|
|
(xxxviii)
|
153D
|
Prior approval necessary
for assessment in cases of search or requisition.
|
|
(xxxix)
|
292CC
|
Authorisation
or
requisition by Common order and assessment in case of search
|
Rules dealing with Income Tax Search
|
S. No.
|
Rule
|
Contents
|
|
1.
|
112
|
Procedural aspects relating to search and seizure action.
|
|
2.
|
112(1)
|
The powers of Search and seizure under section 132
shall be exercised in accordance with Sub Rules 2 to 14.
|
|
3.
|
112(2)
|
Prescribed forms
to be used for issue of search warrants
|
|
4.
|
112(2A)
|
Every authorisation referred to in rule 112(2) shall
be in writing under the signature of the officer issuing the authorisation
and shall bear his seal.
|
|
5.
|
112(3)
|
Obligation of the
person incharge or present - free ingress to be allowed to
searching officers.
|
|
6.
|
112(4)
|
Course open where free ingress cannot be obtained - Power to break open any outer or inner
door or window to obtain ingress
|
|
7.
|
112(4A)
|
Authority to stop
a moving vessel, vehicle or aircraft - Ingress in to vessel,
vehicle or aircraft.
|
|
8.
|
112(4B)
|
Allowing access to searching officer by opening box,
locker etc. - Power
to break open box, safe almirah or other receptacles
|
|
9.
|
112(4C)
|
Service of prohibition orders - Power to put
restraint, if seizure not practicable.
|
|
10.
|
112(5)
|
Process of search - Search of a woman only by a woman
|
|
11.
|
112(6)
|
Calling respectable persons - Calling of two or more witnesses is essential
before making search
|
|
12.
|
112(7)
|
Presence of witness - Witnesses
not required to attend as a witness of search in any proceeding under the Act
|
|
13.
|
112(8)
|
Attendance of occupant of building or premises - Permission to the occupant including
the person incharge or the representative to be present at the time of search
|
|
14.
|
112(9)
|
Listing of things taken possession of - A copy of seizure memo to be served on
the person as referred to in section 132(1)(iia)
|
|
15.
|
112(10)
|
Identification mark on packages and copy of list - Seized articles to be kept in sealed
packages bearing identification marks
|
|
16.
|
112(11)
|
Books and accounts, other documents, monies etc.
seized - placed of - To
convey the seized books and assets to the custodian
|
|
17.
|
112(12)
|
Safe custody of assets seized - Procedure to be followed by the
custodian
|
|
18.
|
112(13)
|
Opening of sealed package - Authorised officer is empowered to call the sealed
package from the custodian
|
|
19.
|
112(14)
|
Powers of the Officer to whom seized assets handed
over - Powers under Rule 112(11) and 112(13) which may be excercised by the
Assessing Officer also.
|
|
20.
|
112A
|
Inquiry under
section 132
|
|
21.
|
112B
|
Release of
articles under section 132(5)
|
|
22.
|
112C
|
Release of
remaining assets
|
|
23.
|
112D
|
Requisition of books of account, etc.
|
|
23.
|
112F
|
Class or classes of cases in which the Assessing
Officer shall not be required to issue notice for assessing or reassessing
the total income for six assessment years immediately preceding the
assessment year
|
Periods of Limitation
|
Section
|
Nature of compliance
|
Limitation of time
|
|
132(8)
|
Retaining books of account or other documents seized
under section 132(1) or 132(1A) by authorised officer without approval of Principal
Chief Commissioner or Chief Commissioner, Principal Commissioner or Commissioner,
Principal Director General or Director General or Principal Director or Principal Director
|
Not more than 180 days [30 days from the date of
assessment order under section 153A or section 158BC(c)]
|
|
132(8A)
|
Period for which order passed under section 132(3) to
remain in force
|
60 days from date of order
|
|
132(9A)
|
Handing over of books, etc., to ITO having
jurisdiction
|
60 days from date on which last of authorisations for
search was executed
|
|
132(9B)
|
Passing order of provisional attachment
|
During course of search or seizure or within 60 days from
the date on which last search authorisation was executed
|
|
132(9C)
|
Time by when provisional attachment made under section
132(9B) shall cease to have effect
|
6 months from the date of order referred to in section
132(9B)
|
|
132(9D)
|
Making reference to Valuation Officer referred to in
section 142A
|
Report to be submitted within 60 days from receipt of
such reference
|
|
132B(1)
|
Release of assets seized after recovery of existing
liability
|
Within 120 days from date on which last of the authorisations/
requisitions under section 132/132A was executed
|
|
132B(1), first proviso
|
Making application to Assessing Officer for release of
asset explaining nature and source of acquisition of asset
|
Within 30 days from end of the month in which asset was
seized
|
Data pertaining to
searches
|
Financial Year
|
No. of searches & seizure conducted
|
Amount of assets seized
(Rs. in crore)
|
|
1964-65
|
397
|
1.47
|
|
1965-66
|
306
|
1.30
|
|
1966-67
|
189
|
0.58
|
|
1967-68
|
109
|
0.90
|
|
1968-69
|
81
|
0.59
|
|
1969-70
|
170
|
0.95
|
|
1970-71
|
195
|
1.20
|
|
Financial Year
|
No. of warrants
|
Value of assets seized (Rs. in crore)
|
|
2000-01
|
5321
|
512.36
|
|
2001-02
|
4358
|
344.33
|
|
2002-03
|
4902
|
515.87
|
|
2003-04
|
2492
|
231.37
|
|
2004-05
|
2377
|
202.28
|
|
2005-06
|
3364
|
351.70
|
|
2006-07
|
3534
|
364.64
|
|
2007-08
|
3281
|
427.82
|
|
2008-09
|
3379
|
550.23
|
|
2009-10
|
3454
|
963.50
|
|
2010-11
|
4852
|
774.98
|
|
2011-12
|
5260
|
905.61
|
|
2012-13
|
3889
|
575.08
|
|
2013-14
|
4503
|
807.84
|
|
2014-15
|
3524
|
761.70
|
|
2015-16
|
3569
|
712.32
|
|
2016-17
|
5102
|
1469.45
|
Source : Investigation Division, CBDT
