All about Search and Seizure. What to do during search. When can search and seizure be invoked. How to challenge the search and how to recover assets which have been seized. Chronicled in detail with multiple case laws.

1. © Victor Grace & Co, Sukumar and Associates, Abhishek Murali and Divya Sukumar (2016) - Copyright
Search and Seizure of the
Income Tax Act
By Abhishek Murali
And Divya Abhishek

2. What is Search & Seizure – The Basics
 Search means “not looking for something which is produced or
Open but which is hidden, concealed or not obvious”. The word
has varied meanings and it should be given the general
meanings ‘to look for’ or ‘to seek’ which are well known meaning
attributable to the word (Haji Assainar vs ITO, 1968)
 ‘Seizure” means the authority to take possession of records etc
outside the possession of the person. It is thus an expression which
implies a forcible exaction or taking possession
 These provisions introduced originally with a view to prevent large
scale evasion have been amended later in order to plug the
loopholes brought to light by judicial scrutiny and review
 The authorities under the I.T. Act’ 1922 did not originally possess
any powers of search and seizure. It was only after the Second
World War, necessity of this provision was felt to tax the vast
profits made by war profiteers
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3. Legislative evolution of the power
 Sec 37(2) was thus introduced by Finance Act 1956 to grant powers of
search & seizure to the Authorities (Sec 132 of the I.T. Act’ 1961)
 The introduced provision continued, till sec 30 of the Finance Act 1964
replaced section 132 by a completely new elaborately provision. This
became necessary as the then existing provisions in sec 37(2) of the
Income Tax Act 1922 were struck down being violative of Articles 14 and
19(1 )(g) of the Constitution
 For the first time an order u/s 132 (1) could be issued only if “reason to
believe” existed that books of account or documents were not
produced by the person concerned in response to statutory notices
issued
 The Search and seizure powers were extended further by
ammendments brought out in 1965 and 1975, allowing Commissioners to
authorise searches to be done outside his jurisdiction and constructive
possession
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4. When can search and seizure be
conducted
 Section 132(1) of the Income Tax explains the situations where search and seizure can be
conducted. It states The authorized officer who is duly empowered by the Board has in his
possession any information through which he has reason to believe that:
 A person to whom a summon u/s 131(1) or a notice u/s 142(1) has been served to produce books
of accounts or other documents has failed or omitted to produce or cause to be produced the
said books of accounts or other documents, or, (Sec 132(1)(a))
 A person to whom a summon u/s 131(1) or a notice u/s 142(1) has been or might be issued is not
likely to produce or caused to be produced any books of account or other document which will
be useful for or relevant to any proceedings under the Act; or, (Sec 132(1)(b))
 A person is in possession of money, bullion, jewellery or other valuable article or thing and such
property represents wholly or partly income or property which has not been disclosed or would
not be disclosed (Sec 132(1)(c)
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5. Why was reason to believe in bold, italic
and underlined!? Was it a typo?
 ‘Reason to believe’ is a very important clause in the whole Search & Seizure power. The word
‘reason’ means cause or justification and the word ‘believe’ means to accept as true or to have
faith in it. The belief must be genuine and not a mere pretence and has to be held in ‘good
faith’ and not a ‘reason to suspect’. It should be framed after an application of mind and the
same should be apparent from the note recorded
 The assessing officer must have a reason to believe that the person, whether or not a notice has
been served on him, is not likely to produce his books, etc. in such a case, the basic is that the
person will suppress books of account and other documents which may be useful and relevant
to an income tax proceedings. Here the authorizing authority, if challenged, has to prove the
basis of belief – Mamchand & Co. vs CIT (1970)
 There must be information with the authorizing authority relating to two matters. One, the
person should be in possession of money and secondly such money represents either wholly or
partly income or property which has not been disclosed – CIT vs Ramesh Chander (1974)
 Before reason to believe was inserted, the Department could have utilised the search and
seizure powers at their whim and fancy. The Assam High Court however held this provision to be
unconstitutional and violative of the fundamental rights (Art 14 and Art 19), hence the Income
Tax Act had to be amended to include ‘Reason to believe’
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6. What is this een-fawr-mashun? What does
information really mean?
 The next question is what is the meaning and definition of ‘information’. The dictionary
defines information to be ‘intelligence given, knowledge, an accusation given to a
Magistrate or a court’. However, ‘Information’ is not defined in the Income Tax Act
 However, some important judicial decisions have considered what it could mean:
 In CIT vs A Raman & Co (1968) the Supreme Court observed it means instruction or knowledge
derived from an external source concerning facts or particulars
 A mere possibility that the information had escaped his notice when the original assessment was
made does not justify a proceeding under the Act (Priyanand Prasad vs ITO, 1957)
 In L.R. Gupta vs UOI (1992) it was held that the expression “information” must be something more
than a mere rumour or gossip or a hunch
 Information may be in oral or writing. If the information is oral it must be placed on record to justify
the formation of reasonable belief on its basis (Om Prakash Jindal vs Union of India, 1976)
 Any information received subsequently without any supporting objective fact in the earlier stages
would render the warrant and search invalid (Thanthi Trust vs ITO, 1973)
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7. Can anyone issue search and seizure
orders?
Authority Powers&
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8. Who authorises the search?
What are their powers?
 Enter and search any building, place, vessel, vehicle or
aircraft where he has reason t0o suspect that such books of
accounts, other documents, money, assets kept
 Break open the lock of any door, box, locker, safe, almirah or
other receptacle for exercising the powers conferred by
clause (i) above where the keys thereof are not available.
 Search any person who (a) has got out of, or (b) is about to
get into, or (c) 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 records, to afford the necessary facility
to the authorized officer to inspect all 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. However, the authorized officer shall
have no powers to seize any bullion, jewellery or other
valuable article or thing being stock-in-trade of the business
found as a result of search. He shall make a note or inventory
of such stock-in- trade of business.
 Place marks of identification on any books of account or
other documents or make or cause to be made extracts or
copies therefrom.
 Make a note or an inventory of any such money, bullion,
jewellery or other valuable article or thing
Direct General
Director
Chief Commissioner
Commissioner
Assistant Commissioner
Joint Commissioner
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9. Did you know?
 It may be presumed
 a)the books of account or other documents and assets found
in possession of any person in the course of a search belong
to such person,
 b) the contents of such books of accounts and other
documents are true,
 c) the signature and every other part of such books of
account and other documents which purports to be in the
handwriting of any particular person are in handwriting of
that person (Sec 132(4A))
 The authorized officer may requisition the services of any
police officer or any of the officer of the Central
Government or of both to assist him for all or any of the
purposes specified above and it will be duty of every such
officer to comply with such requirements
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10. Important points to note in Search &
Seizure (1/2)
 Can material obtained during an illegal search be utilised for ordinary assessment?
Yes, absolutely! The materials obtained during a search or seizure illegally or irregularly conducted
can nevertheless be utilized for the purpose of an ordinary assessment (Pooranmal v Director of
Inspection (investigation), income tax (1974)
 Is the Department required to disclose the information used to the assesse?
Absolutely not. Disclosure of the material or the information to the person against whom the action is
taken u/s 132(1) is not mandatory, because such disclosure might affect or hamper the investigation.
Only the High Courts and the Supreme Court have the jurisdiction to call for and look into the reasons
recorded to decide whether the issue of the search warrant was called for (Southern Herbals vs DIT,
1994 and Dr.Pratap Singh vs Director of Enforcement, 1985)
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11. Important points to note in Search &
Seizure (2/2)
 What is examination on oath?
Authorized officer may, during the course of search or seizure, examine on oath any person who is
found to be in possession or control of any books of accounts, documents, money, bullion, jewellery
or other valuable article or thing. Any statement given by the person during the such examination
maybe used as evidence for any further proceedings in the Act
 Can undisclosed income found during search be subject to Service Tax?
During the course of the search, the undisclosed amount declared in the statement
recorded would be liable to service tax if the same is covered under the ambit of service
tax as per the provisions of the Finance Act, 1994
Interest and penalty would also be payable on amount of service tax on the undisclosed
amount. However, Service Tax will not be payable if it can be proved with documentary
evidence that such amount relates to some other source of income
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12. Timelines to get certain documents back
 Books of account, other documents seized shall not be
retained by the authorized officer for a period exceeding
30 days unless the reasons for retaining the same are
recorded by him in writing and the approved by Chief
Commissioner/Director/Director General
 The assesse may, within 30 days from end of the month in
which asset was seized, apply for release of asset(or
remaining portion after dues) provided the AO is
satisfied(with prior approval of commissioner) with such
explanation for the nature of source of asset (Sec
132B(1)(i) - Proviso). This asset shall be released in 120
days(after adjusting against dues) irrespective of approval
from commissioner
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13. Adjustment against dues and liabilities
 The Income Tax may adjust the assets or money against any existing liability under the IT Act,
Weath Tax Act, Gift Tax Act, or any liability determined by Assessment u/s 153A or Block
Assessment or penalty. The assets for this purpose will be considered deemed to be under
distraint until such liability is discharged(132B(1)(i) and 132B(1)(iii)). It will also be adjusted against
amount of liability arising on application made before the Settlement Commission u/s 245C(1)
 Any assets or money that remains after adjustment shall be returned or paid to the person from
whose custody they were taken (Sec 132(3))
 The Income Tax shall pay simple interest @ 0.5% for every month on the amount and of the
proceeds from the assets, which is returned(if any), after adjusting all dues.
 There shall be no interest payable in case of release of assets(and not money) – Puran Mal &
sons vs UOI (2009)
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14. Timeline for completion of assessment
after Search
 Assessment u/s 153A and 153C are applicable in search
cases. U/s 153A, the AO is empowered to issue a notice
requiring the assesse to furnish the return of income for 6
AYs immediately preceding the PY of the search
 Thereafter, on scrutiny of the returns filed and the seized
material, the AO commences assessment proceedings
 Section 153B states that in cases where reference to the
TPO is not made, the time limit is 2 years from end of the FY
in which search was conducted
 Section 153C is a peculiar provision which empowers the
authorities to conduct proceedings even if his house
wasn’t searched. When during a search at the premise of
the assesse, documents were found which belong to
another person, then Sec 153C maybe invoked against
that person
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15. Comparison with Survey
Search & Seizure u/s 132 Survey u/s 133A
Seizure of books of account as well
as money, jewellery, bullion and
other valuables
Impounding of books of account and
other documents
Cannot be retained for a period
exceeding 120 days
Cannot be retained for a period
exceeding 10 days(but this period can
be extended)
Statement recorded on oath can
be used for subsequent proceedings
Statements no recorded on oath and
cannot be used as evidence
Pending assessments abate Pending assessments do not abate
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16. Important Case Laws (1/2)
 In K Choyi vs Syed Abdulla and Others (1980) the Supreme Court ruled that the Authorised
Officer has no power to arrest the person who is suspected or found to be in possession of
any document or money which represents income not disclosed
 Exercise of power u/s 132 is a serious invasion to the Fundamental Rights, Privacy and
Freedom of the taxpayer and therefore must be exercised strictly in accordance with the
law and the conditions for exercise must be strictly followed. Otherwise the proceeding is
liable to be being quashed (ITO vs Seth Bros (1969))
 Undisclosed income is to be determined only on the basis of evidence found during
search and on requisition of books, Not on the basis of best judgement of AO (CIT vs Ratan
Kumar Singh (2013))
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17. Important Case Laws (2/2)
 Anonymous petitions can be relied upon as information leading to search proceedings u/s
132. Anonymous petitions on several occasions disclose information which is crucial and
the reasons for the informant remaining so are obvious (Narayan Bandekar vs ITO (1988))
 Reason to believe postulates genuine belief and existence of reasons for that belief. It
must be held in good faith and cannot be merely pretence (ITO vs Lakhmani Mewal Das
(1978))
 A client of an auditor was subject to search and the audit team at the client facility had
their laptops seized. It was held that search team does not have access to all data on the
laptops of the audit team (S.R.Batliboi vs Dept of Income Tax(2009))
 Assessee canot invoke RTI Act for challenging validity of search as there is an exception fo
intelligence or security organisation from providing information. However, on filing a
petition to the High Court, the HC while adjudicating the matter may ask for reasons and
this could be disclosed to the assesse – MD Overseas Limited vs DGIT (2011)
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18. What can you do during a Search &
Seizure operation? (1/2)
 Verify that the warrant has been properly signed and stamped and verify the identity of
each member of the search party. In certain cases a personal search of each member of
the search party can be done if the assesse fears ‘planting’. Two witnesses can be had by
the assesse, to observe the search
 You may call your legal counsel during the course of the search. The assesse may also call
a medical practitioner for medical issues
 Fully cooperate with the Income Tax authorities and provide them access to computer
records. Explain facts and circumstances to the Authorised Officer
 Do NOT sign a statement which you have not given
 Where you(or the assesse) are not sure of any particular fact or detail, explain to the
officer that you are unsure and will go through documents and details and then get back
 The Officer asks ‘Do you have anything to say’ as the last question. Here the assesse may
explain all challenges posed by the search party to him and if his requests were denied
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19. What can you do during a Search & Seizure
operation? (2/2) – What cant be seized!
 Immoveable assets
 Stock held in business (even if its jewellery or valuables)
 Assets(and cash) disclosed in Income Tax Returns and
Wealth Tax Returns
 Assets as per books of account
 Cash for which explanation can be provided to the
satisfaction of Authorised Officer
 Gold upto 500 gm per married woman, 250 gm per
unmarried woman and 100 gm per male member of
family
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20. Abhishek Murali is a Chartered
Accountant practicing in Chennai
who specialises in Companies Law,
Income Tax and Business Valuation.
He is also a CISA, ACMA, CGMA,
DISA and secured the All India First
Rank in the CIMA Enterprise Strategy
paper and All India 17th Rank in the
CIMA Final exam.
He has authored multiple books on Companies
Act, Income Tax and Sustainable and Integrated
Reporting.
Abhishek is also the youngest Elected member in
the ICAI – SIRC Regional Council for the period
2016-2019
About the Authors
Divya Abhishek is a Chartered
Accountant practicing in Chennai. She
has been a prolific achiever
throughout her academic pursuits and
career. An All India Rank holder in
Chartered Accountant (CA) and
Company Secretary (CS) examinations,
She specialises in Statutory Audits and
Business Valuation.
Divya is an academician and has presented multiple
papers on a diverse range of topics to audiences of
over 2000 people in attendance. She has constantly
tutored and mentored several CA students including
illustrious Rank Holders in the profession today

21. Thank you
- Abhishek Murali
- Divya Abhishek
For suggestions and feedback/doubts or to
discuss, contact us at:
abhishekmurali@gmail.com
divyassanda@gmail.com
Mobile: +91 99625 21966 | +91 98410 40010
Office: 044 28491065, 044 28497773
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