The Article “POWER OF SEARCH AND SEIZURE UNDER SECTION 132 INCOME TAX ACT 1961” is Written by ARIHANT SRIVASTAV a 3rd Year, BALLB student at Hidayatullah National Law University, Raipur.
Introduction
A person’s home is considered his castle where he has every right to defend it. Meanwhile, it is also true that the revenue collected from taxes is the lifeblood of the state. It is to be the noble duty of every citizen to pay taxes and build civilization, yet only a few have such honesty. Under these situations, the Tax authorities have exceptions from common law principles when carrying out search and seizure on someone or somewhere under the Income-tax Act.
In the Oxford Dictionary, the word “search” means to look carefully for something or somebody and “Seizure” is the use of legal authority to take something from somebody. Such wide terms give a lot of room for the Tax officers to misuse them.
Despite the specificity of search and seizure provisions and judicial guidelines, a lot of hue and cry has occurred. An attempt has been made to study such laws through the article and case laws.
The Income tax act, of 1961 contains the powers of IT authority under section mainly in 132, with some related provisions under 131, 133,134, and 134. For the sake of avoiding redundancy “books of account, other documents, money, bullion, jewellery or another valuable article” will be just written as valuable items. Similar to the various ranks authorized officers will be referred to as A.O.
For the first time, search and seizure provisions were included in section 37 of the Income-tax act of 1922 and which was held to be constitutionally valid in the case of Pooran Mal v. Director of Inspection wherein the income tax act of 1961 was challenged and held violative of Article 14[2] of the petitioner. Though such provisions are enacted there are certain safeguards to ensure that the right of privacy and freedom of the citizens is not infringed because it is a valuable right of society under Articles 21 and 19 of the Indian Constitution, which was confirmed in the matter of Janak Raj Sharma v. Director of Inspection.
Analysis of Power of Search and Seizure of Tax Authorities under Income Tax Act, 1961.
The term ‘seizure’ is a hard activity that is sudden and unexpected and confiscates, removes, or capture captures any illegal objects which are found in the ‘search’ for further investigation.
Section 91 to 100 of Chapter VII of the Code of Criminal Procedure 1973 deals with procedures of warrants and summon, search, and seizures. But here we will talk about the procedure of search and seizure under the Income Tax Act 1961, which is under Section 132.
From an income tax point of view, in common parlance search is referred to as RAID. However, there is no such term as raid anywhere in income tax law.
In the case of Assainar v. ITO, it is held that “the word ‘search’ in section 132, considering the object and scope of the section, should not be given a far too technical meaning and should be given a general meaning which are well-known meanings attributable to the world.”
1. Specific Circumstances for Search and Seizure under the income tax act
Section 132(1) provides the circumstances which, for the sake of easy understanding have been simplified.
So, Where “the Commissioner, in consequence of information in his possession, has reason to believe that”— Can conduct Search and Seizure
- a. “Any person to whom a summons was issued to produce any books of account or documents, and he failed to do so”
- b. “Any person to whom a summons has been issued will not produce any such books of account or documents which may useful for proceedings under the Act,”
- c. Any person possessed any assets and such assets represent undisclosed income or property.
Who can search and seize- Any high-level officer given in 132(1) A and B authorized by the competent authority.
2. Actions such authorization encompasses
- a. Enter and search any premise where he has reason to suspect that item[1] is kept; further 132 – 1A – To search a place other than the place authorized, where the item could be.
- b. Break open the locks where keys are not available
- c. Search any suspected person on that premise
- d. Require any person having “documents maintained in the form of an electronic record to afford the authorized officer the necessary facility to inspect such books of account or other documents.”
- e.“Seize such found items, place marks of identification upon them and make a note or inventory of such found items.”
3. ‘Reasons to believe’: Explained
This is the most important condition which must be satisfied. The belief must be based on solid, reliable information in good faith and not mere preteens. – In the NK Textiles vs. CIT it was held that the facts constitution such information should be such that a reasonable and prudent man same belief or conclusion. Fundamentally, “The word ‘reason’ means cause or justification and the word ‘believe’ means to accept as true or to have faith in it. The belief must be genuine and not mere pretence and has to be held in ‘good faith’ and not ‘reason to suspect’.”
Defining Information
In L.R. Gupta v. Union of India[2], it was held that the term “information” does not refer to rumour or gossip. It must refer to teaching or knowledge obtained from an outside source concerning facts or particulars4. It can’t be a fabrication of the imagination. The same principles were subsequently reaffirmed by the Gujarat High Court in Neesa Leisure Ltd v. UOI.
In “Dr Nand Lal Tahiliani v. CIT”, it was found that “information” must be not only authentic but also capable of giving rise to the inference that the individual possessed undisclosed income that had not been or would not be revealed. “Reason to believe” and not “reason to suspect.”
Distinguishing between Reason to Believe and Reason to Suspect-
“A Person is said to have “reason to suspect” the commission of an offence. Whereas a person is said to have “reason to believe” a thing if he has sufficient cause to believe that thing. Reason to believe is narrower than Reason to suspect. Reason to suspect may be based on indirect correlation of facts or documents.”
From the understanding of sections in the, act the meaning of “reason to believe” is-
- i. Such belief is to be formed by Principal Chief Commissioner or Director General of Income tax.
- ii. To be formed in consequences of information in his or her possession.
- iii. Certain prior conditions shall be satisfied. They are – Possessing of undisclosed assets or income
The Burden of proof lies on A.O. if such authorization is challenged to show such reason existed. However, once such reasons are satisfied by the court, it will never go into adequacy of such reasons. It is not necessary to disclose the grounds for the belief. The Hon’ble Supreme Court in Agarwalla v. Senheld that the warrant should not contain the reasons.
4. Degree of authorization – what can be authorized
It is not always possible for the A.O. to give specific details or the nature of the particular to be searched or seized; therefore the A.O. can give a general search warrant to retrieve anything useful. General warrants do not mean that general in a sense that the person to be searched is not named. A such warrant was quashed in Jagmohan Mahajan vs CIT. The A.O. should apply his mind in order to see which documents van are relevant or useful. Therefore blank authorizations that direct to search and bring anything under the sky are invalid as it direct infringements of assess rights. In fact, in H.L. Sibal’s case, it was held that section 132 has to follow other statutory provisions i.e. 132(13) and CrPC’s section 165 which prohibits general search on the off chance that something might be found. However, this position is not settled. In Seth brothers’ case the s. 165 of CrPc was considered applicable to taxation.
5. Other power under section 132 (2- 14)
i. Can call police – Under 132(2) to assist him during search.
ii. Taking Control of Premise – Under 132(3) where it is not practical to carry the seized items the owner can be served an order on the owner not to remove, hamper or obstruct such items without permission of such officer and such officer.
iii. Form evidence from statements – under 132(4), “The authorized officer can examine on oath any person who is found to be in possession or control of any valuables and any statement made by such person during the 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.”
iv. Limit of retention – Under 132(8), the items cannot be retained by the A.O. for more than 30 days unless approved by the higher officers.
v. Power to make copies -Under 132 (9), The A.O. can order the owner of documents to make photocopies on his behalf for his convenience. The A.O. can make copies of any book of account or any document seized. However, he cannot hide it from the assessee, who has a right to inspect the copies and extractions made by him. If the assessee is denied this right the assessment order passed against him under 132(5) cannot be sustained.
vi. To return the items when required -under 132(12) the board has the power to return the seized item to a legally entitled person seized if he “make an application to the Board stating therein the reasons for such objection and requesting for the return of the books of account or other[4] document.
vii. Make new procedural rules[5]– Under 132(14), The Board can make procedural rules against any law so as to-
(a) For obtaining ingress into the premise where free entry is not possible
(b) For ensuring safe custody of any seized item.
The constitutional validity of section 132.
The constitutional validity is discussed in the following points
a. Right to privacy
The issue of privacy was addressed in Pooran Mai v. Director of Inspection[6]when section 132 was challenged to be violative of article 19(g). It was held that the section 132 was created in larger public interest and thus a reasonable restriction. The purpose of the section to take active measures against tax evasion. It is derived from the doctrine if implied power which provides incidental and Ancillary power to the legislature to effectuate the law. The temporary invasion in once privacy cannot be unconstitutional thus the IT act has implied powers to take actions against evaders of tax. Talk about the rights it affects, reasons for making search and seizure justified,
b. Right against self-incrimination
Article 20(3) was argued to be violated when statements required to be taken as oath during search are later is used as evidence. Although there is not available any precedents related to taxation. Thus it becomes necessary to rely upon criminal jurisprudence. Thereupon it is settled position that the under the search and seizure warrants, protection from self –incrimination is an exception. Hence, s. 132 is an exception to article 20(3)
c. Unfair discrimination between evasion and avoidance.
Article 14 provides equal protection of law. Section 132 makes a distinction between evaders of taxes and those believed to be in possession of undisclosed income. It only applies to the latter and is justified because the authorities can’t waste their resources on chasing a tax evader who has no money left to be seized. On the contrary, catching assessee with an undisclosed income is beneficial both to recover the tax and set as deterrent for others. This is a legitimate classification based on intelligent differentia not violation of art. 14.
Cases of Misuse
The cases of misuse of power have been analyzed in the following points
a. Unauthorised Assessment of Third Person
The authorities sometimes resort to the unauthorized assessment of third persons even where the basis for assessment is presumption. In CIT v. SMC Share Brokers Ltd.[7], some additions were made to the undisclosed income of the assessee on the basis of a statement made by a third person on the back of the assessee. He was not allowed to cross-examine despite several requests. Since the principle of natural justice was not observed, it was held to be illegal.
b. Outdated warrants
There is a time limit for making block assessments. It is usually one year. In the case of Shahrukh Khan v. Asstt, authorizations were issued on December 23, 1996, but were delayed till 26 Jan 1997 and were held invalid.
c. Producing False Evidence
The items found during the search are presumed to belong to the assessee unless the contrary appears. In, CIT v. Ashok Kumarit was presumed that the books of account seized during the search belonged to the assessee subjected to the search. This was done despite the fact the book clearly contained the name of the other owner. The contention of the assessee was accepted and the addition made on that account was deleted by the Commissioner.
d. Including Disclosed Income
During the search, there are certain incomes which could not be included in undisclosed income, like returned income, below taxable limit, etc. In Biaora Constructions (P.) Ltd. v. Director of Income-tax (Invest.), the seizure of cash made from the employee of the company was held to be illegal. It was because there were counter-evidence like filed books of account, a certificate issued by the bank and the amount being duly recorded in the cash book were present thus there was no reason to believe that the asset would not be disclosed.
e. Related to Family Jewellery[8]
It is an open secret that the family may have some jewellery belonging to various members of the family. Where such jewellery is found during the search, the attempt of the Assessing Officer is to add its value in undisclosed income in spite of the explanation of the assessee about the ownership of same. Therefore the certain permissible weight of jewellery has been fixed which may be held by married or unmarried ladies in the family and male members as well. In CIT v. Kailash Chand Sharma, the Assessing Officer made an addition in respect of jewellery found during search in spite of the fact that the ladies were wealth-tax assesses and had declared the jewellery in their returns of wealth-tax and they confirmed having received some jewellery latter from disclosed sources.
After considering the submissions of the assessee and looking at the status of the family, the addition made was deleted.
Conclusion
The concept of “search and seizure” was inserted in the Income Tax laws to forestall tax avoidance and for that purpose, the taxing authorities were vested with specific powers that should have been practised to make a move against the defaulters and consequently to check the issue of tax avoidance. It is clear that section 132 provides a lot of clauses so that chances of arbitrary misuse are minimized. The cases have reiterated multiple times that the objective of the search must be to uncover undisclosed assets. Such a search is to be done by a competent authority sanctioned by a competent authority.
“The power must be used strictly in accordance with the law and only for the purpose for which the law authorizes it to be exercised.” If the action is maliciously taken, it is liable to be struck down by the Courts. The Kelkar Committee in its report on Tax said Search and Seizure should be used only in the rarest of the rare cases, when it is a must and where alternative measures of investigation have failed.”
Yet, it additionally forces an inquiry to the governing body as at whatever point one deciphers financial laws it ought to be such which leans toward the assessee however the current arrangement under section“132 of the Income Tax act 1961”, is ending up deadly for the assessee, as it is infringing his crucial privileges, essential common liberties and all such different freedoms that are presented to each resident by the Constitution of India and surprisingly following sixty years of autonomy if the fundamental freedoms of the residents are been infringed by the activities of the authorities.
The Criticism of search and seizure is based mainly right to privacy, dignity and the right not to self incriminated are in the mainly. The court recolonized certain rights to make available to the assessee and his family members at all times. These rights include, the right not to get arrested, not to be criminally prosecuted, to ensure that the dignity of women is not jeopardized and “to have at least two respectable and independent residents of the locality as witnesses.
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[2] (2022). Retrieved 25 August 2022, search and seizure under income tax https://www.taxmann.com/DitTaxmann/IncomeTaxActs/2005ITAct/casesec132.htm
[3] (2022). Retrieved 25 August 2022, from https://www.taxmann.com/DitTaxmann/IncomeTaxActs/2005ITAct/casesec132.htm
[4] (2022). Retrieved 25 August 2022, from http://cms.gcg11.ac.in/attachments/article/101/Income-tax-authorities.pdf
[5] (2022). Retrieved 25 August 2022, from http://cms.gcg11.ac.in/attachments/article/101/Income-tax-authorities.pdf
[6] (2022). Retrieved 25 August 2022, from https://www.taxmann.com/DitTaxmann/IncomeTaxActs/2005ITAct/casesec132.htm
[7] (2022). Retrieved 25 August 2022, from https://www.taxmann.com/DitTaxmann/IncomeTaxActs/2005ITAct/casesec132.htm
[8] (2022). Retrieved 25 August 2022, from http://cms.gcg11.ac.in/attachments/article/101/Income-tax-authorities.pdf
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