CONDITIONS PRECEDENT TO SEARCH AND SEIZURE UNDER INCOME TAX ACT, 1961

[Mr. M. GOVINDARAJAN]

A search is necessary to secure evidence, that may not likely to be made available by issue of summons.  The Tax authorities have to resort to search and seizure when there is evidence of undisclosed documents or assets which have not been and would not be disclosed in the ordinary course.

Section 132 of the Income Tax Act, 1961 (‘Act’ for short) read with Rule 112 of Income Tax Rules is intended to achieve two limited objectives-

• To get hold of evidence bearing on the tax liability  of a  person which the said person is seeking to withhold from the assessing authority; and
• To get hold of assets representing income believed to be undisclosed income and applying so much of them as may be necessary in discharge of the existing and anticipated tax liability of the person concerned.

Section 132 of the Act envisages unearthing the hidden or undisclosed income or property and bringing it to assessment.

Section 132(1) of the Act provides that Where the Principal Director General or Director General or Principal Director or Director or the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or Additional Director or Additional Commissioner or Joint Director or Joint Commissioner, in consequence of information in his possession, has reason to believe that-

1. any person to whom a summons under sub-section (1) of section 37 of the Indian Income tax Act, 1922 (11 of 1922), or under sub-section (1) of section 131 of this Act, or a notice under sub-section (4) of section 22 of the Indian Income tax Act, 1922, or under subsection (1) of section 142 of this Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account or other documents as required by such summons or notice, or
2.  any person to whom a summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which will be useful for, or relevant to, any proceeding under the Indian Income tax Act, 1922 (11 of 1922), or under this Act, or
3. any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property⁷[which has not been, or would not be, disclosed] for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act (hereinafter in this section referred to as the undisclosed income or property),

then the office so authorized officer-

•  enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such books of account, other documents, money, bullion, jewellery or other valuable article or thing are kept;
• break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by clause (i) where the keys thereof are not available;
• search any person who has got out of, or is about to get into, or is in, the building, place, vessel, vehicle or aircraft, if the authorized officer has reason to suspect that such person has secreted about his person any such books of account, other documents, money, bullion, jewellery or other valuable article or thing;
• require any person who is found to be in possession or control of any books of account or other documents maintained in the form of electronic record as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000), to afford the authorized officer the necessary facility to inspect such books of account or other documents;
• seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such search.

Section 132 is a serious invasion into the privacy of a citizen.  Section 132(1) has to be strictly construed and the formation of the opinion or reason to believe by the authorizing officer must be apparent from the note recorded by him.  The opinion must show whether the belief falls under clause (a), (b) or (c) of Section 132 (1).  No search can be ordered except for any of the reasons contained in clause (a), (b) or (c).  The satisfaction note should itself show the application of mind and information of opinion by the order ordering the search.   If the reasons that do not fall under the above clauses then the search would become illegal.

The search would be valid if the authorizing authority had reasonable ground for believing that a search was necessary and that he further believes that the required object cannot otherwise be obtained without undue delay.  In order to satisfy the action under Section 132 it is incumbent upon the authority to collect relevant material on the basis of which, the authority can form an opinion that he has reasons to believe that an action under Section 132 would be justifiable.  The expression ‘information’ must be something more than a mere rumor, gossip or hunch.  There must be some material which can be regarded as ‘information’, which must exist on the file, on the basis of which the authorizing officer can have ‘reason to believe’ that an action under Section 132 of the Act is called for any of the reasons mentioned in clause (a), (b) and (c).

In ‘Harbhajan Singh Chadda V. Director of Income Tax and others’ – 2015 (4) TMI 14 - ALLAHABAD HIGH COURT a warrant of authorization under Section 132 was issued by the Director of Income Tax, Intelligence, New Delhi.  This warrant was in the names of Gurdeep Singh Chadda, Rajendra Singh Chadda, Hardeep Singh Chadda.  Based on this warrant a search and seizure operation was conducted at premises No. 455, Civil Lines, Moradabad.  On the basis of the search conducted and the materials seized the Department issued a letter to the banks on the basis of which the bank accounts and lockers were seized/attached.  The petitioners filed the present writ petition against the search and seizure operations.  The petitioners contended before the High Court, the following:

• the searched premises are jointly resided by the petitioners;
• there is no partition by metes and bounds of the premises in question between the co-owners and, by a mutual agreement, each co-owner is residing and living in their residential portions along with their family;
• the warrant of authorization was not issued in the names of the petitioners and therefore the search and seizure operations carried out at their premises was wholly illegal, void and liable to be quashed;
• the search was conducted only at the premises of the petitioners and not at the premises mentioned in the warrant of authorization;
• there was no material to initiate search and seizure operation against the petitioners at their premises;
• the same has been proceeded illegally without any application of mind;
• based on this illegal search, the petitioners’ bank accounts and lockers were seized or attached illegally which action was liable to be quashed by the court as no search warrant was served by the department relating to the lockers of the petitioners;

The Department contended the following:

• the search was conducted in the premises which is one composite property and has not been partitioned nor was there anything to show that each person mentioned in the warrant as well as the petitioners had separate identifiable portions;
• the statements of the petitioners recorded does not indicate that the petitioners’ portion was separate;
• the petitioners themselves admitted that there is a common entrance to the alleged premises and there is a common parking lot and common guardroom;
• the search was conducted in the alleged premises and also in the business premises on the basis of a warrant of authorization after recording satisfaction separately;
• Section 292CC provided that it was not necessary to issue a warrant of authorization in the name of each person;

The High Court observed that the authorizing authority is under law expected to sign a warrant of authorization which is complete in all aspect.   It should be in the names of the persons whose premises etc, are sought to be searched.  When it is not clear whether one or more persons are in occupation or control of the premises, it would be safe and proper to issue the authorization against all the unknown persons, who may be the owners or in possession of the articles and occupiers of the premises.

The High Court found that in this case there is no challenge on the question that the warrant of authorization was not issued by the competent authorizing authority.  The warrant of authorization was issued in the names of Gurdeep Singh Chadda, Rajendra Singh Chadda, Hardeep Singh Chadda and indicated the premises where the search was to be conducted.   The petitioners cannot allege that there was no ‘information’ or ‘reasons to believe’ warranting the issuance of the warrant of authorization.  The High Court held that only the persons mentioned in the warrant of authorization can allege that the action taken under Section 132 was wholly illegal based on no information and having no reasons to believe or that no satisfaction was recorded on the file.  Therefore it is not necessary to go into the question whether there was sufficiency of  material or existence of information with the authority which led to have a reason to believe that an action under Section 132 was called for any of the reasons mentioned in clause (a), (b) or (c) of the said section.

The High Court held that it is clear that under Section 158BD the jurisdiction to assess the undisclosed income, if any, of the petitioners on the basis of the search vests in the Assessing Officer by virtue of the provisions of Section 158BA in case where a search under Section 132 was initiated.  Therefore the search conducted against the petitioners was wholly valid.  Making allegations without corroborative support by itself not sufficient to challenge the action taken by the authority nor can the court call upon the authority to disclose the information.  Since the petitioners did not furnish adequate and cogent material the High Court is not inclined to call the Department to disclose the information.  The High Court held that the writ petition is devoid of merits.