Taxmann's Law Relating to Search & Seizure

ABOUT THE AUTHORS

Dr. Raj K. Agarwal has be e n meri t ori o us t hr o ug h o ut hi s a c a de m i c c ar eer He has do ne M Co m, LL B, LL M, MBA a nd Ph D a nd i s Fell o w me mber of I nsti t ut e of Chart er e d Acc o unt a nt s of I ndi a a nd I nsti t ut e of Co mpa ny Secr et ari es of I ndi a a nd Ass oci at e Me mber of I nsti t ut e of Cost Acc o unt a nt s of I ndi a. He has bee n pr acti ci ng as Chart er e d Acc o unt a nt si nce 1984 as s e ni or part ner i n M/s. Ra kes h Raj & Ass oci at es. He has w i de e x peri e nce of ha ndli ng I nc o me Tax s e ar c h c as es a nd has po ur e d hi s pr acti c al e x peri e nce i n t he f or m of t hi s well r es e ar c he d book. He has bee n ass oci at e d w i t h t he ac a de m i c acti vi ti es of t he I nsti t ut e of Chart er e d Acc o unt a nt s of I ndi a r e pr es e nti ng vari o us c o mm i tt ees of t he I nsti t ut e a nd w i t h t he I nsti t ut e of Co mpa ny Secr et ari es of I ndi a r e pr es e nti ng i t s Nort her n I ndi a Re gi o nal Co uncil as Chai r ma n i n t he ye ar 2003. He has be e n c o nt ri b uti ng arti cl es a n d a d dr es si ng v ari o us s e m i nar s o n t o pi cs r el ati ng t o i nc o me- t ax, acc o unti ng, a udi ti ng a nd b usi ness r est r uct uri ng.

Dr. Rakesh Gupta i s a l a w gr a d uat e a nd Fell o w Me mber of I nsti t ut e of Chart er e d Acc o unt a nt s of I ndi a a nd I nsti t ut e of Co mpa ny Secr et ari es of I ndi a a nd Ass oci at e Me mber of I nsti t ut e of Cost Acc o unt a nt s of I ndi a. He has do ne Ph. D . He was a war de d g ol d me dal i n LL . B . e xa m i nati o n by t he Uni versi t y He al ong w i t h Dr Raj st art e d pr acti ci ng as c hart er e d acc o unt a nt i n t he ye ar 1984 i n t he fir m M/s. Ra kes h Raj & Ass oci at es. He was s el ect e d as Me mber of I nc o me Tax Appell at e Tri b unal i n t he ye ar 2000 a nd t her eaft er he r esi g ne d f r o mt he s er vi ce a nd st art e d pr acti ci ng as a n a dv oc at e as s e ni or part ner of M/s. RRA Tax I ndi a at Del hi r e pr es e nti ng i nc o me t ax cas es bef or e vari o us H i g h Co urt s a nd Supr e me Co urt of I ndi a. He i s a pr oli fic s pe a ker a nd has bee n c o nt ri b uti ng t o t he pr of essi o n by a ddr essi ng vari o us s e m i nars o n r e g ul ar basi s o n l e gal a nd pr acti c al t opi cs r el ati ng t o I nc o me Tax. He has bee n c o nt ri b uti ng arti cl es i n vari o us pr of essi o nal magazi nes, wri ti ng c ol u mn i n ne ws pa pers a nd ma ki ng a ppe ar a nces at T . V . c ha nnel s.

Dr. RAKESH GUPTA

PREFACE

The enactment of the provisions of search and seizure in our country under the income-tax law dates back to the year 1956. This is an extreme action undertaken by the Income-tax Department to investigate a person regarding the undisclosed income. With the gradual deterioration in the value system in the society, there is increased tendency to resort to illegal, unethical and corrupt practices for maximization of wealth. This results into the generation and accumulation of unaccounted income. Needless to say, Income-tax Department is becoming more and more vigilant on this issue and the actions of search and seizure are being undertaken frequently. Further, with the introduction of technology in the working of the Income-tax Department, better qualitative information are available which, in turn, lead the tax department to undertake investigation by resorting to income-tax search and seizure actions.

The law relating to income-tax search and seizure is cumbersome and at the same time, the process of search and seizure is painful from the point of view of the taxpayers. The law relating to income-tax search and seizure and particularly assessment procedure with respect to taxpayer who is searched, has undergone several changes in the past. Apart from the legal issues, there are practical complications which are faced by the searched persons. There are several practical aspects which keep on haunting a person regarding handling of income-tax search and seizure. An attempt has been made in this book to comprehend and address various practical aspects relating to search and seizure, apart from discussing and analyzing various complicated and controversial legal issues.

Over a period of time, several landmark judgments have been delivered by Supreme Court, different High Courts and benches of Tribunal. Significant judgments delivered in this regard have been discussed and analyzed at appropriate places. With respect to new assessment procedure in search cases applicable w.e.f. 1st June, 2003, as given under sections

153A to 153D, the law is in the process of being evolved, developed, interpreted and explained by Supreme Court and various High Courts. These provisions have been discussed in this book, keeping in view the various issues which may be analyzed and interpreted by the courts in future.

There are certain issues with respect to which there are divergent views prevailing in the professional circles as well as expressed by different courts while delivering various judgments. An attempt has been made in this book to give both the views so as to bring on surface the different dimensions of the controversy and wherever deemed appropriate, own opinion has been expressed by us also.

Further, on various controversial issues, an attempt has been made to give a balanced view from the point of view of taxpayers as well as department. However, the possibility of having a slight tilt in favour of the taxpayers cannot be ruled out for the reason that the authors do have the background of being practicing tax consultants in their professional career and have throughout represented the cases of the taxpayers at various levels right from Assessing Officer till Supreme Court.

Income-tax Act, 1961 is in the process of being replaced by new Direct Tax Code very shortly. There was a dilemma as to whether a comprehensive commentary on income-tax search and seizure provisions should be published at this juncture. In the mean time, Direct Taxes Code Bill, 2010 has been placed before Parliament and it was observed that conceptually the provisions relating to search and seizure contained in the Bill are on the same lines of the Income-tax Act, 1961 with certain minor amendments. Therefore it was thought appropriate to release the present book which, in our humble opinion, would remain relevant and useful under the existing Act as well as after the enactment of new Code. In the beginning of the book, few chapters have been devoted to discuss Frequently Asked Questions (FAQs), gist of significant landmark judgments of various courts and checklists to be practiced by the assessee while handling income-tax search and seizure action. Such material may be quite handy and may provide readily available solution to certain practical issues. For detailed analysis and discussion, one may refer to appropriate section in the book.

Development of law is a continuous process and in practice also, it has been observed that new kind of issues and situations keep on emerging. We welcome and invite suggestions and request that any new issue(s) coming to the knowledge of the esteemed readers may be referred to us for discussion and incorporation in future edition of the book. We

would further invite feedback with respect to any discrepancy in the book which may be noticed by the esteemed readers despite our sincere efforts to avoid any mistake or error.

The issues have been discussed and analyzed in this book keeping in view the need of different sections of the society. This book may be useful to the practicing tax consultants, taxpayers being individuals or Corporates, senior executives working with the corporate world, academicians and students and at the same time to the tax administrators as well.

SECOND EDITION

It was maiden attempt writing book on the subject ‘Income Tax Search and Seizure’ incorporating our practical experience of professional practice. The first edition of the book was published in June 2011 and we are extremely happy and satisfied that the book has been well received and appreciated in the professional as well as tax department circle. Direct Taxes Code Bill, 2010 presented in Parliament could not be enacted so far and therefore the provisions introduced in the bill amending certain provisions relating to search and seizure could not be effected. The Finance Act, 2012 has thoroughly amended penalty provision relating to search with certain other minor amendments relating to provisions of sections 153A and 153C of the Income-tax Act, 1961. It is a matter of extreme pleasure and satisfaction to bring out second edition of the book analyzing the amendments introduced by Finance Act, 2012 and further discussing the judgments delivered by different courts during last one year on different aspects relating to provisions of search and seizure.

THIRD EDITION

It is a matter of extreme pleasure and satisfaction that the second edition of the book received overwhelming response from the readers. It has encouraged us to bring the third edition incorporating changes made by the Finance Act, 2013 and latest judicial decisions rendered by different courts and we hope that it will receive the same response.

FOURTH EDITION

It is a matter of extreme pleasure and satisfaction that the third edition of the book received overwhelming response from the readers. It has encouraged us to bring the fourth edition incorporating changes made by the Finance (No. 2) Act, 2014. We hope that it will receive the same response.

FIFTH EDITION

We are pleased to bring fifth edition of the book incorporating amendments made by Finance Act, 2015 & Finance Act, 2016 and judicial decisions rendered by the courts during last two years. Chapter on Direct

Tax Code has been dropped from the book as it is now clear from the government that new Direct Tax Code shall not be introduced. Certain significant amendments proposed in the Direct Tax Code earlier have already been incorporated in the Income Tax Act. We would welcome to your valuable suggestions and feedback on various aspects of the book.

SIXTH EDITION

We are pleased to bring sixth edition of the book incorporating amendments made by Finance Act, 2017 and judicial pronouncements rendered by different courts during the calendar year. The Taxation Laws (Second Amendment) Act, 2016 has amended the penalty provisions relating to search and has amended section 115BBE alongwith introduction of new penalty provision under section 271AAB which have been analysed and discussed in detail in this edition. A new chapter on Income Declaration Scheme, 2016 and The Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016 alongwith the critical analysis of the schemes has also been incorporated in this edition.

SEVENTH, EIGHTH AND NINTH EDITION

The seventh edition of book was published after a gap of almost 4 years. There was lot of demand of the revised edition of the book in professional circle. The delay was extended due to covid pandemic during the year 202021. Finance Act, 2021 has done away with special provision of assessment of search cases as provided u/ss 153A and 153C and now the assessment of search cases has to be undertaken as per normal provisions of the Act by regular assessment or reopening the cases u/s 148. We added a new chapter in the book analyzing the amended reassessment provisions along with discussion on various controversial issues which may arise in future. In the eighth edition of the book, judicial decisions rendered by different courts on various issues upto March 2022 have also been updated.

The ninth edition of the book is published incorporating the amendments made in the Income-tax Act by Finance Act, 2023 and judicial decisions rendered by different courts on various issues up to March 2023 have also been updated.

We once again request our esteemed readers to keep on sending their valuable suggestions so as to make the book more useful for all of us.

raj@taxindia.net

Mob. : 9810002906, 9810420515

DR. RAJ K. AGARWAL

CHAPTER-HEADS

OF BOOKS OF ACCOUNT, DOCUMENTS

nv oki ng po wer under s ecti o n 131( 1 A) bef or e t a ki ng acti o n under cl a us es (i ) t o ( v ) of s ecti o n 132( 1) by t he Aut hori z e d

ficer - Mea ni ng t her e of

her s u mmo n under s ecti o n 131( 1 A) ca n be i ss ue d t o

ns e q ue nces of no n- c o mpli a nce of s u mmo n i ss ue d under

8.15 INTRODUCTION OF NEW SECTION 133C BY FINANCE (NO. 2) ACT, 2014 AND AS MODIFIED BY THE FINANCE ACT, 2016 AND THE FINANCE ACT, 2017 GRANTING POWER TO CALL FOR

SECTIONS 132(8)/132(10)/132(9)/132(9A) TO (9D) & 132B

PART 1

MISCELLANEOUS PROVISIONS RELATING TO SEARCH

UNDER SECTION 132A

s hi ng ba nk

f r o m Exci s e De part me nt i n cas e of a ucti o n

di ng po wers t o I nc o me Tax Aut hori ti es over ot her

ne fit of ma ki ng decl ar ati o n of undi s cl os e d i nc o me under s ecti o n 132( 4) a nd al s o Dee m i ng ficti o n of “ undi s cl os e d i nc o me” under s ecti o n 271 AAA not a ppli ca bl e i n cas e of r e q ui si ti o n u/s 132 A 451

Pe nal t y i n cas e of r evi si o n of r et ur n c o ns e q ue nt upo n r e q -

ess me nt i n acc or da nce w i t h pr ovi si o ns of s ecti o n 153 A

n cas e of r e q ui si ti o n, whi c h si x years t o be c over e d

ay i n r ecei vi ng r e q ui si ti o ne d mat eri al - Ass ess me nt f or

ur e of ass ess me nt pr ocee di ngi n cas e of r e q ui si ti o n under

of t he cas e under s ecti o n 147 f or t hr ee or t e n pr ece di ng years, as t he cas e may be, ca n be ma de year w i s e, & all s uc h years i nv ol ve d ar e not r e q ui r e d t o be r e ope ne d &r eass ess e d si mul t a ne o usl y, as happe ne dt o be t he cas e under s ecti on 153 A

I mpact of T OL A & Supr e me Co urt’ s deci si o n i n As hi s h Agar wal f or t he p ur pos e of ext e nsi o n of ti me li m i t ati o n f or r e ope ni ng of AYs 2013- 14 & 2014- 15

u

u

I nt he cas e of s ear c h hel d on or aft er 1. 4. 2021, whi c h ass ess me nt years ca n be r e ope ne d as per a me nde d l a w of s ecti o n 149

Ther e s hall not be a ny a bat e me nt of t he pe ndi ng ass ess me nt s f or whi c h noti ce under s ecti o n 143( 2) has al r ea dy bee ni ss ue d or ass ess me nt i s al r ea dy i n pr ogr ess

487

u

Pr ovi si o ns of ne w l y i ns ert e d s ecti o n 148 A wo ul d not be a ppli ca bl e f or r e ope ni ng of t he pri or t hr ee or t e n years’ cas es as a c o ns e q ue nce of s ear c h Ho wever a ppr oval of t he ‘ s peci fie d a ut hori t y’ i s r e q ui r e d under s ecti o n 151

488

489

u

Re ope ni ng of t he cas es bey o nd t hr ee years may be possi bl e whe n i nc o me c har gea bl e t o t ax i s r e pr es e nt e d i n t he f or m of ass et

490 u Ma ndat or y r e ope ni ng of pri or t hr ee ye ars c as es i n t he cas e of s ear c h eve n i f no i ncri m i nati ng mat eri al i s f o und duri ng s ear c h. Whet her i t wo ul d be i n t he nat ur e of de novo ass ess me nt or a ddi ti o ns ca n be ma de o nl y r el ati ng t o t he i ncri m i nati ng mat eri al f o und duri ng s ear c h?

493 u Bur de n of pr oof li es o n who mi n r es pect of a ny ot her es ca pe d i nc o me whi c h c o mes t o t he noti ce of A O duri ng t he c o urs e of r eass ess me nt pr ocee di ng under s ecti o n 148

494 u

I n cas e of s ear c h, ass ess me nt bey o nd pr ece di ng t hr ee years may be r e ope ne d whe nt her ei s i nf or mati on w i t ht he Ass essi ng Of ficer whi c h s uggest s t hat t he i nc o me c har gea bl e t o t ax has es ca pe d ass ess me nt - Mea ni ng t her e of

494

u

I n what ma nner, j uri s di cti o n over ‘ ot her pers o n ’ may be ass u me d under s ecti o n 148, as a c o ns e q ue nce of s ear c h?

495 u Whet her pe nal t y pr ovi si o n of s ecti o n 271 AAB s hall r e mai n a ppli ca bl e f or t he ‘ s peci fie d pr evi o us year’ eve n aft er t he ne w ass ess me nt s c he me of t he s ear c h cas es?

496

12.5 RELEVANCE OF JURISPRUDENCE DEVELOPED WITH RESPECT TO REOPENING OF ASSESSMENT UNDER THE OLD LAW CONTAINED IN SECTIONS 147-151 & 153A-153D TO THE NEW SCHEME OF ASSESSMENT OR REASSESSMENT IN SEARCH CASES

497 u

What ar e t he c o ns e q ue nces i f i nc o me t ax r et ur n p urs ua nt t o noti ce under s ecti o n 148 i s not fil e d?

497 u Whet her f r es h noti ce under s ecti o n 148 ca n be i ss ue d i n cas e earli er noti ce i s hel d i nvali d?

498 u

What i s t he eff ect of a ddi ti onal i nco me decl ar e d byt he ass ess ee i n t he r et ur n fil e d p urs ua nt t o noti ce under s ecti o n 148?

499 u Ti me li m i t f or r e ope ni ng of ass ess me nt i n t he cas e of i nc o me i n r el ati o n t o f or ei g n ass et - Appli ca bili t y aft er i nt r o ducti o n of ne w s c he me of ass ess me nt or r eass ess me nt

502

u

Whet her noti ce under s ecti o n 143( 2) i s r e q ui r e d t o be i ss ue d a nd s er ve d bef or e finali zi ng t he r eass ess me nt under t he ne w s c he me of ass ess me nt or r eass ess me nt ?

503

u

Whet her under t he ne ws c he me, ‘ r eas ont o beli eve ’ i s r e q ui r e d t o be r ec or de d as t o t he es ca pe me nt of i nc o me as was s o r e q ui r e d under t he ol d s ecti o n 148?

504

u

Whet her a ddi ti o ns ca n be ma de o n i ss ues not c over e d by t he i nf or mati o n s uggesti ng es ca pe me nt of i nc o me under t he ne w s c he me of ass ess me nt or r eass ess me nt ?

u On who mt he bur de n of pr oof of es ca pe d i nc o me li es?

u

Whet her ass essi ng of ficer may s ee k o mni bus a nd s wee pi ng det ai l s whi c h ar e u nc o n ne ct e d wi t h t he i nf or mati o n s uggesti ng es ca pe me nt of i nc o me under t he ne w s c he me of ass ess me nt or r eass ess me nt ?

506

508

509 u Whet her r e ope ni ng i s possi bl e bas e d o n c ha nge of opi ni o n o n t he s a me s et of f act s?

u Whet her a not her noti ce under s ecti o n 148 ca n be i ss ue d i f f r es h evi de nces c o me t ot he poss essi on of t he ass essi ng of ficer?

u

Whet her r e ope ni ng i s possi bl e o n t he basi s of s ur m i s e & s us pi ci o n?

u Whet her r e ope ni ng of ass ess me nt ca n be ma de o n t he basi s of heavy cas h de posi t i n Ba nk acc o unt or i nvest me nt i n pr operti es di s pr oporti o nat e t o t he i nc o me?

u Whet her di r ecti o n or findi ng by a ny a ppell at e a ut hori t y or c o urt or der ca n be t he basi s f or r e ope ni ng t he ass ess me nt under ne w s c he me of ass ess me nt or r eass ess me nt ?

509B

509B

509C

509D

509E u

Whet her r e ope ni ng of a n ass ess me nt i s possi bl e eve n i n a cas e whe n a ni ss ue i s pe ndi ng i n a ppeal, r evi si o n or r ef er e nce bef or e a ny a ppell at e a ut hori t y or c o urt, under ne w s c he me of ass ess me nt or r eass ess me nt ?

509E u

Whet her a n ass ess me nt ca n be r e ope ne d under t he ne w s c he me of r eass ess me nt i f i nc o me has bee n ass ess e d earli er at t oo l o w a r at e of t ax?

509F u

Whet her r e ope ni ng noti ce under s ecti on 148i ss ue d under t he ne ws c he me of ass ess me nt or r eass ess me nt ca n be c hall e nge d i n Wri t bef or e H i g h Co urt ?

509G u

Whet her f ail ur e of t he ass ess ee t o di s cl os e mat eri al f act s f ull y & t r ul y i n ori gi nal ass ess me nt has bec o me i rr el eva nt under t he ne w s c he me of ass ess me nt or r eass ess me nt whil e j udgi ng t he vali di t y of r e ope ni ng?

509H u Whet her ne ws c he me of ass ess me nt or r eass ess me nt a ppli es e q uall y t o ass ess me nt or r eass ess me nt ma de as a c ons e q ue nce t o s ear c h as well as s ur vey?

509-I

Whet her t he l a w e v ol ve d a nd de vel ope d under s ecti o n 153 A i s still r el eva nt f or ass ess me nt or r eass ess me nt ma de under t he ne w s c he me f or ass ess me nt or r eass ess me nt as a c o ns e q ue nce of s ear c h?

her i ni ti ati on of r e ope ni ng of ass ess me nt or r eass ess me nt o n a no n- exi sti ng gr o und ca n be s ust ai ne d?

ASSESSMENT OF SEARCH CASES UNDER SECTION 153A/153C

s ear c h i ni ti at e d aft er 31st May, 2003

u Di s cr e pa ncy r egar di ng “ s ear c h i s i ni ti at e d” a nd “ s ear c h i s

o nduct e d”

u Mea ni ng of “ s ear c h i s i ni ti at e d” a nd “ s ear c h i s c o nduct e d”

Ho w t o r es ol ve t he c o nt r overs y

Whet her dr a w i ng of Pa nc hna ma i s ma ndat or y t o deci de

o nduct of s ear c h?

Ass ess me nt under s ecti o n 153 A not t he ass ess me nt o nl y f or undi s cl os e d i nc o me f o und as a r es ul t of s ear c h as was t he cas e i n bl oc k ass ess me nt under Cha pt er XI VB 525

Co nce pt of undi s cl os e d i nc o me under s ecti o n 271 AAA/ 271 AAB e nti r el y f r o m a di ff er e nt pers pecti ve

ndi ng ass ess me nt or r eass ess me nt t o a bat e

Fr es h ass ess me nt s t o be f r a me d f or all t he pr ece di ng si x years whet her ass ess me nt pr ocee di ngs ar e a bat e d or not

Abat e me nt of pe ndi ng ass ess me nt pr ocee di ng - What r e mai ns t he st at us of r et ur n fil e d?

Abat e me nt t o r evi ve

u No ot her ass ess me nt or r eass ess me nt pr ocee di ngs duri ng pe nde ncy of pr ocee di ng u/s 153 A

u Appli cati o n f or r ecti ficati o n under s ecti o n 154 not t o a bat e

u No a bat e me nt of pe ndi ng a ppell at e pr ocee di ngs

13.8 ISSUES REGARDING FILING OF RETURN UNDER SECTION 153A

Whet her exe mpti o n/ de ducti o n ca n be cl ai me d first ti me i n t he r et ur ns fil e d under s ecti o n 153 A , whi c h c o ul d not be ma de i n t he ori gi nal r et ur n

I nt er est pr ovi si o ns a ppli ca bl e as i n nor mal c o urs e

u Appli ca bili t y of pr ovi si o ns r egar di ng i mposi ti o n of pe nal t y a nd pr os ec uti o n

u

u

Fili ng of r et ur n aft er s ear c h under nor mal pr ovi si o ns of t he Act - Whet her r e q ui r e d?

Lat e fili ng of r et ur n under s ecti o n 153 A - Co ns e q ue nces t her e of

u Whet her r et ur n fil e d i n p urs ua nce t o noti ce under s ecti o n 153 A ca n be r evi s e d?

u

Whet her ass ess ee s ho ul d fil e i nc o me t ax r et ur ns under s ec - ti o n 153 A whe n opti ng t o a ppl y t o Settl e me nt Co mm i ssi o n?

u Cas h s ei z e d duri ng s ear c h- Whet her a dj ust a bl e as a dva nce t ax

13.9 CERTAIN ISSUES RELATING TO ASSESSMENT UNDER SECTION 153A

548

548

549

550

552

553

555 u No r e peti ti o n of a ddi ti o n under s ecti o n 153 A f or t he s a me i ss ues r el ati ng t o whi c h a ddi ti o n al r ea dy ma de i n earli er ass ess me nt or r eass ess me nt pr ocee di ngs

555 u Fr es h mat eri al f o und r el ati ng t o i ss ue w i t h r es pect t o whi c h a ddi ti o n al r ea dy ma de i n earli er ass ess me nt finali z e d

u Whet her t o ass ess or r eass ess as r e q ui r e d under s ecti o n 153 A t a nt a mo unt t o de novo ass ess me nt pr ocee di ng?

u Ar g u me nt s agai nst t he c o nce pt of de novo ass ess me nt

556

556

560 u Cha nge of opi ni on by t he ass essi ng of ficer duri ng ass ess me nt /

r eass ess me nt pr ocee di ngs under s ecti on 153 Ar el ati ng t oi ss ue al r ea dy c o nsi der e d a nd exa m i ne d duri ng earli er ass ess me nt pr ocee di ngs

u J udi ci al c o nt r overs y r egar di ngde novo ass ess me nt

564

565 u No a ddi ti o n i n cas e No I ncri m i nati ng Mat eri al Fo und duri ng

s ear c h & Ass ess me nt Pr ocee di ngs not a bat e d

573 u St at e me nt under s ecti o n 132( 4) - Whet her t o be c o nst r ue d as i ncri m i nati ng mat eri al ?

576 u

What c o nsti t ut es I ncri m i nati ng Mat eri al ?

577 u

I n cas e of s ear c h, whet her i nv oki ng pr ovi si o n of s ecti o n 153 A i s ma ndat or y?

578 u Na me not a ppeari ng i n Pa nc hna maPrima facie pr oof of no s ear c h - Pr ovi si o n of s ecti o n u/s 153 A ca nnot be i nv oke d

579 u I nv oki ng pr ovi si o n of s ecti o n 153 C i nst ea d of pr ovi si o n of s ecti o n 153 A eve n i n cas e of s ear c he d pers o n

580 u Whet her pr ovi si o n of s ecti o n 148 or 263 ca n be i nv oke d w i t h r es pect t o ass ess me nt f r a me d as per pr ovi si ons of s ecti on 153 A

580

u

Sei z e d mat eri al f r o m t he a ut hori z e d of ficer r ecei ve d l at e

- Bey o nd ti me li m i t as pr es cri be d u/s 132( 9 A) - Vali di t y of ass ess me nt pr ocee di ng

581

u

I ss ue of noti ce under s ecti o n 153 A pri or t o r ecei pt of t he s ei z e d mat eri al f r o mt he a ut hori z e d of ficer

u Ass u mpti o n of j uri s di cti o n - Noti ce under s ecti o n 143( 2) w i t hi n ti me li m i t - Whet her ma ndat or y i n cas e of pr ocee d - i ngs u/s 153 A?

u

u

St at us of ass ess me nt or der pass e d under s ecti o n 153 A whe n s ear c h i s hel d ill egal

“ Reas o n t o beli eve” r ec or de d by t he c o mpet e nt a ut hori t y f or a ut hori z ati o n of t he s ear c h not avail a bl e w i t h t he ass essi ng of ficer

582

582

584

585 u Si g ni fica nce of appr ai s al r e port duri ng ass ess me nt f or s ear c h cas es

u For ass ess me nt of s ear c h cas es, i nt egr at e d i nvesti gati o n a ppr oac h i s a dopt e d

u Whet her I T O ca n be Ass essi ng Of ficer under s ecti o n 153 A?

u Whet her a ut hori z e d of ficer ca n be t he Ass essi ng Of

586

587

587

u Rec or di ng of s ati sf acti o n whe n ass essi ng of ficer i s c o mmo n

u Mat eri al s ei z e d - What i n cas e of ill egal s ei z ur e? - Whet her s ei z e d mat eri al t o be of i ncri m i nati ng nat ur e?

u

“ Bel o ngs or bel o ng t o ot her pers o n”

u Bel o ngi ng t o mor e t ha n o ne pers o n

u

To ha nd over t o t he Ass essi ng Of ficer of ot her pers o n

u Sati sf acti o n by t he Ass essi ng Of ficer of t he ot her pers o n

u Ti me li m i t f or i ss ui ng noti ce as per s ecti o n 153 C

u La w exi sti ng o n t he dat e of s ear c h t o a ppl y f or cas es under s ecti o n 153 C

13.15 ASSUMPTION OF JURISDICTION U/S 153C

u Ass u mpti o n of j uri s di cti o n u/s 153 C at what st age?

u

612

614

619

626

627

627

628

628

629

629

That ass essi ng of ficer s hall pr ocee d agai nst eac h s uc h ot her pers o n - Rec or di ng of s ati sf acti o n by t he ass essi ng of ficer havi ng j uri s di cti o n over t he ot her pers o n bef or e ass u m i ng j uri s di cti o n under s ecti o n 153 C? 630

The wor d‘ s hall’ t o be i nt er pr et e d as ma ndat or y or di r ect or y?

- Whet her all s ear c h years t o be r eass ess e d? 634 u Rel axati o n r egar di ng r e q ui r e me nt of f r a m i ng ass ess me nt or r eass ess me nt of earli er si x years

636 u All pr ovi si o ns of s ecti o n 153 A t o a ppl y

636

13.16 ISSUES REGARDING ASSESSMENT UNDER SECTION 153C 637 u Ass ess me nt or r eass ess me nt of s eve n years - Whi c h s eve n years?

637 u

Abat e me nt of pe ndi ng pr ocee di ngs

640 u

Ass ess me nt of undi s cl os e d i nc o me of ot her pers o n o n t he basi s of e nt ri es i n books of acc o unt or doc u me nt s of t he pers o n s ear c he d

641 u

Sei z e d mat eri al bel o ngi ng or r el ati ng t o s o me ot her pers o n, whet her s ecti o n 153 C i s t he o nl y r ec o urs e?

642 u

Once j uri s di cti o n under s ecti o n 153 C i s i nv oke d - What ki nd of a ddi ti o ns ca n be ma de?

u Pr es u mpti o n under s ecti o n 292 C - Whet her avail a bl e i n t he cas e of ass ess me nt under s ecti o n 153 C?

644

645 u Me nti o n of wr o ng s ecti o n/ desi g nati o n of ass ess ee i n or der does not i nvali dat e t he or der

645

C. SECTION 153D - PRIOR APPROVAL OF JOINT COMMISSIONER

13.17 TEXT OF SECTION 153D 645 13.18 LEGISLATIVE HISTORY 646

Pe nal t y f or s peci fie d pr evi o us year i n t he cas e of s ear c h i ni ti - at e d o n or aft er 1 6 2007 ca n be l evi e d u/s 271 AAA/271 AAB

nd not u/s 271( 1)( c )

PROVISION OF SECTION 271AAA IN NUTSHELL

16.9 IMMUNITY FROM PENALTY UNDER SECTION 271AAA - MANNER OF DECLARATION 770 u Decl ar ati o n t o be ma de i n t he c o urs e of s ear c h

Speci fies a nd s ubst a nti at es t he ma nner

Re q ui r e me nt of s ubst a nti ati ng t he ma nner of deri vi ng t he undi s cl os e d i nc o me t o be c o mpli e d w i t h at whi c h st age

Pays t he t ax a ndi nt er est i n r es pect of t he undi s cl os e di nc o me

16.9A NATURE AND SCOPE OF PROVISION UNDER SECTION 271AAB

Appli ca bl e i n t he cas e of s ear c h i ni ti at e d o n or aft er 1st day of J ul y 2012

781 u Rati o nal e of i nt r o duci ng s ecti o n 271 AAB

781 u St aggeri ng of q ua nt u m of pe nal t y under s ecti o n 271 AAB

782 u Levy of pe nal t y at t he r at e of 10 % of undi s cl os e d i nc o me whe n decl ar ati o n of undi s cl os e d i nc o me i s ma de duri ng s ear c h i ni ti at e d o n or aft er 1- 7- 2012 but bef or e 15- 12- 2016

782 u Levy of pe nal t y at t he r at e of 20 % of undi s cl os e d i nc o me whe n decl ar ati o n of undi s cl os e d i nc o me i s ma de not duri ng t he c o urs e of s ear c h but i n t he r et ur n of i nc o me fil e d f or t he s peci fie d pr evi o us year i n cas e of s ear c h i ni ti at e d o n or aft er 1- 7- 2012 but bef or e 15- 12- 2016

783

u

Levy of pe nal t y at t he r at e of 30 % t o 90 % ( 60 % f or A . Y . 201718) of undi s cl os e d i nc o me whe n decl ar ati o n of undi s cl os e d i nc o me i s not ma de by t he s ear c he d pers o n but a ddi ti o ns ar e ma de by t he Ass essi ng Of ficer duri ng ass ess me nt pr ocee di ngs, i n r es pect of s ear c h i ni ti at e d o n or aft er 1- 7- 2012 but bef or e 15- 12- 2016

784 u

Pr ovi si o ns of s ecti o n 274 a nd s ecti o n 275 t o a ppl y

785 u Anal ysi s of Si g ni fica nt i ss ues

n I nt er pr et ati o n of t he de fini ti o n of “ Undi s cl os e d I nc o me”

n ‘ Pe nal t y’ u/s 271 AABi mpos a bl ei f i nc o me decl ar e d f all s w i t hi n t he de fini ti o n of ‘ Undi s cl os e d I nc o me ’

n Decl ar ati o n of Undi s cl os e d I nc o me i n t he st at e me nt r ec or de d u/s 132( 4) wo ul d not ipso facto be r egar de d as Undi s cl os e d I nc o me

n A mbi g ui t y i n t he de fini ti o n of “ Speci fie d Dat e”

785

785

787

789

789

n

n

n

n

n

n

Cas h s ei z e d - Whet her t o be t r eat e d as pay me nt of t ax bef or e t he “ s peci fie d dat e” ?

Deci si o n r egar di ng decl ar ati o n of “ undi s cl os e di nc o me” duri ng s ear c h t o be ma de mor e ca uti o usl y

Appli cati o n w i t h Settl e me nt Co mm i ssi o n may be opt e d by s ear c he d pers o n

Whet her pe nal t y u/s 271 AAB i s ma ndat or y i n nat ur e?

Pe nal t y pr ovi si on under s ecti on 271 AAB a me nde di n cas e of s ear c h i ni ti at e d o n or aft er 15t h of Dece mber, 2016

Enha nce me nt of pe nal t y by t he first Appell at e Aut hori t y

16.10 PENALTY UNDER SECTION 271AAA/271AAB v . PENALTY

UNDER SECTION 271(1)(c)

u

Pe nal t y pr ovi si on u/s 271 AAA appli ca bl e eve n whe n no decl ar ati o n of “ undi s cl os e di nc o me” r el ati ng t o “ s peci fie d pr evi o us year” i s ma de duri ng s ear c h a nd s uc h “ undi s cl os e d i nc o me” i s decl ar e d i n t he r et ur n of i nc o me fil e d or s uc h “ undi s cl os e d i nc o me” i s a dde d by A Oi n t he ass ess me nt or der i n r es pect of s ear c h i ni ti at e d aft er 1- 6- 2007 but bef or e 1- 7- 2012

u Pe nal t y under s ecti o n 271 AAB v. Pe nal t y under s ecti o n 271( 1)( c )

u Si t uati o n whe n pe nal t y f or “ s peci fie d pr evi o us year” may be a ppli ca bl e/l evi a bl e under s ecti o n 271( 1)( c )

790

790

791

792

793

795

795

795

797

797 u J udi ci al deci si o ns t o t he eff ect t hat pe nal t y under s ecti o n 271( 1)( c ) not a ppli ca bl e at all f or s peci fie d pr evi o us year i n t he cas e of s ear c h

u No pe nal t y u/s 271( 1)( c ) f or c o nceal me nt of i nc o me i f i nc o me not c over e d w i t hi n t he de fini ti o n of “ undi s cl os e d i nc o me” under s ecti o n 271 AAA/271 AAB , i s decl ar e d i n t he r et ur n of i nc o me r el ati ng t o ‘ s peci fie d pr evi o us year ’

16.11 PENALTY FOR UNDISCLOSED INCOME RELATING TO EARLIER YEARS

u Pr ovi si o n of s ecti o n 271 AAA/271 AAB a ppli ca bl e o nl y f or “ s peci fie d pr evi o us year” a nd not f or earli er years - Decl ar a - ti o n of undi s cl os e d i nc o me f or earli er years may be t r eat e d as a d m i tt e d c o nceal me nt f or t hos e years

u J udi ci al deci si ons t o t he eff ect t hat i n cas e undi s cl os e di nc o me i s s ho wn i n t he r et ur n fil e d under s ecti o n 153 A f or years pri or t o s peci fie d pr evi o us year, no pe nal t y under s ecti o n 271( 1)( c ) ca n be l evi e d

u Cli nc hi ng evi de nces of undi s cl os e d i nc o me f or earli er years

798

798

799

799

801

801 u

Decl ar ati o n ma de f or earli er years s ubj ect t o no pe nal t y 801

u Pe nal t y f or c onceal me nt of i nc o me f or earli er years appli ca bl e under s ecti o n 271( 1)( c ) r ea d w i t h Explanation 5A 803

No Pe nal t y mer el y o n s urr e nder of I nc o me

16.12 TEXT OF EXPLANATION 5A TO SECTION 271(1)(c) 803

16.13 RATIONALE FOR INSERTION OF EXPLANATION 5A TO SECTION 271(1)(c)

u To c over a si t uati o n wher e due dat e of fili ng of r et ur n i s ex pi r e d but c o nceal e d i nc o me i s i ncl ude d i n t he r et ur n fil e d aft er s ear c h

u

Aft er s ear c h havi ng t a ke n pl ace, r et ur n of i nc o me al r ea dy fil e d i s r evi s e d s ho w i ng undi s cl os e d i nc o me f o und as a r es ul t of s ear c h pert ai ni ng t o s uc h year

u Whet her Explanation 5A t o s ecti on 271( 1)( c ) s hall be att r act e d r egar di ng nor mal pr o fit s as per bal a nce s heet finali z e d but i nc o me- t ax r et ur n pe ndi ng o n t he dat e of s ear c h

16.14 PROVISION OF SECTION 271AAA/271AAB AND EXPLANATION 5A TO SECTION 271(1)(c) NOT APPLICABLE TO REQUISITION MADE UNDER SECTION 132A

16.15 NEW PENALTY PROVISION UNDER SECTION 270A MADE APPLICABLE WITH EFFECT FROM A.Y.

804

804

805

u

u

u

u

Pe nal t y f or l oa ns or de posi t s or ‘ s peci fie d s u m ’ t a ke n or r e pai d i n cas h

Whet her pe nal t y i s att r act e d f or no n- fili ng or l at e fili ng of I nc o me- t ax Ret ur ns under s ecti o n 153 A

Po wer t o r e duce or wai ve pe nal t y et c. i n cert ai n cas es as pr ovi de d under s ecti o n 273 A

Po wer of Co mm i ssi o ner t o gr a nt i mmuni t y f r o m pe nal t y under s ecti o n 273 AA

16.19 OFFENCES AND PROSECUTION

u Co nt r ave nti o n of pr o hi bi t or y or der pass e d under s ecti o n 132( 3) - Secti o n 275 A

u No n- c o mpli a nce of pr ovi si o n of s ecti o n 132( 1)(ii )(b ) - Secti o n 275 B

u Wil f ul att e mpt t o eva de t ax - Secti o n 276 C

u Fail ur e t o f ur ni s h r et ur n of i nc o me i n s ear c h cas es - Secti o n

276 CC

828

829

830

831

831

831

832

832

832 u Fal s e st at e me nt a nd veri ficati o n - Secti o n 277

832 u Fal si ficati o n of books of acc o unt or doc u me nt s, et c. - Secti o n

277 A

833 u Abat e me nt of f al s e r et ur n - Secti o n 278

833 u Pr es u mpti o n as t o ass et s, books of acc o unt i n cas e of s ear c h f or t he p ur pos e of pr os ec uti o n - Secti o n 278 D 833 u Whet her t her e ca n be pr os ec uti o n f or no n- c o mpli a nce of s u mmo ns i ss ue d under s ecti o n 131 834 u Ref us al t o a ns wer q uesti o ns or t o gi ve i nc orr ect r e pl y t o q uesti o ns p ut duri ng r ec or di ng of st at e me nt under s ecti o n

132( 4) /131

834 u Off e nces by c o mpa ni es

834 u Pri nci pl es e mer gi ng f r o m deci de d cas es a bo ut pr os ec uti o n pr ocee di ngs

834 u Po wer of Co mm i ssi o ner t o gr a nt i mmuni t y f r o mpr os ec uti o n

835

Co mm i ssi o n i n

Appli cati o n t o Settl e me nt Co mm i ssi o n may be fil e d whe n ass ess me nt pr ocee di ngs ar e pe ndi ng w i t ht he Ass essi ng Of ficer

For a d m i ssi o n of a ppli cati o n by Settl e me nt Co mm i ssi o n, t her e has t o be a ddi ti o nal i nc o me- t ax paya bl e by t he ass ess ee

u Addi ti o nal Tax Paya bl e - Mea ni ng t her e of

u Whet her r eg ul ar i nc o me- t ax r et ur n f or whi c h has not bee n fil e d, may be part of a ddi ti o nal i nc o me t o be di s cl os e d bef or e Settl e me nt Co mm i ssi o n

u Whet her s ei z e d cas h, mo ney, F DRs et c. may be a dj ust e d t o war ds a ddi ti o nal t ax paya bl e?

u

u

u

Appli cati o n t o Settl e me nt Co mm i ssi o n s e par at el y by eac h pers o n, but f or all t he years t oget her

Ass ess ee i s r e q ui r e d t o ma ke f ull a nd t r ue di s cl os ur e of hi s undi s cl os e d i nc o me i n t he a ppli cati o n

All t axes t o be pai d ot her w i s e a ppli cati o n may be r ej ect e d

u Whet her undi s cl os e d i nc o me decl ar e d by t he ass ess ee duri ng s ear c h i n t he st at e me nt under s ecti o n 132( 4), may be c o nsi der e d as a ddi ti o nal i nc o me t o be decl ar e d bef or e

Settl e me nt Co mm i ssi o n

850

850

851

852

853

854

854

855

u Copy of a ppli cati o n t o be gi ve n t o t he Ass essi ng Of ficer si mul t a ne o usl y

u Appli cati o n t o be s ub m i tt e d car ef ull y, i n cas e of a ny def a ul t a ppli cati o n i s li a bl e t o be r ej ect e d

u Co ns e q ue nces whe n a ppli c ati o n i s not pr ocee de d w i t h/ r ej ect e d by t he Settl e me nt Co mm i ssi o n

Fili ng a ppli cati o n w i t h t he Settl e me nt Co mm i ssi o n, j uri s di c - ti o n of t he Ass essi ng Of ficer t o be excl ude d

Bef or e fili ng a ppli cati o n t o Settl e me nt Co mm i ssi o n, whet her I nc o me- t ax Ret ur ns under s ecti o n 153 A t o be fil e d? - Co ns eq ue nces of no n- fili ng of r et ur ns?

BEFORE SETTLEMENT

C H A P T E R

VALIDITY OF SEARCH - WRIT JURISDICTION

4.1 Validity of Search

I nc o me t ax s e ar c h i s a n e xt r e me a nd ver y hars h acti o n undert a ke n by t he de part me nt agai nst t he ass ess ee Suc h po wer nee ds t o be e xer ci s e d w i t h ut most a nd d ue c ar e a nd c a uti o n. Vali di t y of t he s e ar c hes i s oft e n c hal - l e nge d by t he s e ar c he d pers o ns. The c o urt s have hel d t hat s e ar c h acti o n s ho ul d be t a ke n f oll o w i ng d ue pr ocess of l a w st ri ctl y i n acc or da nce w i t h pr ovi si o ns of s ecti o n 132. I n c as e t her e i s a ny l a ps e, t he s e ar c h acti o n may be hel d t o be ill e gal.

Se ar c h acti o n c a n be a ut hori z e d o nl y whe n “reason to believe” has bee n f or me d by t he a ut hori zi ng of ficer i n c o ns e q ue nce t o r el e va nt i nf or mati o n i n hi s poss essi o n as t o t he e xi st e nce of ei t her or mor e of t he c o ndi ti o ns pr es cri be d under cl a us e ( a ), (b ) or ( c ) of s ecti o n 132( 1), a nd vali d s e ar c h warr a nt i s i ss ue d as pr ovi de d under t he l a w . I n t he a bs e nce of a ny of s uc h c o ndi ti o ns havi ng bee n f ul fill e d, s e ar c h may be hel d by t he c o urt s as ill e - gal. I f t he e xer ci s e of po wers i s i n g oo d f ai t h, a pr oce d ur al def ect may be overl ooke d. Whil e e xa m i ni ng t he vali di t y of s e ar c h, c o urt c a nnot e xa m i ne a de q uac y or s uf fici e nc y of i nf or mati o n b ut i t s e xi st e nce a nd r el e va nce bec o me cr uci al f act or.

Co nsti t uti o nal vali di t y of s ecti o n 132 was c o nsi der e d by t he Supr e me Co urt i n t he c as e of Pooran Mal v. Director of Inspection [ 1974] 93 I T R 505 i n whi c h Ho n ’ bl e Supr e me Co urt o bs er ve d t hat t he pr ovi si o ns c o nt ai ne d i n s ecti o n 132 a nd Rul e 112 of t he I nc o me- t ax Rul es, 1962 ar e not vi ol a - ti ve of Arti cl e 19( 1)(f ) a nd ( g ) bec a us e t he r est ri cti o ns pl ace d t her ei n wer e r e as o na bl e r est ri cti o ns. Acc or di ng t o t he Supr e me Co urt, t he po wer of s e ar c h a nd s ei z ur e i s di r ect e d agai nst pers o ns who ar e beli e ve d o n g oo d gr o unds t o have ill e gall y e va de d t he pay me nt of t ax o n t hei r i nc o me a nd pr opert y a nd t her ef or e, dr asti c me as ur es t o get s uc h i nc o me a nd pr opert y w i t h a vi e w t o r ec over g over n me nt d ues wo ul d st a nd j usti fie d i n i t s el f.

Ho n ’ bl e Supr e me Co urt i n t he c as e of Bhupendra Ratilal Thakkar v. CIT [ 1976] 102 I T R 531 hel d t hat s ecti o n 132 of t he I nc o me- t ax Act i s nei t her i nc o mpet e nt nor i nvali d i n i nf ri ngi ng a ny of t he f unda me nt al ri g ht s g uara nt ee d under Arti cl es 14, 19, 21 a nd 31 of t he Co nsti t uti o n. Ho n ’ bl e Co urt f urt her hel d t hat r ul es 112 B a nd 112 C ar e be ne fici al r ul es a nd t hei r vali di t y c a nnot be i mp ug ne d.

Ho n ’ bl e All a ha ba d i n t he c as e of Shyam Jewellers v. Chief Commissioner (Administration ) [ 1992] 196 I T R 243 hel d t hat nei t her t he s ecti o n 133 A r el at - i ng t o s ur ve y nor s ecti o n 132( 3) pr ovi de f or s e ali ng of t he s hop or b usi ness a nd s uc h a n act vi ol at es t he f unda me nt al ri g ht s a mo unti ng t o t e mpor ar y de pri vati o n of pr opert y under Arti cl e 19( 1)( g ) whi c h g uar a nt ees t he ci ti z e n t he ri g ht t o c arr y o n a ny pr of essi o n or t r a de or b usi ness.

Ho n ’ bl e Supr e me Co urt i n CIT v. Tarsem Kumar [ 1986] 27 Tax ma n 305 hel d t hat i f t he acti o n of i nc o me t ax a ut hori ti es does not f all w i t hi n t he p ur vi e w of s ecti o n 132, t he c o ns e q ue nti al acti o n wo ul d t he n be ar bi t r ar y a nd unr e as o na bl e a nd wo ul d be vi ol ati ve of Arti cl e 14 of t he Co nsti t uti o n. Si mil arl y, Ho n ’ bl e All a ha ba d H i g h Co urt i n t he c as e of Dr. I.S. Tomar v. DIT [ 1996] 85 Tax ma n 468 hel dt hat wher e t he s ear c h was c onduct e d whi msi call y w i t ho ut a ny mat eri al a nd w i t ho ut a ny g oo d i nf or mati o n, a ut hori z ati o n t o c o nd uct s e ar c h a nd t o ma ke t he s ei z ur e was wholl y ill e gal. Ho n ’ bl e Supr e me Co urt i n t he c as e of ITO v. Seth Brothers [ 1969] 74 I T R 836 a d m i ni st er e d a wor d of c a uti o n r e gar di ng t he s e ar c hes. Acc or di ng t o Supr e me Co urt, si nce s eri o us e ncr oac h me nt i s ma de upo n t he ri g ht s, pri vac y a nd f r ee do m of t ax payer, t he po wer must be e xer ci s e d st ri ctl y i n acc or da nce w i t h l a w a nd i f t he acti o n of t he of ficer i s c hall e nge d i n t he c o urt of l a w , t he of ficer must s ati sf y a bo ut t he r e g ul ari t y of acti o n. I f t he acti o n i s mali ci o usl y t a ke n or t he po wer i s e xer ci s e d f or c oll at er al p ur pos e, i t i s li a bl e t o be st r uc k do wn by t he c o urt s. Ho n ’ bl e Pat na H i g h Co urt i n t he c as e of Pawan Solvent & Chemicals v. CIT

[ 1987] 32 Tax ma n 12 hel d t hat r ai d, s e ar c h a nd s ei z ur e oper ati o ns must be c o nd uct e d t o une art h unacc o unt e di nc o me a nd we al t h f r o muns cr up ul o us t ax payers, s muggl ers et c. who ar e s c o ur ge of t he s oci et y. Ho we ver, wa n - t o n a nd i ndi s cri m i nat e r ai d a nd s ei z ur e of ho nest t ax payers will a mo unt t o de pri vati o n of f unda me nt al ri g ht s of t he pers o ns li vi ng i n s oci et y w i t h di g ni t y a nd gr ace a nd t her ef or e, t he s a me s ho ul d be av oi de d.

Ho n ’ bl e Cal c utt a H i g h Co urt i n Shree Krishna Investments v.

Union of India

AI R 1976 Cal. 333 o bs er ve d t hat i t may be t hat a po wer vest e d i n a n a ut hori t y may be a b us e d by t hat a ut hori t y b ut no st at ut e or pr ovi si o n c a n be st r uc k do wn o nl y o n t he gr o und t hat po wers t her e under whe n a b us e d wo ul d r es ul t i n di s cri m i nati o n. An a b us e of po wers vest e d by a st at ut e or pr ovi si o n does not r e nder t he s o ur ce of t he po wer t ai nt e d. It o nl y r e nders s uc h act of a b us e li a bl e t o be st r uc k do wn.

I n

Dr. Nand Lal Tahiliani v. CIT [ 1988] 39 Tax ma n 127 ( All. ) i t was hel d t hat t her e must be r ati o nal c o nnecti o n bet wee n t he i nf or mati o n or mat eri al a nd t he beli ef a bo ut t he undi s cl os e di nc o me. Re p ut ati o n of r oari ng pr acti ce a nd hi g h f ees i s not t a ngi bl e mat eri al f or i nv oki ng po wer u/s 132. Sati sf acti o n i s t o be deri ve d o bj ecti vel y a nd o n t he basi s of avail a bl e mat eri al. Ho n ’ bl e Supr e me Co urt i n CIT v. Dr. Nandlal Tahiliani [ 1988] 172 I T R 627 o bs er ve d whil e di s m i ssi ng t he de part me nt al S LP t hat de part me nt was e nti tl e d t o

“take into account any information derived from the inventories prepared in consequence of the search and seizure made u/s 132 of the Income-tax Act and impugned in the present case”.

I n H.L. Sibal v. CIT [ 1975] 69 Tax ma n 112 ( P &H), Co urt was of t he vi e w t hat t her e s ho ul d be no i ndi s cri m i nat e i ss ue of s e ar c h warr a nt as a matt er of s e ar c h poli c y a nd bl a nket c o nde mnati o n of pers o ns of di vers e acti vi ti es was wholl y o ut si de s ecti o n 165 of Cri m i nal Pr oce d ur e Co de.

I n Harmel Singh v. Union of India [ 1993] 69 Tax ma n 347 ( P &H), i t was hel d t hat

“existence of relevant material for taking action u/s 132 is a condition precedent for the exercise of powers” . Any wr o ng acti o n u/s 132 i s a s eri o us e ncr oac h me nt o n t he ci vil ri g ht s of a ci ti z e n a nd o nce t he c o urt i s s ati s fie d t hat t her e was no mat eri al bef or e t he c o ncer ne d a ut hori t y t o f or m a n opi ni o n, t he n t he c o urt c a n i nt erf er e b ut c o urt c a nnot g o i nt o t he s uf fici e nc y of t he mat eri al.

I n Chemitex v. Union of India [ 1982] Tax L . R . 2871 ( Goa) t he Co urt hel d t hat t he pr ovi si o ns f or s e ar c h a nd s ei z ur e ar e not hi t by Arti cl e 19( 1)( g ) of t he Co nsti t uti o n si mpl y bec a us e s e ar c h has t o be c o nd uct e d w i t ho ut gi vi ng pri or he ari ng t o t he pers o ns. I n f act s uc h a n opport uni t y of bei ng he ar d t o a pers o n bef or e i nv oki ng po wer u/s 132 wo ul d r e nder t he po wer of s e ar c h a nd s ei z ur e me a ni ngl ess a nd t he ver y s c ope of t hes e pr ovi si o ns wo ul d be def e at e d.

I n Kusum Lata v. CIT [ 1990] 48 Tax ma n 401 ( Raj. ), i t was hel d by t he Co urt t hat wher e t her e was no r e as o na bl e i nf or mati o n o n whi c h t he Di r ect or c o ul d have ha d a ny bona fide beli ef t o i ss ue t he a ut hori z ati o n u/s 132( 1), t he pr ocee di ngs wer e vi ti at e d. I n t hat c as e, all t hat was st at e d was t hat a parti c ul ar br a nd of c he w i ng t o bacc o, pa n mas al a et c. wer e s elli ng at a hi g h pr e m i u m whi c h was r es ul t of arti fici al s c ar ci t y cr e at e d by t he de al ers. The a ut hori z ati o n bei ng ill e gal a nd not bei ng i n acc or da nce w i t h l a w was hel d ill e gal a nd t her ef or e, t he s e ar c h a nd s ei z ur e of t he ass et s wer e al s o hel d t o be ill e gal.

I n Dr. Partap Singh v. Director of Enforcement [ 1985] 22 Tax ma n 30 ( S C) i t was hel d t hat t he mat eri al o n whi c h t he of ficer has r e as o n t o beli e ve t hat a ny doc u me nt s will be us ef ul or r el e va nt t o a ny i nvesti gati o n or pr ocee d - i ngs under For ei g n Exc ha nge Re g ul ati o n Act, nee d not be di s cl os e d i n t he s e ar c h warr a nt i ss ue d by hi m . The mat eri al o n whi c h t he beli ef i s gr o unde d

may be s ecr et, may be o bt ai ne d t hr o ug h i nt elli ge nce or occ asi o nall y may be c o nve ye d or all y by t he i nf or mers. It i s not o bli gat or y upo n t he of ficer t o di s cl os e hi s mat eri al o n t he mer e all e gati o n of t he peti ti o ner t hat t her e was no mat eri al bef or e hi mf or e xer ci si ng hi s po wer t o or der s e ar c h.

It i s t h us cl e ar f r o m t he c at e na of j udi ci al deci si o ns t hat t he c o urt s have hel d t hat po wer t o or der s e ar c h must be e xer ci s e d st ri ctl y i n acc or da nce w i t h l a w a nd o nl y f or t he p ur pos e f or whi c h t hes e pr ovi si o ns wer e br o ug ht o n t he st at ut e. The c o urt t ho ug h i s not c o mpet e nt t o g o i nt o t he s uf fici e nc y of t he mat eri al upo n whi c h r e as o n t o beli e ve f or t he p ur pos e of s e ar c h i s bas e d b ut t he l a w does not per m i t at t he s a me ti me t he i ndi s cri m i nat e s e ar c h a nd s ei z ur e bas e d o n s us pi ci o n.

(i) Circumstances when search is held to be valid

1 Wher e cert ai n C DRs a nd Ba nker’ s c he q ues val ue d at ` 3 cr or es wer e de posi t e d w i t h t he Di st ri ct Exci s e Of fice as s ec uri t y i n t he na me of a fir mt o parti ci pat e i n t he a ucti o n f or all ot me nt of pri vil e ge of s elli ng c o unt r y ma de li q uor a nd t he s a me wer e s ei z e d, t he s e ar c h i s hel d t o be vali d. [Babu Lal v. DIT (Inv.) [ 2005] 147 Tax ma n 318 ( All. )]

2. Se ar c h i n ass ess ee ’ s pr e m i s es hel d t o be vali d wher e i t was do ne i n c o nnecti o n w i t h cl a ndesti ne t r a ns acti o n of t he gr o up w i t h whi c h t he ass ess ee was i nt er-li nke d. [Bandel Traders (P.) Ltd. v. Union of India [ 2003] 130 Tax ma n 428 ( Del hi )]

3. All e gati o n t hat I nc o me Tax a ut hori ti es ha d t a ke n a bri be wo ul d not i nvali dat e t he s e ar c h. [Kamal Khosla v. DIT (Investigation)

[ 2002] 123 Tax ma n 1102 ( Del hi )]

4 I f a s e ar c h i s ot her w i s e j usti fie d, t he si z e of s e ar c h part y i s not t o be f at al t o t he vali di t y of s e ar c h. The e nor m i t y of s e ar c h part y c o ul d not be a gr o und f or i nt erf er e nce. Bec a us e of t he e nor m i t y of t he b uil di ng a nd t he pr e m i s es i t was necess ar y f or t he p ur pos e of s e ar c h a nd s ei z ur e t o e ns ur e t he pr es e nce of a n u mber of pers o ns o n be hal f of t he de part me nt. Mamchand & Co. v. CIT [ 1968] 69 I T R 631 ( Cal. ), Subir Roy v. S.K. Chattopadhyay [ 1986] 29 Tax ma n 13 ( Cal )

It has bee n hel d i n t he c as e of Jai Bhagwan Om Parkash v. Director of Inspection [ 1993] 67 Tax ma n 33 ( P &H), t hat a u - t he nti ci t y of c o mpl ai nt a nd all e gati o n of t ax e vasi o n ma de by c o mpl ai na nt d ul y c hec ke d by de part me nt i nde pe nde ntl y by s ecr et e nq ui r y, i t c o ul d not be s ai d t hat t her e wer e no r e as o n t o beli e ve f or c o nd ucti ng s e ar c h.

I n t he c as e of Dr. P.G. Viswanathan v. DIT (Inv.) [ 2013] 30 t axma nn c o m 33/214 Tax ma n 105 ( Ma d )( HC)

V. Muthulakshmi v. DIT (Inv.) [ 2013] 351 I T R 217/88 DT R 33 ( Ma d. ) ( HC)

K. Viswanathan alias Kumar v. DIT (Inv.) [ 2013] 351 I T R 217/88

DT R 33 ( Ma d. )( HC)

Dr. Aruna Viswanathan v. DIT (Inv.) [ 2013] 351 I T R 217/88

DT R 33 ( Ma d. )( HC)

Dr. Anjana Viswanathan v. DIT (Inv.) [ 2013] 351 I T R 217/88

DT R 33 ( Ma d. )( HC)

Dr. Vikram Viswanathn v. DIT (Inv.) [ 2013] 351 I T R 217/88

DT R 33 ( Ma d. )( HC)

The ass ess ee c hall e nge d t he acti o n under s ecti o n 132 of t he Act by way of wri t bef or e t he H i g h Co urt. The Co urt di s m i ss e d t he peti ti o n by o bs er vi ng t hat t her e wer e mat eri al s avail a bl e bef or e t he a ut hori t y c o ncer ne d, f or t he f or mati o n of hi s be - li ef t o i ss ue s uc h a warr a nt. Furt her, t he a ut hori t y ha d al s o r e as o n t o beli e ve t hat s uc h doc u me nt s a nd t hi ngs wo ul d not be pr o d uce d by t he pers o ns c o ncer ne d, i n t he nor mal c o urs e, t o e na bl e t he De part me nt t o c o nd uct necess ar y i nq ui ri es i n t he matt er. Ther ef or e, i t was pr e mat ur e o n t he part of t he ass ess ees t o st all f urt her pr ocee di ngs r el ati ng t o t he all e gati o ns of e vasi o n of pay me nt of t ax by t he ass ess ees, by r ai si ng t he i ss ues r el ati ng t o t he j uri s di cti o n of t he De part me nt t oi ss ue t he s e ar c h warr a nt s. Of c o urs e, i t wo ul d be ope n t o t he ass ess ees t o def e nd t he ms el ves by s ho w i ng, at t he a ppr opri at e st age of t he pr ocee di ngs, t hat t he y wer e not li a bl e t o pay t he t ax, as ass ess e d by t he a ut hori ti es of t he De part me nt. The beli ef of t he a ut hori ti es t hat t he ass ess ees ha d s ecr et e d cert ai n doc u me nt s r el e va nt f or t he p ur pos e of i nvesti gati o n of t he matt er r el ati ng t o t he e vasi o n of t ax by t he ass ess ees, was bas e d o n mat eri al s avail a bl e bef or e t he a ut hori ti es. Whe n s eri o us all e gati o ns of t ax e vasi o n by t he ass ess ees, t o t he t une of s e ver al l a k hs of r upees, have bee n ma de, i t wo ul d not be a ppr opri at e f or t he c o urt t o s c uttl e t he pr ocess by pl aci ng und ue e mp hasi s o n t he hy per t ec hni c al pl e as p ut f ort h o n be hal f of t he ass ess ees, w i t h r e gar d t o t he pr oce d ur al f or mali ti es i n t he i ss ua nce of t he s e ar c h warr a nt s.

I n t he c as e of Emaar Alloys (P) Ltd. v. DGIT (Inv ) & Ors. [ 2015] 64 t ax ma nn. c o m67/235 Tax ma n 569 ( J har k ha nd), H i g h Co urt o bs er ve d t hat t her e was s uf fici e nt mat eri al bef or e t he I T a ut hori ti es t hat t he ass ess ee ha d not di s cl os e d h uge i nc o me. Furt her, bef or e t he i ss ua nce of t he warr a nt of a ut hori z ati o n by t he Di r ect or of I T t o c arr y o ut s e ar c h a nd s ei z ur e, t he pr o

ce d ur e pr es cri be d under s ecti o n 132 ha d bee n f oll o we d. H i g h Co urt f urt her o bs er ve d t hat i t nee d not a ppr ove t he s ubj ecti ve s ati sf acti o n arri ve d at by t he l o wer a ut hori ti es.

It has bee n hel d by t he H i g h Co urt t hat s e ar c h pr ocee di ngs i ni ti at e d c a nnot be decl ar e dill e gal i f t her e i s s uf fici e nt mat eri al bef or e t he I T a ut hori ti es o n t he basi s of whi c h s ati sf acti o n i s arri ve d at t hat t he ass ess ee has h uge undi s cl os e d i nc o me.

It has bee n hel d i n t he c as e of Rajan Jewellery v. CIT 177 DT R 369 ( Ker. ) t hat ass ess ee havi ng not r ai s e d t he o bj ecti o n o n vali di t y of s e ar c h o n t he gr o und of a bs e nce of pa nc has bef or e t he A O , i t c o ul d not r ai s e t he s a me bef or e a ppell at e a ut hori t y

It has bee n hel d i n t he c as e of Subhash Sharma v. CIT [ 2020] 121 t ax ma nn. c o m 83/423 I T R 47 ( Chhatti s gar h) t hat bef or e i ss ua nce of warr a nt a ndt he noti ce under s ecti on 153 A , whe nt he a ut hori t y appli e d i t s m i nd t o t he mat eri al a nd t he f or mati o n of opi ni o n i s ho nest a nd bona fide a nd f urt her t hat i t i s not bas e d o n a ny e xt r a ne o us or i rr el - e va nt mat eri al, t her e i s no ill e gali t y or i nfir m i t y i n t he e nti r e pr ocess bas e d o n whi c h t he warr a nt under s ecti o n 132 a nd t he noti ce under s ecti o n 153 A was i ss ue d agai nst t he ass ess ee.

It has bee n hel di n t he c as e of Principal Director of IT (Inv.) v. Laljibhai

215 DT R( S C) 417 t hat Reve nue a ut hori ti es havi ng

f or me d t he beli ef t hat t he l oa n of Rs. 10 cr or es gi ve n by t he ass ess ee f or a s hort peri o d t o a n unc o nnect e d c o mpa ny si t uat e d i n a di st a nt ci t y was a mer e acc o mmo dati o n e nt r y, a nd t he c o b we b of e nt ri es i ncl udi ng t he t ri al of mo ne y pai d by t he ass ess ee i s r e q ui r e d t o be unr avell e d, t he pr er e q ui si t e c o ndi ti o ns of s ecti o n 132 st a nd s ati sfi e d a nd f urt her t hat e ve n cl a us e ( c ) of s ecti o n 132( 1) i s s ati sfi e d as t he Re ve n ue wa nt s t o fi nd o ut whet her t he s ai d a mo unt i s a n undi s cl os e d i nc o me a nd, t her ef or e, t he i mp ug ne d a ut hori z ati o n of s e ar c h c o ul d not be s et asi de.

Kanjibhai Mandalia

(ii) Circumstances when search is held to be invalid

1. Mer e i nf or mati o n f r o m C BI t hat c as h was f o und i n poss essi o n of a n i ndi vi d ual c a nnot j usti f y a s e ar c h [Union of India v. Ajit Jain [ 2003] 129 Tax ma n 74 ( S C)]

2. Wher e t he a ut hori z ati o n t o s ur ve y was i ss ue d i ni ti all y agai nst t he doct or, s e ar c h oper ati o ns at t he r esi de nce of t he doct or a nd i n t he hos pi t al pr e m i s es hel d i nvali d wher e t he hos pi t al bel o ngs t o t he t r ust a nd wher e no r e as o ns f or c o nversi o n of s ur ve y oper ati o ns i nt o s ear c h oper ati o ns wer e gi ve n. [Dr. Nalini Mahajan v. DIT (Investigation) [ 2002] 122 Tax ma n 897 ( Del hi )]

3. Wher e t he s e ar c h was i n t he na me of part ner, t he s e ar c h o n t he fir m was hel d ill e gal. [Vishwanath Prasad v. Asstt. CIT [ 2003] 86 I T D 516 ( All. - Tri b. )]

4. It was hel d t hat wher e i n hi s z e al f or t a ki ng acti o n under s ecti o n 132( 1) t he Co mm i ssi o ner di d not e ve n c ar e t o have a l ook at t he or ders of Ass essi ng Of ficers, i t was hel d he di d not at all a ppl y hi s m i nd bef or e i ni ti ati ng acti o n agai nst t he peti ti o ner a nd t her ef or e, t he s e ar c h of t he pr e m i s es of t he peti ti o ner was ill e gal. [Anand Swaroop v. CIT [ 1976] 103 I T R 575 ( P &H)]

5. The dr asti c po wers of s e ar c h a nd s ei z ur e c a nnot be us e d i n a r o uti ne ma nner a nd ar e e x pect e d t o be pr ess e d i nt o acti o n aft er d ue c ar e, c a uti o n a nd c o nsi der ati o n. Thes e po wers have t o be i nv oke di n r ar est of r ar e c as es. I f t he c o ndi ti o ns pr ece de nt ar e not s ati s fie d, Co urt s have not hesi t at e d i n q uas hi ng t he warr a nt of a ut hori z ati o n, t he acti o n of s ei z ur e a nd i n di r ecti ng r et ur n of s ei z e d c as h, val ua bl es et c. a nd al s o s ei z e d books of acc o unt a nd doc u me nt s. I n a ppr opri at e c as es, t he har ass e d ass ess ees have bee n a war de d da mages a nd c ost s. The f act s c o nsti t uti ng t he i nf or mati o n must be r el e va nt t o t he e nq ui r y. The y must be s uc h f r o m whi c h a r e as o na bl e a nd pr ude nt ma n c a n c o me t o t he r e q ui si t e beli ef or c o ncl usi o n. I f ei t her of t he af or e me nti o ne d el e me nt s i s m i ssi ng, t he acti o n of t he a ut hori t y s hall be r e gar de d as l yi ng o ut si de t he a mbi t a nd s c ope of t he Act. Suc h a n acti o n wo ul d be li a bl e t o be st r uc k do wn o n t he basi s of what i s c o mmo nl y k no wn as “l e gal mali ce”. [H.L. Sibal v. CIT [ 1975] 101 I T R 112 ( P &H)]

It has bee n hel d i n t he c as e of Madhu Gupta v. Director of IT (Inv.) [ 2013] 30 t ax ma nn. c o m 92/214 Tax ma n 246 ( Del hi ) t hat whe n t he s o- c all e d i nf or mati o n r e mai ne d undi s cl os e d a nd what e xactl y t hat i nf or mati o n was, i s al s o not k no wn, t he s o- c all e d i nf or mati o n t hat t her e was a li keli hoo d of t he docu me nt s bel o ngi ng t o a gr o up bei ng f o und at t he r esi de nce of t he peti ti o ner a mo unt e d o nl y t o a s ur m i s e a nd c o nj ect ur e a nd not s oli d i nf or mati o n a nd t her ef or e warr a nt of a ut hori z ati o n was li a bl e t o be q uas he d.

I n t he c as e of Dipen Laljibhai Mandalia v. DGIT [ 2013] 35 t axma nn. c o m 508/217 Tax ma n 66 ( Mag. ) ( Guj. ), t he ass ess ee was c arr yi ng g ol d or na me nt s wort h ` 6. 42 cr or es o n a fli g ht f r o m Ah me da ba d t o Che nnai t o s ho wt he mt o r et ail o wners hopi ng t o pr oc ur e b ul k or ders f or t he s a me. On basi s of i nf or mati o n r ecei ve d f r o m t he s ec uri t y of fici al s at t he ai r port, r e ve n ue a ut hori ti es c o nd uct e d i nq ui ri es w i t h ass ess ee a nd al s o w i t h t he Kart a of HUF who acc or di ng t o ass ess ee was t he o wner of g ol d whi c h was l e as e d t o t he m under cert ai n c o ndi ti o ns. Subs e q ue ntl y, o n basi s of a s ati sf acti o n not e, s e ar c h a nd s eiz ur e oper ati o ns wer e c arri e d o ut agai nst t he HUF . On Speci al

Ci vil Appli c ati o n fil e d by t he HUF , t he H i g h Co urt q uas he d s e ar c h a nd s ei z ur e oper ati o ns. The H i g h Co urt, all o w i ng t he Speci al Ci vil Appli c ati o ns fil e d by t he ass ess ee, hel d t hat si nce s e ar c h pr ocee di ngs i n c as e of HUF wer e al r e a dy q uas he d, s ai d pr ocee di ngs o n ver y si mil ar gr o unds a nd he nce wo ul d not be s ust ai na bl e.

I nt he cas e of LKS Bullion Import & Export (P.) Ltd. v. DGIT [ 2013]

29 t ax ma nn. c o m 299/214 Tax ma n 68 ( Guj. ), Ass ess ee- c o mpany was e ngage d i n b usi ness of whol es al e t r a di ng i n b ulli o n. Di r ect or of ass ess ee, al o ng w i t h ot her wer e f o und c arr yi ng a bo ut 23 kil os of g ol d or na me nt s by ai r f r o m Ah me da ba d t o Che nnai. De part me nt s ei z e d s ai d g ol d or na me nt s under s ecti o n 132. Di r ect or of ass ess ee at s pot gave st at e me nt t hat 25 kil os of g ol d was r ecei ve d by ass ess ee f r o m MG- HUF o n l e as e a nd g ol d or na me nt s i n q uesti o n wer e ma de o ut of s ai d g ol d. Sai d st at e me nt s gi ve n by di r ect or of ass ess ee at ai r port mat c he d w i t h t hat of MG- HUF a nd g ol ds m i t h s upport e d by r el e va nt books of acc o unt. On f act s, c o mpet e nt a ut hori t y c o ul d not have f or me d a r e as o na bl e beli ef t hat s uc h g ol d j e well er y ha d not bee n or wo ul d not be di s cl os e d f or p ur pos e of I nc o me- t ax. Ther ef or e, s e ar c h a nd s ei z ur e oper ati o n was t o be decl ar e d ill e gal a nd s ei z ur e of g ol d or na me nt was al s o t o be q uas he d.

I n t he c as e of CIT v. Smt. Umlesh Goel [ 2016] 141 DT R ( Raj. )

25, i t has bee n hel d t hat all t he f a mil y me mbers ar e s e par at e ass ess a bl e l e gal e nti ti es under t he Act a nd i n a c as e wher e s e ar c h warr a nt has bee n i ss ue d i n t he na me of OP a nd f a mil y. It c a nnot be st r et c he d t o c over all t he f a mil y me mbers, na mel y s po us e a nd c hil dr e n. Se ar c h warr a nt has t o be i n t he na me of s peci fic pers o n t o i ni ti at e pr ocee di ng. Whe n na mes of t he t wo ass ess ee do not find me nti o n i n t he warr a nt of a ut hori s ati o n, t he A . O . has no j uri s di cti o n t o i ss ue noti ce under s ecti o n 158 BC It has bee n hel d i n t he c as e of Laljibhai Kanjibhai Mandalia v

Principal DIT [ 2019] 105 t ax ma nn. c o m 260/263 Tax ma n 604 ( Guj. ) t hat Se ar c h warr a nt i s i nvali d i f pr ovi si o ns of s ecti o n 132 not att r act e d; A s e ar c h was c o nd uct e d i n c as e of ass ess ee. Ass ess ee fil e d peti ti o n c hall e ngi ng a ut hori s ati o n i ss ue d under s ecti o n 132. It was not e d t hat no s u mmo ns or noti ce as e nvi sage d under cl a us e ( a ) of s ub- s ecti o n ( 1) of s ecti o n 132 ha d bee n i ss ue d. It was al s o not e d t hat beli ef of r e ve n ue t hat ass ess ee wo ul d not r es po nd t o a s u mmo ns or noti ce i ss ue d as e nvi s age d under cl a us e (b ) of s ub- s ecti o n ( 1) of s ecti o n 132 was not bas e d upo n a ny i nf or mati o n or ot her mat eri al b ut was bas e d upo n c o nj ect ur es a nd s ur m i s es t hat ass ess ee wo ul d t a ke ali bi of l ac k

of j uri s di cti o n o n part of r es po nde nt s. Th us, ci r c u mst a nce e n - vi s age d under cl a us e (b ) of s ub- s ecti o n ( 1) of s ecti o n 132 al s o di d not e xi st. Fi nall y, t her e was not hi ng o n r ec or d t o i ndi c at e t hat a ny beli ef ha d bee n f or me d by c o mpet e nt a ut hori t y t o eff ect t hat ass ess ee ha d i n hi s poss essi o n a ny mo ne y, b ulli o n, j e well er y or ot her val ua bl e arti cl e or t hi ng whi c h wo ul d not have bee n di s cl os e d by hi m f or p ur pos es of Act. I n vi e w of af or es ai d, i t c o ul d be c o ncl ude d t hat no ne of cl a us e ( a ), (b ), or ( c ) of s ub- s ecti o n ( 1) of s ecti o n 132 was att r act e d a nd, t h us, a ut hori s ati o n bei ng i nvali d, s e ar c h pr ocee di ngs i n q uesti o n des er ve d t o be q uas he d.

The a bove deci si o n has bee n r e vers e d by Ho n ’ bl e Supr e me Co urt i n t he c as e of Principal Director of IT (Inv.) v. Laljibhai

Kanjibhai Mandalia 215 DT R ( S C) 417 a nd i n t he a bove ci rc u mst a nces, s e ar c h has bee n hel d vali d. It has bee n hel d i n t he c as e of Mectec v. Director of IT (Inv.) [ 2021] 125 t ax ma nn. c o m 96/278 Tax ma n 214/433 I T R 203 ( Tel a nga na) t hat as t o t he a ut hori s ati o n under s ecti o n 132( 1) a nd s ei z ur e of c as h by Poli ce vi s- a- vi s vali di t y of s e ar c h warr a nt, c as h f r o m peti ti o ner ’ s e mpl oyee was s ei z e d by poli ce a nd ha nde d over t o I T De part me nt o n 27t h Aug., 2019 a nd t her ef or e s e ar c h warr a nt dt. 28t h Aug., 2019, t hat t oo not me nti o ni ng t he pl ace t o be s e ar c he d, was a f a bri c at e d doc u me nt a nd t he i nti mati o n by t he Poli ce t o t he I T De part me nt o n 27t h Aug., 2019 wo ul d not c o nf er j uri s di cti o n o n t he I T De part me nt t o det ai n a nd w i t hhol d c as h a nd t hat t oo by i ss ua nce of a ni nvali d s e ar c h warr a nt under s ecti o n 132 a nd t h us Res po nde nt s wer e di r ect e d t o r ef und t he c as h t o t he peti ti o ner No. 1 al o ng w i t h i nt er est .

(iii) Allegation of mala fide or bias in search

Ther e i s pr es u mpti o n i n l a w t hat Gover n me nt a ut hori ti es whil e di sc har gi ng t hei r of fici al d ut y act bona fide a nd i n g oo d f ai t h. Se ar c h acti o n i s a hars h acti o n o n a n ass ess ee a nd at ti mes t o ug h deci si o ns ar e r e q ui r e d t o be t a ke n by t he a ut hori z e d of ficer i n di s c har gi ng t hi s f uncti o n, b ut of c o urs e, w i t hi n t he par a met ers of l a w . So me de gr ee of hi g h ha nde dness or e xcessi ve ness may be per cei ve d by t he s e ar c he d pers o n t o have bee n r es ort e d t o d uri ng s e ar c h by t he s e ar c h t e a m . I n ge ner al, c o urt s do not e nt ert ai n t he c har ge of mala fide or pers o nal bi as att ri b ut e d t o t he a ut hori ti es d uri ng s e ar c h unl ess st r o ng e vi de nces ar e br o ug ht o n r ec or d.

Ho we ver, t hi s pr es u mpti o n of g oo d f ai t h c a n be r e b utt e d by t he ass ess ee by l e a di ng e vi de nces. He avy b ur de n of pr oof li es o n t he pers o n s e ar c he d who i s ma ki ng s uc h all e gati o n. Suc h pers o n has t o

l e a d c oge nt, i rr ef ut a bl e a nd c o ncr et e di r ect or ci r c u mst a nti al e vi - de nces t o pr ove t he c har ge. Mer e ma ki ng a st at e me nt or fili ng bal d af fidavi t wo ul d not be s uf fici e nt

Ther e may be t e mpt ati o n o n t he part of ass ess ee t o c hall e nge a s e ar c h o n t he gr o und of mala fide , hi g h ha nde dness, bi as or ar bi t r ari ness b ut s uc h acti o n s ho ul d be t a ke n o nl y i n e xt r e me c as es wher e t he f act s ar e ver y st r o ng i n f av o ur of t he ass ess ee.

The mer e f act t hat t he Ass essi ng Of ficer was al s o a n a ut hori z e d of ficer f or c o nd ucti ng t he s e ar c h, does not ipso facto j usti f y a ppr e he nsi o n of bi as. Ther ef or e, s e ar c h c a nnot be hel d t o be i nvali d. [

v. Vipan Kumar Jain [ 2003] 129 Tax ma n 59 ( S C)].

Union of India

A s e ar c h c a nnot be t r e at e d as mala fide mer el y bec a us e cert ai n o ut - si ders wer e ass oci at e d at t he ti me of s e ar c h. Wher e s o me i ns pect ors wer e t a ke n al o ng f or doi ng cl eri c al a nd m i ni st eri al wor k a nd s o me poli ce me n wer e t a ke n f or e ns uri ng t he mai nt e na nce of pe ace a nd or der a nd f or pr eve nti ng obst r ucti on a ndilli ci t r e moval of doc u me nt s, t he s e ar c h c o ul d not be hel d t o be i nvali d. [Hindustan Metal Works

v. CIT [ 1968] 68 I T R 798 ( All. )]

I n t he a bs e nce of a nyt hi ng t o s ho w t hat t he doc u me nt s wer e ei t her r e pl ace d or t a mper e d, a ny o m i ssi o n t o pl ace i de nti fic ati o n mar ks o n doc u me nt s will not by i t s el f s uppl y a gr o und f or hol di ng t hat t he s e ar c h was mala fide . [ITO v. Seth Bros. [ 1969] 74 I T R 836 ( S C)]

Do ubtl ess, he who s ee ks t o i nvali dat e or n ulli f y a ny act or or der must est a bli s h t he c har ge of ba d f ai t h, a n a b us e or m i s us e by Gover n me nt of i t s po wers. ” [S. Pratap Singh v. State of Punjab AI R 1964 S C 72]

The o n us of pr ovi ng ‘malice’ i s o n t he pers o n who l e vel s t he all e ga - ti o n. Bec a us e of t he ver y s eri o us nat ur e of t he all e gati o ns, t he Co urt s wo ul d de ma nd a hi g hl y cr e di bl e pr oof. [E.P. Royappa v. State of Tamil Nadu AI R 1974 S C 555]

I n a bs e nce of a ny pr oof of all e gati o ns of mala fide , t he s e ar c h was hel d t o be not ba d. [Dr. Partap Singh v. Director of Enforcement [ 1985] 22 Tax ma n 30 ( S C)]

Vag ue all e gati o ns ar e not e no ug h t o pr ove mala fide . [Express Newspapers (P.) Ltd. v. UOI AI R 1986 S C 872]

Ther e c a nnot be a ny bl a nket f or mul a i n t hi s r e gar d. The q uesti o n of j udi ci al bi as or a d m i ni st r ati ve bi as or pers o nal bi as wo ul d have t o be deci de d o n t he f act s of e ac h c as e. The part y all e gi ng bi as must pr ove t he f act a nd s ho ul d l e ave no s c ope f or a ny ot her findi ng.

Wher e a n of ficer i s s o ug ht t o be c o nde mne d o n t he gr o und t hat he was pers o nall y bi as e d, t he n t he c har act er of s uc h of ficer i s under ass assi nati o n. Ever y pers o n who act s as a n of ficer has t o f ace s uc h si t uati o n. Ever y pers o n who i s aggri e ve d by t he acti o n of s uc h a n

of ficer wo ul d al ways r ai s e s uc h all e gati o n. I f t he si mpl e all e gati o ns whi c h ar e de v oi d of l e gal pr oof ar e all o we d t o st a nd, t he n i t wo ul d bec o me i mpossi bl e f or a n of ficer, es peci all y a d m i ni st r ati ve of ficer, t o wor k.

The all e gati o n t hat a n of ficer i s pr ej udi ce d or bi as e d wo ul d not be s uf fici e nt unl ess t he e vi de nce i s br o ug ht o n t he r ec or d l e a di ng t o t he posi ti ve c o ncl usi o n t hat t he bi as i s est a bli s he d. I f t he pers o n who r ai s es a n all e gati o n i s a bl e t o est a bli s h t hat t he of ficer i n f act i s bi as e d, t he n t he Co urt wo ul d gi ve wei g ht t o t he all e gati o n. [Takshila

Educational Society v. DIT (Inv.) [ 2005] 141 Tax ma n 704 ( Pat. )]

4.2 Illegality of Search v. Irregularity during Search

Ther e may be cert ai n pr oce dur al i rr eg ul ari ti es c o mm i tt e d by t he a ut hori z e d of ficer i n t he c o nd uct of s e ar c h, b ut t hi s will not vi ti at e t he s e ar c h acti o n as a whol e. Nat ur e of pr oce d ur al def ect will al s o deci de whet her i t i s mer e pr oce d ur al i rr e g ul ari t y or i t i s s o f unda me nt al i n nat ur e t hat whol e pr ocess of s e ar c h c a n be s ai d t o be ill e gal.

I n t he c as e of Naraindas v. CIT [ 1983] 14 Tax ma n 447 ( MP) at page 572, t he ass ess ee c o nt e nde d t hat t he acti o n of t he a ut hori z e d of ficers i n ma ki ng s e ar c h a nd s ei z ur e was ill e gal bec a us e of t he i rr e g ul ari t y i n not c alli ng r es pect a bl e pers o ns of t he s a me l oc ali t y as w i t ness es. The de part me nt i n i t s r e pl y af fidavi t fil e d bef or e t he H i g h Co urt st at e d t hat t he na mes of t he w i t ness es wer e s uggest e d by t he peti ti o ners. The ass ess ee wa nt e d t hat t he o ut si ders s ho ul d not be c all e d as w i t ness es bec a us e t hat wo ul d have aff ect o n t hei r cr e di t a nd pr esti ge. The H i g h Co urt o bs er ve d t hat t he peti ti o ners c o ul d not c o mpl ai n t hat t he w i t ness es s uggest e d by hi m wer e not r es pect - a bl e pers o ns of t he l oc ali t y i n t he si t uati o n st at e d a bove. The H i g h Co urt, t her ef or e, r ej ect e d t he ass ess ee ’ s pl e a bas e d o n t hi s c o nt e nti o n a nd al s o s uppl e me nt e d t hei r c o ncl usi o n by r ef erri ng t o t he deci si o n of t he Supr e me Co urt i n t he c as e of ITO v. Seth Bros. [ 1969] 74 I T R 836 t o t he eff ect t hat a ny i rr e g ul ari t y i n t he c o urs e of s e ar c h a nd s ei z ur e c o mm i tt e d by t he of ficers will not be s uf fici e nt t o vi ti at e t he acti o n t a ke n pr ovi de d t he of ficers ha d i n e xec uti ng t he a ut hori z ati o n act e d bona fide .

I n Dr. Partap Singh v. Director of Enforcement [ 1985] 22 Tax ma n 30 ( S C) i t was hel d t hat ill e gali t y of t he s e ar c h does not vi ti at e t he e vi de nce c oll ect e d d uri ng ill e gal s e ar c h t he o nl y r e q ui r e me nt i s t hat t he c o urt or t he a ut hori t y bef or e whi c h s uc h mat eri al or e vi de nce s ei z e d d uri ng t he s e ar c h s ho wn t o be ill e gal i s pl ace d has t o be c a uti o us a nd ci r c u ms pect de ali ng w i t h s uc h e vi de nce or mat eri al.

I n Balwant Singh v. R.D. Shah (Director of Inspection) [ 1969] 71 I T R 550 ( Del hi ) i t was hel d t hat t he i nf or mati o n gat her e d as a r es ul t of ill e gal s e ar c h

a nd s ei z ur e c a n be us e d s ubj ect t o t he val ue t o be att ac he d t o i t or i t s

a d m i ssi bili t y i n acc or da nce w i t h t he l a w r el ati ng t o t he e vi de nce.

Law Relating to Search & Seizure

AUTHOR : RAJ K. AGARWAL, RAKESH GUPTA

PUBLISHER : TAXMANN

DATE OF PUBLICATION : APRIL 2023

EDITION : 9TH EDITION

ISBN NO : 9789356227187

NO. OF PAGES : 1172

BINDING TYPE : HARDBOUND

Description

This book discusses and analyses various complicated and controversial legal issues surrounding Search and Seizure. It also aims to comprehend and address various practical aspects with the help of landmark judgements from various courts.

This book will help practising tax consultants, taxpayers, academicians, and tax administrators.

The Present Publication is the 9 th  Edition and has been amended by the Finance Act 2023. This book is authored by Dr Raj K. Agarwal & Dr Rakesh Gupta with the following noteworthy features:

u [ Solutions to Practical Issues ] in the form of:

 Frequently Asked Questions (FAQs)

 Gist of Landmark Judgements of various courts

 Significant Checklists on various issues relating to the handling of Search & assessment of search cases

u [ Balanced View on Controversial Issues via Landmark Judgements ( updated till March 2023 )] from the point of view of taxpayers & the department

u [ Discussion on amended Reassessment Provisions ] along with a discussion on various issues that may arise in the future

ORDER