2. Nature of the provisions

Section 132 is essentially a procedural section. It is a comprehensive code in itself. The conditions under which, and the circumstances under which, warrants of authorisation have to be issued have been set out in great detail in the section. Considered as a whole, it reveals its own procedure for the search and seizure, determination of the point in dispute, quantum to be retained and also the quantum of the tax and interest on the undisclosed income in respect of the amounts seized. It has its own procedure for an application under sub-section (11) in place of an appeal. It has all the fortifications of a code and the general provisions of the Act like the assessment under section 139 cannot be applied. However, with the changed scenario provisions of section 132(5) dealing with summary assessment for retaining the ceased assets was dropped and the new procedure for assessing the undisclosed income was provided by way of block assessment and later on, even that block assessment procedure was discontinued and now new assessment procedure in the case of search and seizure are drawn by the new provisions under sections 153A, 153B and 153 C.

3. Constitutional validity 

The Hon`ble Supreme Court in Bhupendra Ratilal Thakkur vs. CIT – 102 ITR 531(SC) has held that search and seizure provisions contained in S. 132 and the rules framed thereunder are not violative of the Provi-sions of the Constitution. Section 132 of the Income-tax Act, 1961 is neither incompetent nor invalid as infringing any of the funda-mental rights guaranteed under Articles 14, 19, 21 and 31 of the Constitution.

In view of the fact that (i) section 132 does not to any extent do away with the applicability or the normal procedure prescribed under the statute for assessment or reassessment of income, and does not deprive the assessee concerned of his normal rights of appeal, Second Appeal and reference to High Court (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 getting at income believed to have been undisclosed with a view to bring it under assessment and 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 the 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 separate classification having a reasonable relation with the object of the law, section 132 cannot be considered as violative of Article 14 of the Constitution.

The constitutionality of the provisions contained in section 132 came to be considered by the Supreme Court in Pooran Mal vs. Director of Inspection 93 ITR 505 (SC) wherein it was held that the provisions relating to search and seizure in section 132 of the 1961 Act and rule 112 of the 1962 Rules do not violate the fundamental rights under Articles 19(1)(f) and (g) of the Constitution of India as these provisions impose reasonable restrictions. The exercise of power of search and seizure though very wide are not arbitrary, as they provide a reasonable guidance in the matter of their exercise.

The power has been circumscribed in many ways; In the first place, search and seizure can be authorised only by certain designated authorities and can be carried only by authorities authorised for the purpose. Secondly, the basis of the exercise of power is not mere suspicion but a reasonable belief upon information already in possession of the proper officer. It would also postulate that information in possession of the officer is not a mere canard or an unverified piece of gossip but information which, in the circumstances, may be regarded as fairly reliable. Hence, the careful selection of the words, “ has reason to believe” by the statute and the drastic nature of the powers necessarily point to a judicial application of the mind to some substantial material by the officer acting with a sense of responsibility.

Now, it is well-settled that the existence or otherwise of this condition precedent is open to judicial scrutiny within certain limits. Thirdly, the reason to believe must be in respect of one of the three matters mentioned in clauses (a), (b) and (c) of sub-section (1). Fourthly, the powers of search and seizure are set out in clauses (i) to (iii) and can be exercised only in relation to the person, account books, documents, articles or things referred to in clauses (a), (b) and (c) earlier. These requirements, coupled with the other provisions contained in the section, may be described as inbuilt safeguards against harassment and arbitrary action. It was held by the Hon`ble Supreme Court in the leading case of ITO vs. Seth Bros – 74 ITR 836 (SC) that if the action of the officer issuing authorisation or of the designated officer is challenged, the officer concerned must satisfy the court about the regularity of his action. If the action is maliciously taken or power under the section is exercised for a collateral purpose, it is liable to be struck down by the court. If the conditions for exercise of the power are not satisfied the proceeding is liable to be quashed. But where the power is exercised bona fide and in furtherance of the statutory duties of the tax officers, any error of judgment on the part of the officers will not vitiate the exercise of the power.

Against whom search warrant could be issued:

S. 132 is directed against three types of persons –

(1) those who have omitted or failed to produce books or documents as required by any summons or notice issued to them;

(2) those who, whether so summoned or not to produce documents, will not or would not produce books of account or documents; and

(3) Those who are believed to be in possession of money, bullion, jewellery or other valuable articles representing either wholly or in part, income or property which has not been disclosed for purposes of taxation.

Basis of authorisation

The first step in an action under section 132 is for the income-tax authorities mentioned in sub-section (1) to authorise the officers mentioned therein to conduct the search. Before the officer concerned can issue such an authorisation, he must have “in consequence of information in his possession, reason to believe that” any one or more of the conditions mentioned in clause (a), (b) or (c) of sub-section (1) is satisfied. The distinction between clauses (a) and (b) is that under the former, the specific document or books of account required to be produced should be specified whereas under the latter, it is neither necessary nor in most cases, practicable. The scheme of section 132 further shows that two officers at two different stages have to apply their minds ; (a) the income-tax authority at the time of issuing an authorisation should be satisfied as above, and (b) the authorised officer, at the time of conducting the search, has to apply his mind and look for such books and documents as will be relevant or useful to any proceeding. The expressions “in consequence of information in his possession”, which was and “reason to believe" which is found in section 147.

Authorisation must not be based on irrelevant considerations.

`Information’ would mean statement of facts. It may be supplied to the authorising authority in writing or orally. Though when it is made orally to him propriety demands that he should record notes of the same so as to assist him in the conclusion that there are reasons to believe that there are undisclosed moneys, ornaments etc. in the possession of any person and also to use it to justify the said conclusion in the event of necessity. However, satisfaction note cannot constitute “information” as contemplated under the law and, therefore, in the absence of information, the order for search and seizure could not be sustained. Information must be more than a rumour or gossip or hunch. Therefore, the courts have held that authorisation cannot be issued on mere suspicion because in the Act, the word "reason" is used and not suspicion.

Guiding principles for formation of opinion

The Hon`ble Gujarat High Court in 226 ITR 781 (Guj) in the case of Prabhubhai Vastabhai Patel vs. Meena (RP) laid down the following principles relating to the use and relevance of the information in possession of the authority and formation of information therefrom:

a) the authority must be in possession of information and must form opinion that there is reason to believe that the article or property has not been or would not be disclosed;

b) the information must exist before the opinion is formed;

c) the authorised person must apply his mind to the information in his possession and form opinion whether there is reason to believe or not. The opinion must be formed on the basis of the material available at that time;

d) The opinion must be based on the material which is available and it should not be formed on the basis of extraneous or irrelevant material;

e) The formation of opinion must have rational connection and bearing to the reasons for such opinion. The formation of opinion should be based on application of mind and be bona fide and not be accentuated by mala fide, bias or based on extraneous or irrelevant material. The belief must be bona fide and cogently supported;

f) The existence or otherwise of the condition precedent is open to judicial scrutiny. Courts can examine whether the authorised person had material before it on which he could form the opinion whether there is rational connection between the information possessed and the opinion formed;

g) However, the court will not sit in appeal over the opinion formed by the authorised person if the authorised person had information in his possession and the opinion formed is on the basis of such material. The court will not examine whether the material possessed was sufficient to form an opinion. The court cannot also go into the question of opinion or sufficiency of the grounds upon which the subjective satisfaction is based;

h) If the belief is bona fide and is cogently supported, the court will not interfere with, or sit in appeal over it.

Recording of reasons

Under rule 112(2) of the 1962 Rules, prior to their amendment with effect from 1st October, 1975, it was specifically provided that the authorising authority must record its reasons before issuing the warrant of authorisation. It was held by the Supreme Court in Pooran Mal vs. Director of Inspection – 93 ITR 505 (SC) that it is a mandatory requirement of law. Rule 112(2), as at present, does not contain the requirement. But, in view of the fact that the provisions of the Code of Criminal Procedure have been made applicable to searches under section 132 of the 1961 Act, it cannot now be said that the new provisions have dispensed with the requirement of the recording of reasons by the authorised authority. – Subhir Roy vs. Chattopapadhyay – (SK) 158 ITR 472 (Cal). In view of the retention of the words “has reason to believe” in the main provision and the fact that the affected person can challenge the search on the ground of such reason, it is at least prudent that the authorising authority should record reasons for the issue of the warrant of authorisation.

When issue of search warrant could be challenged

In ITO vs. Seth Bros. referred to earlier, the Supreme Court examined the scope of section 132. It laid down the following principles which should be applied to test the validity of any warrant of search and seizure:

(i) The issue of a search warrant by the Commissioner under section 132 of the Income-tax Act, 1961, is not a judicial or a quasi-judidicial act

– Lit Light & Co.vs. CIT 136 ITR 513 (All).

(ii) Since by the exercise of the power under section 132 of the Income-tax Act, 1961, a serious invasion is made upon the rights, privacy and freedom of the tax-payer, the power must be exercised strictly in accordance with the law and only for the purposes for which the law authorities want it to be exercised.

(iii) If the action of the officer issuing the authorisation or of the designated officer is challenged, the officer concerned must satisfy the court about the regularity of his action.

(iv) If the action is maliciously taken or power under the section is exercised for a collateral purpose, it is liable to be struck down by the court.

(v) If the conditions for the exercise of the power are not satisfied, the proceeding is liable to be quashed. But where power is exercised bona fide and in furtherance of the statutory duties of the tax officers, any error of judgment on the part of the officers will not vitiate the exercise of the power.

(vi) Where the Commissioner entertains the requisite belief and for reasons recorded by him auhorises a designated officer to enter and search premises for books of account and documents relevant to or useful for any proceeding under the Act, the court, on a petition by an aggrieved person, cannot be asked to substitute its own opinion whether an order authorising the search should have been issued.

(vii) Any irregularity in the course of entry, search and seizure committed by an officer acting in pursuance of the authorisation will not be sufficient to vitiate the action taken provided the officer has, in executing the authorisation acted bona fide.

(viii) The Act and the Rules do not require that the warrant of authorisation specify the particulars of documents and books of account – Subir Roy vs. Chattopadhyay – 158 ITR 472 (Cal), a general authorisation to search for and seize documents and books of account relevant to or useful for proceeding complies with the requirements of the Act and the Rules.

(ix) It is for the officer making the search to exercise his judgment and seize or not seize any documents or books of account.

(x) An error committed by the officer in seizing documents which may ultimately be found not to be useful for or relevant to the proceeding under the Act will not by itself vitiate the search nor will entitle the aggrieved person to an omnibus order releasing all documents seized.

(xi) The aggrieved party may undoubtedly move a competent court to pass an order releasing the documents seized, the officer who had made the search will be called upon to prove how the documents seized are likely to be useful for or relevant to a proceeding under the Act.

(xii) If he is unable to do so, the court may order that those documents be released.

(xiii) The circumstance that a large number of documents have been seized is not a ground for holding that all the documents seized are irrelevant or the action of the officer is mala fide.

(xiv) The provisions of the Code of Criminal Procedure, 1898 (now 1973) relating to searches, apply, so far as may be, to searches under section 132.

(xv) Thereby it is only intended that the officer concerned shall issue the necessary warrant, keep present respectable persons of the locality to witness the search, and generally carry out the search in the manner provided by the Code of Criminal Procedure.

(xvi) But sub-section (13) of section 132 does not imply that the limitations prescribed by section 165 of the Code of Criminal Procedure are also incorporated therein.

(xvii) Where a warrant is issued in relation to a firm, the officer authorised thereunder is not restricted to searching for and taking possession of only those books of account and other documents which directly relate to the business carried on by the partners in the name of the firm.

(xviii) But sub-section (13) of section 132 does not imply that the limitations prescribed by section 165 of the Code of Criminal Procedure are also incorporated therein.

(xix) Where a warrant is issued in relation to a firm, the officer authorised thereunder is not restricted to searching for and taking possession of only those books of account and other documents which directly relate to the business carried on by the partners in the name of the firm.

(xx) The books of account and other documents in respect of other businesses carried on by the partners would certainly be relevant because they would tend to show inter-relation between the dealings and supply materials having a bearing on the case of evasion of income-tax by the firm.

(xxi) Merely because the Income-tax Officers made a search for and seized the books of account and documents in relation to business carried on in the names of other firms and companies, the search and seizure would not be illegal.

(xxii) In the absence of anything to show that the documents seized were either replaced or tampered with, the irregularity of failing to place the identification marks on several documents will not by itself supply a ground for holding that the search was mala fide.

(xxiii) The keeping of police officers in the house of influential businessmen to ensure the protection of the officers and the records at the time of search could not amount to employment of excessive force.

Contents of warrant of authorisation

The warrant should be in the prescribed Form No. 45, duly filled up, signed and sealed.

Signing of blank warrant of authorisation makes the search illegal

Reason to believe

The facts constituting the information have necessarily to be relevant to the enquiry. The said belief is the assent of the mind to the truth of what has been conveyed by the information – Om Prakash Jindal vs. Union of India – 104 ITR 389 (P & H). It has been held that the expression "reason to believe” does not refer to the subjective satisfaction of the income-tax authorities concerned. It postulates belief and existence of reasons for that belief.

S. 132 and relevant Rules 112, 112A and 112B deal with the procedure to be followed by the search authorities in case of search.

Rights in respect search action

A charter of rights in respect of the rights of a person searched in respect of search procedures is provided.

Rights of the person to be searched

(A) To see the warrant of authorisation duly signed.

(B) To verify the identity of each member of the search party.

(C) To have at least two respectable and independent residents of the locality as witnesses.

(D) To have personal search of all members of the party before the start of the search and after conclusion of the search.

(E) To insist on a personal search of females by another female only with strict regard to decency.

(F) To put his own seals on the packages containing the seized assets.

(G) Woman having the occupancy of an apartment etc. to be searched has right to withdraw before the search party enters, if according to custom, she does not appear in public.

(H) To call medical practitioner if he is not well.

(I) To have his children permitted to go to school, after the examination of their bags.

(J) To inspect the seals placed on various receptacles sealed in course of searches and subsequently re-opened by continuation of searches.

(K) To have the facilities of having meals, etc., at the normal time.

(L) To have a copy of any statement before it is used against him in an assessment or prosecution proceedings.

(M) To have inspection of the books of account etc. seized or to take extracts therefrom in the presence of any of the authorised officers or any other person empowered by him.

Charter of rights and duties of persons searched

– To see the warrant of authorisaton duly signed and sealed by the issuing authority.

– To verify the identity of each member of the search party.

– To make personal search of all members of the search party before the start of the search and on conclusion of the search.

– To insist on personal search of ladies being taken only by a lady, with strict regard to decency.

– To have at least two respectable and independent residents of the locality as witnesses.

– A lady occupying an apartment being searched has a right to withdraw before the search party enters, if according to custom, she does not appear in public.

– To call a medical practitioner in case of emergency.

– To allow the children to go to school, after checking their bags.

– To have the facility of having meals etc. at the normal time.

– To inspect the seals placed on various receptacles in course of search and subsequently at the time of re-opening of the seals.

– Every person who is examined under section 132(4) has a right to ensure that the facts so stated by him have been recorded correctly.

– To have a copy of the statement together with all the annexures.

– To have a copy of any statement that is used against him by the Department.

– To have inspection of the seized books of account etc. or to take extracts therefrom in the presence of any of the authorised officers or any other person empowered by him.

– To make an application objecting to the approval given by the Commissioner of Income Tax for retention of books and documents beyond 180 days from the date of the seizure.

– To make an application under section 132(1) to the Commissioner of Income Tax against an order u/s 132(5).

– To get back the assets found to be in excess of the liability determined in the order under section 132(5).

Duties of the persons searched

– To allow free and unhindered ingress into the premises.

– To see the warrant of authorisation and put signature on the same

– To identify all receptacles in which assets or books of account and documents are kept and to hand over keys to such receptacles to the authorised officer.

– To identify and explain the ownership of the assets, books of account and documents found in the premises.

– To identify every individual in the premises and to explain their relationship to the person being searched. He should not mislead by personation. If he cheats by pretending to be some other person or knowingly substitutes one person for another, it is an offence punishable under section 416 of the Indian Penal Code.

– Not to allow or encourage the entry of any unauthorised person into the premises.

– Not to remove any article from its place without notice or knowledge of the authorised officer. If he secretes or destroys any document with the intention of preventing the same from being produced or used as evidence before the Court or public servant, he shall be punishable with imprisonment or fine or both, in accordance with section 204 of the Indian Penal Code.

– To answer all queries truthfully and to the best of his knowledge. He should not allow any third party to either interfere or prompt while his statement is being recorded by the authorised officer. In doing so, he should keep in mind that –

(i) if he refuses to answer a question on a subject relevant to the search operation, he shall be punishable with imprisonment or fine or both, under section 179 of the Indian Penal Code.

(ii) Being legally bound by an oath or affirmation to state the truth, if he makes a false statement, he shall be punishable with imprisonment or fine or both under section 181 of the Indian Penal Code.

(iii) Similarly, if he provides evidence which is false and which he knows or believes to be false, he is liable to be punished under section 191 of the Indian Penal Code.

– To affix his signature on the recorded statement, inventories and the panchnama.

– To ensure that peace is maintained throughout the duration of the search, and to co-operate with the search party in all respects so that the search action is concluded at the earliest and in a peaceful manner.

– Similar co-operation should be extended even after the search action is over, so as to enable the authorised officer to complete necessary follow-up investigations at the earliest.
([1994)] 208 ITR (ST) 5-7.

Guidelines for seizure of jewellery and ornaments in course of search

Instances of seizure of jewellery of small quantity in course of operations under section 132 have come to the notice of the Board. The question of a common approach to situations where search parties come across items of jewellery, has been examined by the Board and following guidelines are issued for strict compliance –

(i) In the case of a wealth-tax assessee, gold jewellery and ornaments found in excess of the gross weight declared in the wealth–tax return only need be seized.

(ii) In the case of a person not assessed to wealth-tax, gold jewellery and ornaments to the extent of 500 gms. per married lady, 250 gms. per unmarried lady and 100 gms per male member of the family, need not be seized.

(iii) The authorised officer may, having regard to the status of the family and the custom and practices of the community to which the family belongs and other circumstances of the case, decide to exclude a larger quan-tity of jewellery and ornaments from seizure. This should be reported to the Director of Income-tax/Commissioner authorising the search at the time of furnishing the search report.

(iv) In all cases, a detailed inventory of the jewellery and the ornaments found must be prepared to be used for assessment purposes.

These guidelines may please be brought to the notice of all the officers in your region [Instruction No. 1916 dated 11th May, 1994; (1994) 120 Taxation (St.) 98].

Writ Petition

If the requisites of search and seizure procedures are not followed or not following the procedure prescribed, could be challenged in the court of law by way of a writ petition. However, once there is some evidence on which the basis for forming a reasonable belief for initiating search proceedings exists, the court will not interfere in respect of insufficiency of such evidence for coming to such conclusion.

As regards the topics relating to statement to be recorded u/s 132(4) and the presumption relating to the articles documents, books of account seized u/s 132(4A) and the assessment proceedings in case of search and seizure u/ss. 153A, 153B and 153C have been separately dealt with by other writers, which articles appear in the journal, I may not deal with them.

Conclusion

As search & seizure drastically interfere with the liberties of the citizens, they should be undertaken, only in exceptional cases, and not as a matter of course, as done by the Department.

Article by V.H.Patil, a reputed lawyer having expert knowledge in Tax.