Dr.

Ram Manohar Lohiya National Law University

Lucknow

Subject: Project of Law of Taxation

Topic: Search and Seizure under Income Tax Act, 1961

Submitted to: Submitted by:

Mr. Anil Sain LOKESH NIGAM

140101074
Assistant Professor (Law) SECTION A

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 TABLE OF CONTENTS

1. INTRODUCTION

2. CONSTITUTIONALITY OF THE PROVISION (S.132)

3. GENERAL PROVISIONS OF SEARCH

4. RIGHTS AND DUTIES OF IT DEPARTMENT

5. RIGHTS AND DUTIES OF THE PERSON SEARCHED

6. LEGALITY OF SEARCH

7. CONDUCT OF SEIZURE OPERATION

8. CONCLUSION

9. REFERENCES

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 INTRODUCTION
“Human reluctance by and large, to pay taxes has been the reason to make the Income Tax
Department to frame law for carrying out searches and make seizures. ‘Search’ means a
thorough inspection of any building, place vehicle, vessel, aircraft and of the person. The
Concise Oxford Dictionary says that it means to ‘look for’ or to ‘seek out’ for what can be
found, or to find something of which presence is suspected- probe, look for, seek out. A
search is not mere looking for something which is produced or open but which is hidden,
concealed or not obvious. It is ‘looking for’ in the sense of seeking out that which is
suspected or concealed.”
‘Seizure’ in its natural sense means forcible taking of possession from the owner or occupier
or possessor, whereby such person cannot exercise his power of ownership and transfer. The
word ‘seizure’ means taking possession under authority of law. Seizure is thus an expression
that implies a forcible exaction or taking possession either from the owner or from one who
has the possession and is unwilling to part with the possession. Seizure, therefore is not mere
taking but, is taking with force.
“Broadly three situations make it necessary to resort to the extraordinary measures of search
and seizure namely:
1. Existence of unexplained assets, money bullion, jewelry and valuable articles or things;
2. Transactions outside books;
3. Non-cooperation with the Income Tax Department in providing information/evidence
concerning tax assessments.”
Search and seizure operations have become an integral part of the Indian income-tax system
to ensure efficient compliance of tax laws as a means to unearth tax evasion and create
deterrence in regard to compliances of the provisions of the Income-tax Act. Section 132 of
the Income Tax Act, 1961 confers wide powers of search and seizure on the income tax
authorities. Section 132 is essentially a procedural section containing a comprehensive code
in itself. Considered as a whole, “it reveals its own procedure for the search, 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 relation to the amount seized. Section 132 gives
power not merely to search and seizure of what is believed to be undisclosed income or
property but it also enables the Income Tax Officer to make an order estimating the

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undisclosed income including the income from undisclosed property in a summary manner
and to calculate the amount of tax on the income so estimated in accordance with provisions
of the 1961 Act. Thus, the provisions of different sub-sections of Section 132 have to be
constructed harmoniously in order to give effect to the intent of the legislature to bring to tax
undisclosed income or property.”
Recent years have seen important changes being made to this section . The Finance Act, 1995
had inserted a new procedure for block assessment in search cases in Chapter XIV-B of the
Act, and the provisions of sub-section (5) which required an estimate of the undisclosed
income to be made in a summary manner were rendered inoperative for any search initiated
on or after 1st July, 1995. “As the provisions of sub-section (5) had become redundant, the
Finance Act 2002 omitted that sub-section as well as sub-sections (6), (7), (11), (11A) and
(12) of this section, all of which were specifically related to the estimate of undisclosed
income made under sub-section (5). Apart from these changes, the Finance Act 2002 also
inserted clause (iib) in sub-section (1) which deals with the inspection of books or documents
maintained in the form of electronic record, and amended subsections (8), (8A), (9A) and
(10) and Explaination 1 to the section in order to rationalize the procedure.. Chapter XIV-B
has now been made inoperative where a search is initiated under this section after 31st May
2003 and Sections 153A to 153C have been introduced in its place by the Finance Act,
2003.”

CONSTITUTIONALITY OF THE PROVISION (S.132)

The Supreme Court of India1 has held that the search and seizure provisions contained in
Sec.132 of the Income-tax Act and the Rules framed under it are not violative of the
constitution. Sec.132 of the Income-tax Act,1961 is neither incompetent or invalid for
infringing any of the fundamental rights guaranteed under Articles 14, 19, 21 and 31 of the
Constitution of India. In view of the facts that :
 “section 132 does not to any extent do away with the applicability of the normal
procedure prescribed under the statute for assessment or reassessment of income, and
does not deprive the assessee concerned of his normal right of appeal, second appeal
and reference to High Courts;
 the provisions of section 132 made with the object of preventing evasion of payment
of tax are limited to getting hold of evidence sought to be withheld from the assessing
1
Bhupendra Ratilal Thakkar v. CIT (1976) 1023 ITR 531 (SC).

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 authorities and at getting at getting at income believed to have been undisclosed with
a view to bring it under assessment and to ensure recovery of tax evaded or sought to
be evaded; and”
 “the application of the special provisions of the impugned section is possible only
when the appropriate authority on the basis of information in his possession has
reason to believe that the assessee is withholding or attempting to withhold evidence
or is in possession of undisclosed income either in the shape of money or in the shape
of bullion, jewellery or the like, which belief furnishes the criterion for making a
reasonable classification having a reasonable relation with the object of the law,
section 132 cannot be considered as violative of Article 14 of the Constitution2 The
fact that the search warrant can be issued by the Commissioner instead of a magistrate
does not offend Article 19(1)(f).3”
The Constitutionality of the provisions contained in section 132 was considered by the
Supreme Court in an earlier case.4 It was held in this case that the provisions of Section 132
of the Income-tax Act,1961 and Rule 112 of the Income-tax Rules, 1962 do not violate the
fundamental rights under Article 19(1)(f) and (g) of the Constitution of India. “The
provisions of Section 132(1) and (5) were held as not discriminatory and as not violating
Article 14 of the Constitution of India. The Supreme Court pointed out that the impugned
provisions were directed against persons who on good grounds were considered to have
illegally evaded the payment of tax on their income and property. Therefore, drastic measures
to get such income and property to recover Government dues would stand justified in itself.
Further, it is in the interest of the community that the community that the fiscal authorities
should have sufficient powers to prevent tax evasion.”
In another case the Court observed that the classification made between evaders of tax with
undisclosed income or property and evaders of tax who are not in such position is reasonable,
“as the object of the section is to get hold of undisclosed income or property, and that can
only be done effecting search and seizure from those who are in possession of it. There is no
overlapping between the provisions of section 132 and section 147 and it is not possible to
say that it is open to the income-tax authorities to adopt one procedure or the other according

2
Hindustan Metal Works v. CIT (1968) 68 ITR 798 (All).
3
Sri Venkateswara Lodge v. CIT (1969) 71 ITR 629 (AP).
4
Pooran Mal v. Director of Inspection (1974) 93 ITR 505 (SC).

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to their absolute discretion. Section 132 in the circumstances, cannot be said to be violative of
the equal protection clause contained in Article 14 of the constitution.5
The provisions of the Income Tax Act relating to search and seizure have been held to be
constitutionally valid in the case of CCT v. Ramkishan Shrikishan Jhaver & Others6 on the
ground that the power is directed to be used for the purpose of tax evasion. In M.P.
Sharma v. Satish Chandra7 , the court observed that this power was for the purpose of
protection of social security and it was a power regulated by Law. In Balwant Singh v. R.D
Shah, Director of Inspection8 , the Delhi High Court observed as follows :
“The object of the Legislature enacting section 132 is both to avoid tax evasion and facilitate
enquiry in proceedings. Search warrants may be issued against an assessee who failed to file
a return and the apprehension is that he will destroy the books of accounts so that proper
Income Tax cannot be assessed against him. It can also be issued to witnesses who are
possessed of books and documents which may help the assessee in arriving at a correct
assessment but it is apprehended that, inter alia, out of vindictiveness or ill will or even
indifference towards the assessee, such person if summoned as a witness, will not produce the
documents or destroy the same. There is, therefore, in my opinion, a valid classification of
persons against whom proceedings under Section 132 may be taken…”
The Supreme Court, in Pooran Mal v. Director of Inspection (Investigation)9 held that the
provisions relating to search and seizure in section 132 of the Income-Tax, 1961 and rule 112
of the Income Tax Rules, 1962 do not violate the fundamental rights under Article 19(1)(f)
and (g) of the Constitution of India. The restriction placed by any provisions of Section 132
or 132A or rule 112A are reasonable restrictions on the freedom under Article 19(1)(f) and
(g). The Court also held that provisions of Section 132(1) and (5) are not discriminatory and
do not violate Article 14 of the Constitution.

Thus it is clear from the position of the courts that though the provisions under Sec.132 may
be a restriction on the rights of an individual, it cannot be considered to be a restriction on the
fundamental rights of any person as it is not violative of A.14, 19, 21 and 31. It is a restriction
imposed by the Government to collect revenues that are being unlawfully concealed from

5
Ramjibhai Khalidas v. ITO (1971) 80 ITR 721 (Guj).
6
(1967) 66 ITR 664 (SC).
7
M.P. Sharma v. Satish Chandra, AIR 1954 SC 300
8
(1969) 71 ITR 550 (Del.).
9
(1974 ) 93 ITR 505 (SC).

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them and the action taken by the Government to ascertain the dues is not a violation of the
individual’s fundamental right.”

GENERAL PROVISIONS OF SEARCH

Section 132 does not purport to substitute the procedure of assessment and final
quantification of tax liability for the procedure provided by section 147 relating to income
which has escaped assessment under the Act. The books and documents, seized, are intended
to be used and can only be used as evidence in connection with a pending normal assessment
or a proposed reopening of assessment or reassessment under section 147. “The seizure of
assets is for the satisfaction of any tax liability in respect of which the person concerned is in
default or is deemed to be in default and for satisfaction of any anticipated liability which
may arise upon a reassessment in respect of undisclosed income.10 The section however will
not however allow for a sweeping search or seizure of documents or things irrespective of
their relevancy to or usefulness for some proceeding under the Income Tax Act.11 It has been
held in the case of Motilal v. Preventive Intelligence Officer12 that the power conferred under
section 132(1) is contemplated in relation to those cases where the precise location of the
article or thing is not known to the Income Tax department and therefore a search must be
conducted for it, and where it will not ordinarily be yielded over by the person having
possession of it and therefore it is necessary to seize it.
What the section requires is that documents should be useful for or relevant to the
proceedings under the Act. In the context of the section, the usefulness or relevance referred
to could only be usefulness or relevance of the type appropriate to the stage of the
investigation and not to an actual trial or enquiry. It would only suggest or require an
application of mind to make out a prima facie case of usefulness or relevance and not a final
or absolutely correct decision about the relevance. Thus the searching officer should act with
restraint and should not seize documents unless on a prima facie examination, he honestly
feels that they may be useful for or relevant to the proceedings under the Act. “

10
Venkata Reddy v. ITO, (1967) 66 ITR 212 (Mys).
11
N.K Textile Mills v. CIT, (1966) 62 ITR 58 (Punj.)
12
(1971) 80 ITR 418 (All).

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RIGHTS AND DUTIES OF INCOME TAX DEPARTMENT

Rights of the IT Department:

 Enter and search any building, place, vehicle, or aircraft where he has reason to
suspect that such books of account, other documents, money, bullion, jewellery and
other valuable articles are kept. [S.132(1)(i)]
 “Break open the lock of any door, locker, safe, Almirah or other receptacle for
exercising the powers conferred under (a) supra where the keys thereof are not
available. [ Section 132(1)(ii)]
 Search any person who has gone out of, or is about to get into, or is in, the building,
place, vessel, vehicle or aircraft, if the authorized officer has reason to suspect that
such person has secreted about his person any such books of account, other
documents, money, bullion, jewellery or other valuable article or thing. [Section
132(1)(iia)]
 Require any person who is found to be in possession or control of any books of
account or other documents maintained in the form of electronic record as defined in
section 2(1)(t) of the Information Technology Act, 2000 to afford the authorized
officer the necessary facility to inspect such books of account or other documents.
[Section 132(1)(iib)]
 Seize any such books of account, other documents, money, bullion, jewellery, or other
valuable article or thing found as a result of such search (however, from June 1, 2003,
any bullion, Jewellery or other valuable article or thing being stock - in – trade of the
business found as a result of search shall not be seized but the authorized officer shall
make a note or inventory of such stock in trade of the business. [Section 132(1)(iii)]
 Place marks of identification on any books or other documents or make or cause to be
made extracts or copies there from. [Section 132 (1)(iv) ].
 Make a note or an inventory of such money, bullion, jewellery or other valuable
article of thing. [ Section 132 (1)(v) ].
 Deemed Siezure second proviso to clause (1) of section 132. Where it is not possible
or practicable to take physical possession of any valuable article or thing due to its

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 volume, weight or other physical characteristics or due to its being of dangerous
nature, the authorized officer may serve an order on the owner (or the person who is
in immediate possession thereof ) that he shall not remove, part with or otherwise deal
with it, except with the previous permission of the authorized officer.
 Police Assistance [Section 132(2)] The Authorized officer may requisition the
services of any police officer or any officer of the Central Government or both to
assist him for the purposes of clause 1 and clause 1A of section 132 and it shall be the
duty of every such officer to comply with such requisition.
 Restraint order, Section 132(3) : Where it is not practicable to seize any material for
any reason other then those as specified in second proviso to S. 132(1) then in such a
case the AO may serve an order on the specified person, that such person shall not
remove, part with or otherwise deal with it except with the prior permission of the
authorized officer.
 Limitation of Section 132(3), Section 132(8A): An order u/s 132(3) shall be valid up
to sixty days from the date of the order.
 Examination on Oath, Section 132(4): The Authorized officer may, during the course
of the search or seizure, examine on oath any person who is found to be in possession
or control of any books of account, documents, money, bullion, jewellery or other
valuable article or thing and any statement made by such person during such
examination may thereafter be used in evidence in any proceeding under the Indian
Income Tax Act, 1922 (11 of 1922), or under this Act.
 Hon’ble Gujarat High Court in Kailashben Manharlal Choshi v. CIT 13 has held that
statement recorded at odd hours cannot be considered to be a voluntary statement, if it
is subsequently retracted and necessary evidence is led contrary to such admission.”
 Letter written by partner of assessee firm to department admitting undisclosed income
higher than that disclosed in statement under S. 132(4) with certain conditions and
further stating that a revised return shall be filed accordingly is not a statement under
S. 132(4) nor a revised return and cannot be used as a basis for making assessment.
(Case : CCIT & ANR. v. Pampapathi14 )

Presumptions regarding ownership and contents, Section 132(4A) :

13
[2008] 14 DTR 257
14
[2008] 218 CTR (Kar.) 590.

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  May presume that any books of account, other documents or valuable article or thing
shall be presumed to be belonging to the person in whose possession or control these
are found during the course of search. And the contents of such books of accounts and
documents shall also be presumed to be correct.
 May presume that the signature and every other part of such books and other
documents which purports to be in the handwriting of any particular person or which
may reasonably be assumed to have been signed by, or to be in handwriting of, any
particular person’s handwriting, and in the case of a document stamped, executed or
attested, that it was duly stamped and executed or attested by the person by whom it
purports to have been so executed or attested.

Duties of IT Department:
 To allow the school going children to attend the school after checking their school
bags for any incriminating material etc.
 “To allow the assessee and other occupants of the premises to take their meals and
medicines at the normal time and also allowing the old members of the family to take
rest at their normal hours.
 Not to threaten, abuse or use any indecent language against the person searched.
 Not to get provoked and maintain a cool and calm temperament and to be alert.
 To avoid using the items of personal use of the assessee like Bed, TV etc. and also
avoiding making the private calls from the assessee’s telephone.
 Leave the premises only after informing the assessee.
 Decline the assessee’s offer of food or refreshment politely in order to avoid any
possible drugging.”

Income Tax Officials – Post Search Duties

Time limit for retention of seized books of accounts, Section 132(8)
 That the books of account or other documents found during search shall be retained
by the authorized officer only up to 30 days from the completion of assessment under
section 153A, however retention for a period exceeding 30 days can be made only if
reasons are recorded in writing and the approval of the CCIT, CIT, DGIT, DIT is
obtained.

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  “Moreover, retention beyond 30 days will not be approved in cases where all the
proceedings under the Income Tax Act in respect of years for which the BOA are
relevant are completed.
 However assessee on legal entitlement may make application to board objecting the
approval for retention granted by CCIT, CIT, DGIT, DIT along with the reasons for
such objections [Section 132(10)] .
 Where the Authorised officer is not the assessing officer, S132(9A). The Authorised
officer shall handover all material found as result of search to the Assessing officer
having jurisdiction over the person searched within a period of 60 days from the date
on which last of authorizations of search was executed.
 Not to retain seized assets in absence of liability.15”

RIGHTS AND DUTIES OF THE PERSON SEARCHED

Rights Of The Person Searched:
 To see the warrant of authorization duly signed and sealed by the issuing authority.
 To verify the identity of each member of the search party.
 “To make personal search of all members of the search party before the start of the
search and on conclusion of the search.
 To insist on personal search of ladies being taken only by a lady, with strict regard to
decency.
 To have at least two respectable and independent residents of the locality as
witnesses.
 A lady occupying an apartment being searched has a right to withdraw before the
search party enters, if, according to custom, she does not appear in public.
 To call a medical practitioner in case of emergency.
 To allow the children to go to school, after checking their bags.
 To have the facility of having meals, etc., at the normal time.
 To inspect the seals placed on various receptacles, sealed in course of search and
subsequently at the time of reopening of the seals.

15
Asha Devi and Another v. CIT and Another, (2007) 291 ITR 496 (Delhi)]

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  Every person who is examined under section 132(4) has a right to ensure that the facts
so stated by him have been recorded correctly.
 To have a copy of the panchanama together with all the annexures.
 To have a copy of any statement that is used against him by the Department.
 To have inspection of the seized books of account, etc., or to take extracts therefrom
in the presence of an authorised officer or any other person empowered by him.
 To make an application objecting to the approval given by the Commissioner of
Income-tax for retention of documents beyond 180 days from the date of the seizure.”
Duties Of The Person Searched:
 To allow free and unhindered ingress into the premises.
 To see the warrant of authorization and put signature on the same.
 “To identify all receptacles in which assets or books of account and documents are
kept and to hand over such receptacles to the authorised officer.
 To identify and explain the ownership of the assets, books of account and documents
found in the premises.
 To identify every individual in the premises and to explain their relationship to the
person being searched. He should not mislead by impersonation. If he cheats by
pretending to be some other person or knowingly gives false identification of other
persons, it is an offence punishable under section 416 of the Indian Penal Code.
 Not to allow or encourage the entry of any unauthorised person into the premises.
 Not to remove any article from its place without notice or knowledge of the
authorised officer. If he secretes or destroys any document with the intention of
preventing the same from being produced or used as evidence before the Court or
public servant, he shall be punishable with imprisonment or fine or both in accordance
with section 204 of the Indian Penal Code.
 To affix his signature on the recorded statements, inventories and the panchanama.
 To ensure that peace is maintained throughout the duration of the search, and to co-
operate with the search in all respects so that the search action is concluded at the
earliest and in a peaceful manner.
 Similar co-operation should be extended even after the search action is over, so as to
enable the authorised officer to complete necessary follow-up investigations at the
earliest.”

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 CONCLUSION
The reason why search and seizure provisions were introduced was to prevent tax evasion.
The idea behind the provision is definitely a noble one, to try and wash out the tax evaders
from our society by giving the tax authorities the power to search the premises of any person
who is suspected to be a tax evader and to seize any documents, books of account or property
which goes to prove that his income is more than he has declared. Thereby, increasing the
revenue that the Government can collect.

“The judicial decisions in this regard have been to develop the law either adding or removing
safeguards, and innovating fresh dimensions in this regard. One of the developments that
appears to be a bit disturbing is the position the court has taken as regards irregularities in the
search. The Court has been hard on blatant illegalities but in cases of minor irregularities the
Court does not insist on strict compliance. Thus even seizure of irrelevant material does not
vitiate the search. The only insistence of the Court is that there is application of mind at two
levels, one at the time of the issuing of the warrant by the authorising officer, and the second
is by the authorised officer while selecting what article is to be seized. The Court however
does not go beyond some evidence of application of mind. It does not look into whether the
application of mind was done in the first case, on relevant material and in the second case the
Court has allowed the seizure of irrelevant matter.

Another position of the court which is disturbing is the fact that the Court has allowed the
admissibility of illegally obtained material in a majority of decisions. This would be
dangerous as this could lead to the authorities carrying out a number of illegal searches safe
in the knowledge that whatever they find will be considered to be admissible in Court. This
would make a mockery out of all the other safeguards of individuals rights which are present
in the enactment.

A position taken by the court which seems to be a positive safeguard is that the Court has laid
down certain restriction on the information that the authority must receive before he can order
a search. These include the fact that the information must be some new information, besides
the record of the assessee. Also the fact that the information must be in regards the assessee
personally and not a concern that also includes the assessee.

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The fourth and most important issue that needs necessarily be discussed is the constitutional
validity of the provisions. In most civilized countries it has been observed that search and
seizure is an infringement on the rights of the individuals but it is a necessary evil in the
greater interests of the State. Therefore the question of constitutionality of these provisions
cease to be raised in these countries. In India however the Court has taken the stand that these
provisions are unequivocally constitutional. The decision of the court basically goes to say
that there is no fundamental right violated by these provisions and further that these
provisions are the only way to bridge the gap between flagrant tax evasion and a police state.
The Court has dismissed a number of contentions made on purely legal grounds stating that
tax evasion has caused a great loss to the nations economy and that therefore these provisions
are necessary.

The search parties have very important statutory duties to perform. In the very nature of the
things empowered to be done, and in the very nature of the object for which the provisions of
the Income Tax Act, 1961 regarding search and seizure are enacted, as also the conditions in
which the powers are to be exercised, it is clear that these powers are coupled with a duty to
only exercise them when statutory provisions warrant their exercise. If a statute invests a
public officer with an authority to do an act in a specified set of circumstances, it is
imperative upon him to exercise his authority in a manner appropriate to the things when a
party interested and having a right to apply moves in that behalf, and circumstances for
exercise of that authority are shown to exist. Even if the words used in the statute are prima
facie enabling, the Courts will readily infer a duty in the exercise of power which is invested
in aid of enforcement of a right, public or private, of a citizen.
Unfortunately, very often in the enthusiasm to show results rights are often exceeded and
duties ignored which causes considerable inconvenience to taxpayers and tarnishes the name
and image of the Income Tax Department.”

In conclusion it is stated that though it is true that tax evasion leads to a great loss to the state
every year and that search and seizure is one way to prevent and cut down on such tax
evasion, these provisions do cause a infringement of peoples rights and this must be accepted
by the court. Once this is accepted it is a natural corollary that tougher restrictions will be put
on the exercise of this power to prevent any arbitrary action by the statement which will
definitely be a violation of rights of the individuals.

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 REFERENCES
Books Referred:
 ‘Taxmann’s Direct Taxes Law & Practice’, Dr. Kapil Singhania & Dr. Vinod K. Singhania
(43rd edn., 2009)
 “The Law & Practice os Tax Treaties & Indian Perspective’, Rajesh Kadakar, Nitesh Modi
(2008)

Web Sources:

 http://www.wirc-icai.org/material/search_seizure_and_survey_new__40_pages_.pdf
 http://taxguru.in/income-tax/search-and-seizure-under-income-tax-act-1961.html
 http://www.tnkpsc.com/Image/SurveySearchseizurebySanjayagarwal.pdf
 http://law.incometaxindia.gov.in/dittaxmann/incometaxacts/2005itact/casesec132.htm

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