Dr.

RAM MANOHAR LOHIYA NATIONAL LAW

UNIVERSITY, LUCKNOW
A Final Draft submitted for the research work undertaken in the
partial fulfillment of B.A. LLB. (Hons.) – 5yrs integrated course
at Dr. RMLNLU, Lucknow.

TOPIC: SEARCH AND SEIZURE

UNDER THE GUIDANCE OF

MR. U.P SINGH

PROF. IN LAW

Dr. RMLNLU, LUCKNOW

SUBMITTED BY:

Jitendra Kumar Gautam

ROLL NO– 62 SEC-A

SEMESTER – VII

1
 ACKNOWLEDGMENT

This project file is the result of my hard work and perseverance during my
studies. I express my felt gratitude to my Income Tax Law teacher, Mr.U.P
SINGH who has given me the opportunity to prepare a project file, word fail
to express my deepest gratitude to him, who encouraged me and gave
valuable suggestion from time to time whenever I needed

I needed thankful to my friends for their constant source of inspiration and

practical contribution in completing this project.

2
 TABLE OF CONTENTS

1. Introduction……………………………………………………………………………5
2. Definition of Search and Seizure…………………..…………………………………..5
3. Provisions relating to search and seizure under the income-tax act, 1961…………… 6
4. Scope of the Provisions………………………..……………………………………….6
5. Object of the Provision……………………………………………………..………… 6
6. Applicability of the Provisions…………………………………………….………….6
7. Authorisation of Search and Seizure………………………………………….………6
8. Effect of Warrant and General Procedure of Search………………………………… 6
9. Authorisation for Search: Adequacy of Information,…………………………….…… 6
10. “Reason to Believe” and application of mind…………………………………………6
11. Reason to believe…………………………………………………………………….…7
12. Conduct of seizure operation………………………………………………………… 9
13. Assessment Procedure For Searches after 1996……………………………………. 10
14. Constitutionality of Sec.132…………………………………………………….. ...11
15. Conclusion…………………………………………………………………………. 13
16. Bibliography……………………………………………………………………….…15

3
 RESEARCH METHODOLOGY

OBJECTS AND PURPOSE OF SEARCH:

The aim of this project is to study the search and seizure provisions under the Income-tax Act,
1961. To understand the meaning of the terms, what they mean in text and in practice and to
study the judicial decisions on these provisions to see how the powers of the authorities under
these provisions have been strengthened or weakened.
Scope – the topic in this project is a really vast one and it would not be possible to do a
comprehensive study of this topic. Therefore in this paper a cursory study of the meaning of the
terms and the functioning under this Act is studied, after which a certain controversial issues like
constitutionality of the provisions and the effect of illegal search are looked into.

RESEARCH QUESTIONS:
1. What is the meaning of Search and Seizure?
2. When can it be carried out?
3. How is it carried out?
4. What is the effect of an illegal search?
5. Is Section 132 of the Income-tax Act constitutionally valid?

METHOD OF RESEARCH:
A descriptive as well as analytical method of research has been employed.

STYLE OF CITATION:
Books – Author’s name, Name of the book, Publisher, place of publication, year, page.
Articles – As given in the respective journals.

4
INTRODUCTION
The topic of this paper is “Search and Seizure under the Income Tax Act, 1961.” The search and
seizure provisions under the Income Tax Act, 1961 are of a relatively recent origin.

DEFINITION OF SEARCH AND SEIZURE

‘Search’ means a thorough inspection of any building, place vehicle, vessel, aircraft and of the
person.1 The Concise Oxford Dictionary says that it means to ‘look for’ or to ‘seek out’ for what
can be found, or to find something of which presence is suspected- probe, look for, seek out. A
search is not mere looking for something which is produced or open but which is hidden,
concealed or not obvious. It is ‘looking for’ in the sense of seeking out that which is suspected or
concealed.
‘Seizure’ in its natural sense means forcible taking of possession from the owner or occupier or
possessor, whereby such person cannot exercise his power of ownership and transfer. The word
‘seizure’ means taking possession under authority of law. Seizure is thus an expression that
implies a forcible exaction or taking possession either from the owner or from one who has the
possession and is unwilling to part with the possession. Seizure, therefore is not mere taking but,
is taking with force.
Therefore now that there is a clear understanding of the meanings of the term Search and Seizure
and a rudimentary understanding of the purpose behind the addition of the provisions relating to
search and seizure under the Income Tax Act, 1961, it will be possible to go into a study of the
provisions and study the implications and effectiveness of these provisions.

PROVISIONS RELATING TO SEARCH AND SEIZURE UNDER THE INCOME-TAX ACT,

1961.
Under the Income Tax Act,1961, the principle Section giving the power of Search and Seizure is
section 132. This Section confers wide powers of search and seizure on the income tax
authorities. The principle features of this provision are as below:
1
Majmudar, Ankit, “Search and Seizure Provisions under the Income-tax Act – A Critical Analysis”, Taxman-
Magazine, Vol.105, 1999, p.113.

5
The provisions of the Code of Criminal Procedure, 1860, relating to search and seizure, as far as
possible, will apply to searches and seizures under the Income-Tax Act as well. The exercise of
this power is also regulated by Rules, 112, 112A, 112B and 112C of the Income-tax Rules, 1962.
Contravention of orders issued will attract imprisonment and fine under section 275A.2

Authorization for search: adequacy of information, “reason to believe” and application of mind
Before the giving of authorization for search, the authority under section 132(1) must in
consequence of “information” in his possession have “reason to believe” that any person to
whom summons is issued will not comply with the same or would not produce books of
accounts, documents mentioned in summons or is, I possession of unaccounted bullion,
jewellery, cash or other valuable, documents/articles or things.

“Information” was defined by the court to be that which one is apprised or told. 3 Information
under S.132 would mean statement of facts. It may be supplied to the officer either in writing or
orally. When it is given orally propriety has it that the officer records it in writing so as to assist
him in coming to the conclusion that there are reasons to believe that there is undisclosed
jewellery or money etc., and also to use it to justify the said conclusions in the event of
necessity.4Further a detailed report of an Assistant Director of Income-tax can be relied upon by
the Commissioner as credible information for action under section 132.5Information can come
from many sources, such as, professional informers, business rivals, disgruntled employees,
estranged relations, etc.

However for a warrant to be issued the information has to be more than just a rumour or gossip
or a hunch.6Further warrants cannot be issued on mere suspicion. There must be before the
authorising officer at the time of issuing the authorisation objective facts on the basis of which
the authorising authority can form a belief that unaccounted money can be found. An example
would be the case of Pooran Mal v. Director of Inspection7 the petitioner in this case had
constructed a large godown, but his books of accounts did not show any expenditure for its

2
Majmudar, Ankit, “Search and Seizure Provisions under the Income-tax Act – A Critical Analysis”, Taxman-
Magazine, Vol.105, 1999, p.113.
3
H.L. Sibal v. CIT  1975 CTR (P&H) 302.
4
OmPrakash Jindal v. Union of India , 1976CTR (P&H) 316.
5
Naraindas v. CIT  (1984) 148 ITR 567 (MP).
6
Gupta (LR) v. Union of India (1992) 194 ITR 32 (Delhi).
7
Pooran Mal  v. Director of Inspection, (1974) 93 ITR 505 (SC).

6
construction. Based on this information the Commissioner ordered a search of the petitioners
premises for evidence of unaccounted money. The court held that the initial information was
sufficient to form a reasonable belief so as to authorize the search. The court further pointed out
that subsequent documents found during the search collaborated the initial belief that there was
unaccounted wealth. However even if the result of the search shows unaccounted wealth, that
does not fulfill the conditions precedent which must be fulfilled under the requirements of
s.132(1).

REASON TO BELIEVE
“Reasons to believe” would mean that there are grounds for necessary belief. The said belief is
the assent of mind to the truth of what has been conveyed by the information. It is the belief of
the authorizing officer that is important. It is only when the grounds on which the belief is based
are non-existent or irrelevant or such that no reasonable man can come to a belief that the
exercise of the power to issue the warrant of authorization would be put off, if there exists some
reasons, though not adequate, the exercise of the power would be justified.

The existence of reasonable belief is a condition precedent for a valid search and the section does
not permit indiscriminate search and seizure. The belief must be honest and based on cogent
material and not on anonymous calls and letters. 8Materials which may be only remotely or
distantly relevant, may not be sufficient to satisfy the test of relevance. The Court has a limited
scope when going into whether there was reason to believe or not. It can only look into whether
there was an application of mind of the authority concerned and whether the application of mind
has been on the basis of material which bears a nexus to the matter which the authority is called
upon to decide. When there is information and the concerned authority has reason to believe
upon such information and issues authorisation, the court will not sit in appeal whether such
belief is formed bona fide and in good faith. The existence of belief is necessary but not the
sufficiency of the belief.
The Allahabad High Court has held that the reason to believe can always be examined and where
there is no material or it cannot stand the test of reason, then it falls through and the court is
empowered to strike it down.9The Delhi High Court held that section 132(1) must be strictly

8
Pawan Solvent & Chemicals & Another v. CIT  (1987) 63 CTR (Pat) 209.
9
Shyam Jewellers  v. Chief  CIT  (1992) 196 ITR 243 (All).

7
construed and that the formation of the opinion or the reason to believe must be apparent from
the note to recorded by the authorising officer.10

The Punjab and Harayana High Court has held that the court has to see the material which was
available on the date when the search warrant was issued. . The Court also said that a wrong
action under s.132 would be a serious infringement on the rights of citizens and this action must
be quashed.11

The Karnataka High Court has held that the issuing authority should record the reasons upon
which the authority arrived at his “reasonable belief”. 12The court should not substitute its own
reason and thereby step into the shoes of the concerned authority.13

CONDUCT OF SEIZURE OPERATION

The authorised officer has to show the warrant of authorisation to the person named in the
warrant or any person who is in the premises. The signature of the person is obtained on the
warrant. The procedure of search is to be conducted in the presence of two witnesses. The
witnesses are requires to sign panchanamas and other documents such as inventory of seized
articles, statements of operations recorded during the search.
Cash: When it is cash found at home the assessee is required to explain with evidence the source
of the cash found. If the amount represents amounts withdrawn from the bank then entries in the
passbook or bank certification is required. Likewise if it is from the shop or business the
corresponding entry must be in the books of account. In the absence of any satisfactory
explanation the amount is liable to be seized as it is considered to be not satisfactorily
explained.14
Jewellery: Jewellery can only be seized when it represents wholly or partly concealed wealth
and income. Therefore, jewellery which is declared in the wealth-tax returns cannot be seized. In

10
L.R.Gupta  v. Union of India, (1992) 194 ITR 32 (Del).

11
Harmeet Singh & Ors. v. Union of India, (1993) 204 ITR  334 (P&H).In this case the authorities did not make
independent enquiry and verification and merely acted on the complaint which was completely vague and
contained no particulars, there was no material warrranting satisfaction of the authority. The court therefore
quashed the proceeding and ordered return of the seized articles
12
Southern Herbals Ltd.  v. Director of Income-tax  (1994) 207 ITR 55 (Kar).
13
Subir Roy v. Chatopadhyay (1986) 158 ITR 472 (Cal).
14
Javali, M.V., “ An Analysis of Survey, Search, and Seizure Under The Income-Tax Act, 1961”, (1991) 91 CTR
(Articles) 250.

8
India jewellery forms an integral part of the custom and traditions of the people of India,
therefore a greater burden is imposed on the tax authorities in India before they seize any
jewellery.
Stridhan of a woman cannot be seized in search operations against her husband or other
relations. The problem of course arises when the woman is not independently assessed for
wealth-tax or income-tax.15Further more the jewellery of a Hindu woman becomes her absolute
property no matter how she may have acquired it and this property cannot be seized during
search operations against her husband.16
Books of Accounts and Other documents: The books of accounts and other documents relating
to the assessees business is one of the basic material that is looked for during any search and
seizure operation carried out anywhere. The books of accounts and other documents of other
businesses carried out by the persons partners are also relevant material for seizure.
When the books of account and other documents are being seized the assessee may request
permission to photocopy the seized material. On each of the books, documents, the name of the
family member or the concern to which it belongs must be written up so that after seizure the
books, documents are transferred to the appropriate assessing officer the family members or
concern.

Passing of order under Sec.132(5).

Under Sec.132(5) the Assessing Officer has to pass an order

(1)   estimating the undisclosed income in a summary manner to the best of his judgement based
on the material before him;(2) calculating the amount of tax on th income so estimated in
accordance with the provisions of this Act;(3) Determining the interest payable and the penalty
imposable in accordance with the provisions of this act;

(1)   Specifying the amount that will be required to satisfy any existing liability under this Act.

An order passed under this section is to be passed within 120 days of the seizure of assets. An
opportunity of hearing must be given to the assessee before passing of such an order. The order
passed under Sec.132(5) has to be passed with the approval of the deputy commissioner. The

15
Durga Prasad More v.CIT, (1971) 82 ITR 540 (SC).

16
Pratibha Rani v. Suraj Kumar  (1985) 155 ITR 190 (SC).

9
assets that are seized can be retained to satisfy any tax, interest and penalty leviable. The order
passed under this section is a summary order and is liable to be reviewed while making regular
assessment.17The enquiry that is carried out by the Assessing Officer before the order is passed
cannot be considered to be a substitute for regular assessment. An order under this section may
be revised by the commissioner under Sec.263.18

An order under Sec. 132(5) would be held invalid if the proceedings under Sec. 132 were held to
be invalid.19

ASSESSMENT PROCEDURE FOR SEARCHES AFTER 1996

The Assessment procedure for searches was amended with the Finance Act of 1990 effective
from 1996 which inserted Chapter XIV-B in the Act. This chapter deals with the assessment of
search cases. The main features of this are:

(1)   The assessment of undisclosed income shall be made for a period of 20 previous years
preceding the previous year in which the search was conducted and includes the previous year in
which the search was conducted, the period upto the date of commencement of such search.20

(2)   The assessment shall only be made for the undisclosed income of the block period. The
undisclosed income is defined to include any bullion, money etc., which represents wholly or
partly income that has not been or would not have been disclosed for the purposes of the Act.

(3)   The tax on the undisclosed income relating to the block period shall be charged at the rate
specified in Sec.113 of the Act, namely 60 percent.

The undisclosed income of the block period shall be the aggregate of total income or loss of all
the previous years falling within the block period in accordance with the provisions of chapter IV
without giving effect to set off or brought forward losses under Chapter IV or unabsorbed
depreciation under Sec. 32(2) of the Act.

17
P.M. Kunhabulla Haji v. ITO (1986) 162 ITR (Ker).
18
Smt Nainkumari Suri  v. CIT (1983) 144 ITR 634 (All).
19
Laxmipat Chaurasia v. K.K. Ganguli (19710 82 ITR 67 (Cal).

20
Kothari, “Special Procedure for Assessment of Search Cases”, Taxman-Magazine, 1995 Vol.82, p.233.

10
CONSTITUTIONALITY OF SEC.132
The Supreme Court of India21has held that the search and seizure provisions contained in Sec.132
of the Income-tax Act and the Rules framed under it are not violative of the constitution. Sec.132
of the Income-tax Act,1961 is neither incompetent or invalid for infringing any of the
fundamental rights guaranteed under Articles 14, 19, 21 and 31 of the Constitution of India. In
view of the facts that :

(i)  section 132 does not to any extent do away with the applicability of the normal procedure
prescribed under the statute for assessment or reassessment of income, and does not deprive the
assessee concerned of his normal right of appeal, second appeal and reference to High Courts;

(ii)  the provisions of section 132 made with the object of preventing evasion of payment of tax
are limited to getting hold of evidence sought to be withheld from the assessing authorities and at
getting at getting at income believed to have been undisclosed with a view to bring it under
assessment and to ensure recovery of tax evaded or sought to be evaded; and

(iii)  the application of the special provisions of the impugned section is possible only when the
appropriate authority on the basis of information in his possession has reason to believe that the
assessee is withholding or attempting to withhold evidence or is in possession of undisclosed
income either in the shape of money or in the shape of bullion, jewellery or the like, which belief
furnishes the criterion for making a reasonable classification having a reasonable relation with
the object of the law, section 132 cannot be considered as violative of Article 14 of the
Constitution.22the fact that the search warrant can be issued by the Commissioner instead of a
magistrate does not offend Article 19(1)(f).23

The Constitutionality of the provisions contained ion section 132 was considered by the Supreme
Court in an earlier case.24It was held in this case that the provisions of Section 132 of the
Income-tax Act,1961 and Rule 112 of the Income-tax Rules, 1962 do not violate the fundamental
rights under Article 19(1)(f) and (g) of the Constitution of India. The provisions of Section
132(1) and (5) were held as not discriminatory and as not violating Article 14 of the Constitution
21
Bhupendra Ratilal Thakkar v. CIT (1976) 1023 ITR 531 (SC).

22
Hindustan Metal Works v. CIT  (1968) 68 ITR 798 (All).
23
Sri Venkateswara Lodge v. CIT  (1969) 71 ITR 629 (AP).
24
Pooran Mal v. Director of Inspection  (1974) 93 ITR 505 (SC).

11
of India. The Supreme Court pointed out that the impugned provisions were directed against
persons who on good grounds were considered to have illegally evaded the payment of tax on
their income and property. Therefore, drastic measures to get such income and property to
recover Government dues would stand justified in itself. Further, it is in the interest of the
community that the community that the fiscal authorities should have sufficient powers to
prevent tax evasion.

In another case the Court observed that the classification made between evaders of tax with
undisclosed income or property and evaders of tax who are not in such position is reasonable, as
the object of the section is to get hold of undisclosed income or property, and that can only be
done effecting search and seizure from those who are in possession of it. There is no overlapping
between the provisions of section 132 and section 147 25and it is not possible to say that it is open
to the income-tax authorities to adopt one procedure or the other according to their absolute
discretion. Section 132 in the circumstances, cannot be said to be violative of the equal
protection clause contained in Article 14 of the constitution.26

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

25
Section 147 deals with Income Escaping Assessment.

26
Ramjibhai Khalidas v. ITO (1971) 80 ITR 721 (Guj).

12
 CONCLUSION
As discussed in the Introduction to this paper the reason why search and seizure provisions were
introduced was to prevent tax evasion. The idea behind the provision is definitely a noble one, to
try and wash out the tax evaders from our society by giving the tax authorities the power to
search the premises of any person who is suspected to be a tax evader and to seize any
documents, books of account or property which goes to prove that his income is more than he
has declared. Thereby increasing the revenue that the Government can collect.

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

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

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

13
The fourth and most important issue that needs necessarily be discussed is the constitutional
validity of the provisions. In most civilized countries it has been observed that search and seizure
is an infringement on the rights of the individuals but it is a necessary evil in the greater interests
of the State. Therefore the question of constitutionality of these provisions cease to be raised in
these countries. In India however the Court has taken the stand that these provisions are
unequivocally constitutional. The decision of the court basically goes to say that there is no
fundamental right violated by these provisions and further that these provisions are the only way
to bridge the gap between flagrant tax evasion and a police state. The Court has dismissed a
number of contentions made on purely legal grounds stating that tax evasion has caused a great
loss to the nations economy and that therefore these provisions are necessary.

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

14
 BIBLIOGRAPHY
BOOKS:

1. Chaturvedi, K.N., Income-tax Law, Allahabad Law Book Company, Allahabad, 1991.

2. Harish, D.M., Income-Tax, Snow White Publications Private Ltd., Bombay, 1996.
3. Iyengar, A.C. Sampath, The Law of Income Tax, Dilip K. Sheth ed., Bharat Law House
Pvt. Ltd., New Delhi, 1996.
4. Palkhivala, N.A., & Palkhivala, B.A., Kanga and Palkhivala’s The Law And Practice of
Income-Tax, N.M. Tripathi Pvt. Ltd., Bombay, 1990.

15