Searches form a necessary and powerful adjunct to
investigation as they bring to light assets and information, which would
otherwise be beyond the reach of the department through its normal channels of
enquiry and examination of accounts. The power of search under the income Tax
Act as a potent instrument in the hands of the Department to provide direct and
clinching evidence about tax evasion and the existing of black money. Searches
not only lead to unearthing of black money in kind, but also to getting hold of
hidden books of account which would clearly show that what has been disclosed
is only part of which has been earned, invested and accumulated. The searches
have been found to be useful in the fight against tax evasion.
Meaning
of Search & Seizure:
SEARCH
’Search’ means a thorough inspection of the
building, place, vehicle, vessel, aircraft etc. As per law dictionary and as
noted in different judicial pronouncements, the term ‘search’, in simple
language, denotes an action of a government machinery to go, look through or
examine carefully a place, area, person, object etc. in order to find something
concealed or for the purpose of discovering evidence regarding evasion of tax
and for unearthing black money.
The word ‘search’ in
Section 132, considering the object and scope of the section should not be
given a far too technical meaning. The word ‘search’ has varied meanings and it
should be given the general meanings which are well known meanings attributable
to the word, the general meaning as stated in concise Oxford Dictionary is
‘look for’ or ‘seek out’.
SEIZURE :-
SEIZURE :-
’Seizure‘ means taking possession under the
authority of law. According
to Stroud’s Judicial Dictionary, the word ‘seizure’ in its ordinary and natural
sense means ‘forcible taking possession’. According to Webster’s Dictionary the
word ‘seize’ means ‘to effect legal possession’. In Shorter Oxford English
Dictionary the said word means ‘to put in possession’. The intention of the
statute while using the word ‘seizure’ in section 132 of the Income Tax Act is
not to provide any different meaning from these ordinary meanings of the word
seizure.
It was held that there
is no definite mode of ‘seizure’ under Section 132(1) but a reference to the
above provision of the Act and the Rules shows that the seizure of money,
Bullion, jewellery, or other valuable article or thing envisaged in section is
affected only when the authorized officer takes possession of the seized
articles to enable the department to appropriate the same towards the payment
of the amount that may be determined to be due under the Act. - [Mrs. Kanwal Shamsher Singh v. UOI (1974) 95 ITR 80 (Del)]
The
actual decision for the search is based on the intelligence gathered in a
particular group or a particular case. The Investigation Wing headed by
Director Generals of Income Tax do the planning.
Source of information
The
information may come from a variety of sources. The Income Tax Department
generally gets information from following sources:
(i)
Internal
sources
This
source of information comprises of three components viz:
(a) Suo-moto
Internal sources comprise
cases developed suo motu on the basis of study of departmental records and
cases of non-compliance with summons under section 131 and notices;
(b) Tax Evasion Petitions (TEP)
Tax Evasion Petitions containing definite and specific
allegations of accumulating money and defrauding the Government are useful
sources of information for the department
(c)
Electronic database
(ii) Information from External sources
Information
may come from external sources like informers, other government departments or
newspapers, magazines and publications etc.. In the case of an informer, it is
generally made clear to him that he is liable to be prosecuted under section
182 of the IPC if his allegations are proved false.
v Professional
informers
v Business
or professional rivals
v Disgrunted
employees
v Unhappy
wife
v Estranged
brothers or a disgruntled son-in-law or a harassed daughter-inlaw.
v Information
collected during survey may also form the basis.
Valid search can not be
initiated on the basis of a rumour
Suppose,
One suited – booted driver comes to the Principal Director (Inv)’s office and
informs the Principal Director that in his car Rs. 5 crores. What should do?
That
a valid search can not be initiated on the basis of a rumour. ‘Information’ is
to be distinguished from rumour or gossip. Rumour is something vague and
unverified. Information is something definite and verified.
There
should be nexus between information and person searched. - [Harilal Shah v. CIT (2006) 281 ITR 199 (Gau)]
Information
from CBI that cash was found in possession of individual is not sufficient for
authorizing search; consequent search and block assessment not valid. - [UOI v. Ajit Jain & Ors (2003) 260 ITR
80 : 181 CTR 22 (SC)]
Legal Provisions
The powers of search and seizure under the
Income Tax Act, 1961 are vested in various Income Tax authorities. Sections 132
and 132A of the Act read with Rules 112, 112A, 112B, 112C and 112D of the
Income Tax Rules, 1962 prescribe the procedure for authorizing and conducting a
search, making seizures and dealing with the seized assets.
KEY
NOTE
Action under section 132 cannot be stopped
by Civil Court.
Certain aspects of Search
(a) In
Consequence of Information.
(b) Mandatory
requirement.
Ø Reason
to believe.
Ø Satisfaction
to be recorded.
Nature of
the provisions
Section 132
is essentially a procedural section. It is a comprehensive code in itself. The
conditions under which, and the circumstances under which, warrants of
authorisation have to be issued have been set out in great detail in the
section. Considered as a whole, it reveals its own procedure for the search and
seizure, determination of the point in dispute, quantum to be retained and also
the quantum of the tax and interest on the undisclosed income in respect of the
amounts seized. It has all the fortifications of a code and the general
provisions of the Act like the assessment under section 139 cannot be applied.
However, with
the changed scenario provisions of section 132(5) dealing with summary
assessment for retaining the ceased assets was dropped and the new procedure
for assessing the undisclosed income was provided by way of block assessment
and later on, even that block assessment procedure was discontinued and now new
assessment procedure in the case of search and seizure are drawn by the new
provisions under sections 153A, 153B and 153C.
Broad objectives behind
searches
The department has gradually
realized that scrutiny of books of account in laboratory conditions (i.e. in
the room of the Assessing Officer) does not yield much of result. Search and
seizure under the Income Tax are considered to achieve the following
objectives:
v To ensure that any threat to social
security is dealt with effectively
v To directly address problems and
issues that arise due to evasion and avoidance of tax
v To meet the menace of black money
head on
v To uphold the law laid down by the
constitution of India
v To get hold of evidence having
bearing on the tax liability of a person which is withheld from the assessing
authority;
v To get hold of undisclosed assets
representing suppressed income;
Section
132 of the Income Tax Act, 1961 read with Rule 112 of Income Tax Rules is
intended to achieve two limited objectives
(i) To
get hold of evidence having bearing on the tax liability of a person which the
said person is seeking to withhold from the assessing authority; and
(ii)
To get hold of assets representing
income believed to be undisclosed income and applying so much of them as may be
necessary in discharge of the existing and anticipated tax liability of the
person concerned.
Safeguard mechanism
A
search is necessary to secure evidence which is not likely to be made available
by issue of summons or by visiting, in ordinary course, the premises concerned.
Tax authorities have powers to summon persons and documents. Tax authorities
have to resort to search and seizure when there is evidence of undisclosed
documents or assets which have not been and would not be disclosed in ordinary
course.
(i) Authorization for a search can only be
ordered by a competent
officer
Authorization for a search can only be
ordered by a competent officer after considering the information he has in his
possession provided he has reasons to believe that a search is justified.
Before the issue of a search warrant, a formal order is required to be passed
by the competent authority.
(ii)
Power of search to be exercised strictly in terms of law
Since the power conferred, though not arbitrary, is a serious invasion
upon the rights and privacy of the tax- payer, the power must be strictly
exercised in accordance with law and only for the purposes for which the law
authorises it to be exercised.
(iii) “Rreason to Believe”
in consequence of information in possession
The authority must have information in its possession on the basis of
which a reasonable belief can be founded that :
(a)
the person concerned has omitted or failed to produce books of account
or other documents for production of which summons or notice had been issued Or
such person will not produce such books of account or other documents even if
summons or notice is issued to him; or
(b) such person is in possession of any money,
bullion, jewellery or other valuable article which represents either wholly or
partly income or property which has not been or would not be disclosed.
Such information must be in
possession of the authorised official before the opinion is formed. There must
be application of mind to the material and the formation of opinion must be
honest and bona fide.
(iv) Whole
proceeding in the presence of two winesses
The
search team must include at least two respectable and independent residents of
the locality as witnesses. The
authorised officers conducting the raid are duty bound to allow or permit two
individuals from the local area to stand as independent witnesses.
(v) Report
to the senior authority
After
the search, the party has to submit a report to the senior authority like
Member, CBDT etc. The outcome of search is given to enable the senior officer
to judge the bona fide of the search and to exercise control over searches
carried out.
Scope of search provisions
(i) Search action only in rare cases
A search is violation
of personal privacy and rights of a citizen and its use should only be in
rarest of rare cases.
(ii)
A self contained code
Provisions
regarding search and seizure under the Income Tax Act and rules constitute a
self contained code.
(iii)
No power of arrest
The income tax authorities during the
course of search have no power to arrest or even to detain a person in their
custody.
No arrest or detention can be made by
deriving the power under section 132. - [L.
R. Gupta & Ors. v. UOI (1992) 194 ITR 32 55 (Del)]
(iv) Publicity
The
raiding party will not make any statement to the press. Statement to the press,
if any, will be made by the head of the department and will be factual in
nature. It may be necessary in some cases to give out a press note especially
where distorted versions have been released to the press by other parties.
If Search & Seizure
action violates “human rights”, officers personally liable to pay compensation
The
income‐tax department conducted
search and seizure operations under section 132 at the premises of the assessee
when interrogation & recording of statement was conducted for more than 30
hours and till the odd hours of the night without any break or interval. The
assessee filed a complaint alleging violation of human rights. HELD upholding
the plea:
The
Commission is of the view that the members of the raiding party may take their
own time to conclude the search & seizure operations but such operations
must be carried out keeping in view the basic human rights of the Individual.
They have no right to cause physical and mental torture to him. If the officer‐in‐charge of the
Interrogation/recording of statements wanted to continue with the process he
should have stopped the same at the proper time and resumed it next morning.
But continuing the process without any break or interval at odd hours up to
3:30 AM, forcing the applicant and/ or his family members to remain awake when
it is time to sleep was torturous act which and cannot be countenanced in a
civilised society. It was violative of their rights relating to dignity of the
individual and therefore violative of human rights. Even die‐hard criminal offenders
have certain human rights which cannot be taken away. The applicant’s position
was not worse than that. In the opinion of the Commission, the Income Tax
Department should ensure that the search & seizure operations at large in
future are carried out without violating one’s basic human rights. - [Rajendra
Singh (Bihar Human Rights Commission). www.itatonline.org.]
Section
132 cannot be invoked after an assessment is made to recover the tax due.
[K.
Choyi v. Syed Abdulla Bafakky Thangal & Ors. (1980) 123 ITR 435 (SC))]
Day when search commenced
Though
there is no bar, search is not commenced on public holidays or the days on
which the office and factories of the assessee remain closed under the Shop and
Established Act.
Time of strike
There
is no prohibition in law in entering the premises whether residential or
business before or after sun-set for the purpose of search. Search action can
be initiated at any time depending upon the urgency of the matter. The
department can strike 365 days and round the clock. Generally, the search party
strikes latest by 9 in the morning. They strike simultaneously at all the
places even when on all India basis
Process of conduct of
search when commenced
The
process of conduct of search is commenced with the entry and ingress by the
authorised officer in the premises to be searched after getting the search
warrant signed
Duration of search
Duration
of search From the time the Assessee signs the warrant of Authorisation till
the conclusion of the search.
There is no time limit
within which search is required to be concluded
As
such there is no time limit prescribed for conclusion of search proceedings.
However, search proceedings are required to be undertaken at a stretch and be
concluded at the earliest. Search proceedings may be temporarily suspended by
passing prohibitory order as prescribed under Section 132(3) of the Act and
such prohibitory order is required to be lifted within a period of 60 days.
Conclusion of the Search
When
last of the Authorisation is executed and all restraints put under section
132(3) are lifted.
Search can be conducted at
the premises found locked or at the premises where no person is available
The
authorized officer has the power to break open the lock and enter the premises
and make the search irrespective of whether the occupant / owner or some other
person is available at the premises or not. The authorized officer may call
upon two independent witnesses and in the presence of such witnesses; he may
conduct the search proceedings.
In case of suspicion or
non-cooperation Authorized
officer has the power to break open the locker, almirah, box etc. or tear the
sofa or dig the wall/ floor etc.
In
case of suspicion or non-cooperation from the assessee to make available the
keys, the authorized officer has power to take such action.
Search can be temporarily suspended
Search
can be temporarily suspended by passing prohibitory orders as prescribed under
section 132(3) of the Act.
No
suit for damages
No
suit lies for any damage caused which is unintentional or incidental to the
carrying out of the search action.
What remedies available to
assessee in case the assets are destroyed like sofas and beds’ are torn, floor
is dug and walls are broken
No
remedy available against such actions of search team, if they are done bona
fide and in good faith in carrying out the object of the search. Action may lie
only if these acts are done mala fide and there was no reason to suspect that
items broken or destroyed contained any concealed income or assets hidden
therein.
What is the remedy
available to assessee in case of misbehavior of the officers during search?
About
any misbehavior by search team assessee may lodge a complaint with the
Principal Director or Principal Commissioner concerned or with the Director
General or Chief Commissioner concerned or with the Member (Investigation).
Assessee may also contact superior officer during search to explain the
difficulties being faced but the superior may not interfere with the judicial
discretion of the authorized officer, He may take administrative action and
such corrective measures as may relieve the assessee of avoidable harassment
and to make the search operation less painful.
Non-resident Indians
can be subjected to a search under section 132
It was
held that, even a non-resident Indian can be subjected to a search under this
section if the department has definite information that the person concerned
has income earned in India which may be taxable under the Act and which might
not have been disclosed or would not be so declared. - [Ram Kumar Dhanuka v. UOI (2001)
252 ITR 205 (Raj)]
Civil court has no jurisdiction for
search and seizure proceedings under section 132
The civil court had no jurisdiction to entertain the suit
against the proceedings for search and seizure, which were being taken
under section 132 of the Income-tax Act, 1961, read with rule 112 (1)
of the Income-tax Rules, 1962.
[Rakesh
Kumar Agarwal v. Bansal Commodities (2013) 39 taxmann.com 136 (Del)
Remedies available to an Assessee
(i) Go for regular Assessment
Where
search is initiated or requisition is made after 31.5.2003 the provision 153A
to 153D are applicable. These provisions have the overriding effect over the
provisions of sections 139, 147, 148, 149, 151 and 153 of the Act since these
provisions are non obstante provisions.
(ii)
File
application before Settlement Commission
As
per Finance Act, 2010 doors of Settlement Commission in search cases have been
re-opened. Normally approaching to the Settlement Commission is advised when
the facts are very complicated and more than two views are possible on the
factual matrix of the case. The Settlement Commission has power to grant
immunity from prosecution and to waive penalties. In appropriate cases it may
be desirable to approach the Settlement Commission.
In
an appropriate case, it may be desirable to approach the Settlement Commission.
Assessee will get the capitalisation, wavier of penalties, immunity from
prosecution and finality of the entire case within 2 years.
(iii) Challenge search in writ
WRIT PETITIONS BEFORE HIGH COURT-VALIDITY OF SEARCH
Mere
rumour that Doctor was charging charging high fees and living in posh house.
[Dr.
Nand Lal Tahiliani v. CIT (1988) 170 ITR 592 (All) - Affirmed by Supreme Court
in CIT v. Dr. Nand Lal Tahiliani (1988) 172 ITR 627 (SC)]
Warrant
of authorisation is blank or proper name and address is not recorded. - [Jagmohan Mahajan v. CIT (1976) 103 ITR 579
(P&H)]
Writ petition not maintainable when assessee
could have addressed his grievances and explained his stand to the Assessing
Officer by filing appropriate replies to the said notices, instead of filing
the writ petition. - [CIT v. Vijaybhai N.
Chandrani (2013) 357 ITR 713 (SC)]
Validity of
search can be questioned only in a writ petition filed before courts of law. It
cannot be questioned before appellate authority. - [M. B. Lal v. CIT (2005) 279 ITR 298 : 199 CTR 571
(Del)]
Sealing
of business premises - cannot be done - Alternative remedy – Not an absolute
bar to the issue of Writ. - [Shyam
Jewellers and another v. CCIT (1992) 196 ITR 243 (All)]
Notice
under section 131(1A) is not required to be issued prior to carrying out search
proceedings - Writ Petition is not maintainable
The
assessee was engaged in export of iron ore. A search was carried out in assessee's
premises for relevant years and, thereupon, a notice was issued under section
153A requiring the assessee to furnish return of income for assessment years
covered within the block. The assessee filed a writ petition contending that
since no notice was issued under section 131(1A), search and seizure conducted
by department itself under section 132 was illegal and thus, pursuant thereof
notice issued under section 153A also did not have any sanctity. The assessee
also submitted that in absence of any reason which led the authority to resort
to the provision of section 132, the notice under section 153A was not tenable
in the eye of law.
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