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About the Authors I-5Preface I-7Chapter-heads I-11Significant check lists on various issues relating to handlingof search & assessment of search cases I-55Leading case laws on significant issues I-67Frequently Asked Questions (FAQs) I-97List of cases I-117

1SEARCH AND SEIZURE - NATURE OF PROVISIONS

1.1 INTRODUCTION 1

� Meaning of “search” and “seizure” 1

� Search v. Inspection 2

� Seizure v. Prohibitory Order 2

� Search v. Survey 2

1.2 HISTORICAL BACKGROUND 4

� Finance Act, 1964 5

� Income Tax (Amendment) Act, 1965 5

� Taxation Laws (Amendment) Act, 1975 5

� Direct Tax Laws (Amendment) Act, 1987 5




1.3 OBJECTIVE OF SEARCH 6

I-13

4 FEATURES OF SEARCH PROVISIONS 7

� Investigation Process 7

� Harsh in nature 7

� Invading privacy 7

� Deterrence effect 7

� Severe consequences 8

1.5 IN-BUILT SAFEGUARDS 8

� Authorization by higher authorities 8

� ‘Reason to believe’ in consequence of information inpossession 9

� Satisfaction at two stages 9

� Whole proceeding in the presence of two witnesses 9

� Strict reporting system and maintaining transparency 9

� Power of search to be exercised strictly in terms of law 10

1.6 SCOPE OF SEARCH PROVISIONS 11

� Search action only in rare cases 11

� A self-contained Code 11

� No power of arrest 12

1.7 CONSTITUTIONAL VALIDITY 12

1.8 APPLICABILITY OF CODE OF CRIMINAL PROCEDURE, 1973 14

1.9 APPLICABILITY OF CIVIL PROCEDURE CODE (CPC), 1908 15

1.10 SEARCH AND SEIZURE PROVISIONS IN SOCIO-ECONOMICCONTEXT 15

1.11 POWERS OF SEARCH AND SEIZURE UNDER OTHERECONOMIC LAWS 16

1.12 POWER OF SEARCH IN OTHER COUNTRIES 17

2CIRCUMSTANCES WHEN SEARCH

CAN BE INITIATED

2.1 CONDITIONS PRECEDENT FOR INITIATING SEARCH 192.2 TEXT OF SECTION 192.3 LEGISLATIVE HISTORY - SIGNIFICANT AMENDMENTS 202.4 OBJECTIVE 20

CONTENTS I-14

5 BROAD FRAMEWORK 21� Compliance of statutory conditions as contemplated under

section 132 are mandatory 22

� Provisions of section 132(1) should be strictly construed 23

2.6 CLAUSE (a) OF SUB-SECTION (1) OF SECTION 132 23

� Non-compliance of invalid summons or notice 24

� No search action for non-filing of return of income 25

2.7 CLAUSE (b) OF SECTION 132(1) 25

� Assumption of non-compliance of notice/summon to bebased on material 26

� Futility of notices, even if issued 27

� Formal notice is not necessary but basis to be proved 27

� Authorization of search on the basis of non-complianceof summons issued under section 131(1A) 28

� Consequential search based upon close relationship -Whether covered under section 132(1)(b) 29

2.8 CLAUSE (c) OF SECTION 132(1) 30

� In possession - Any money, bullion, jewellery or othervaluable article or thing 30

� In possession - Books of account and other documents 31

� No search for disclosed assets 32

� Whether clause (c) covers undisclosed immovable assets? 32

� Whether action under section 132(1)(c) can be taken onthe construction of a building 32

2.9 INFORMATION IN POSSESSION 33

� Information relating to situation under clause (a), (b) or(c) of section 132(1) 33

� Information not to be based upon rumours or suspicion 34� Information relevant to enquiry 37� Information not to be based upon vague facts 37� Information not based upon generalities 37� Information not for fishing or roving enquiry 38� Information based upon reports from other authorities 38� Verification of information 39� Consequences of false information 41� Information to exist prior to issue of authorization 42� Information related with return of income 42� Information in case of persons relating to group companies 43

I-15 CONTENTS

10 COLLECTION OF INFORMATION 44

� Source of information 44

� Informers 44

� Internal sources 45

� External sources 46

� Reward to Informer 47

� Incentive/Reward to Departmental Officers 47

2.11 “REASON TO BELIEVE” 47

� “Reason to believe” for conditions mentioned underclause (b) or (c) 48

� Reason to believe and not reason to suspect 51

� Reason to believe cannot be justified on the basis ofassets seized during search 52

� Search warrant for the search of the premises of tenantor business associate or relative or senior employee 52

� Formation of “reason to believe” separately for eachperson 53

� “Reason to believe” whether open to judicial scrutiny 54

� The function of formation of “reason to believe” cannotbe delegated 55

2.12 NEXUS BETWEEN INFORMATION AND “REASON TO BELIEVE” 55

� Application of mind by authorizing officer 58

2.13 RECORDING OF SATISFACTION 62

� Whether recording of satisfaction has to be in writing? 63

� Existence of relevant information is enough for issuingsearch warrant 64

� Reasons need not be communicated 65

2.14 SCOPE OF SEARCH AND SEIZURE U/S 132 66

� No pendency of proceedings required in relation to issueof search warrant 67

2.15 CONVERSION OF SURVEY INTO SEARCH 68

3AUTHORIZATION OF SEARCH

3.1 AUTHORITY EMPOWERED TO AUTHORIZE SEARCH 70

3.2 TEXT OF SECTION 70

CONTENTS I-16

3 LEGISLATIVE HISTORY - SIGNIFICANT AMENDMENTS 71� Taxation Laws (Amendment) Act, 1975 71� Finance Act, 2009 72

3.4 OBJECTIVE 723.5 WHO CAN ISSUE WARRANT OF AUTHORIZATION? 73

� Controversy regarding search authorized by Additional/Joint Director, Additional/Joint Commissioner 75

� Misinterpretation of clause (B) to section 132(1) used forissue of subsequent search warrant 76

3.6 WHO CAN BE AUTHORIZED OFFICER? 773.7 SEARCH WARRANT CAN BE ISSUED AGAINST WHOM? 78

� Search warrant against person in possession or owner ofthe asset 78

� Search warrant against NRI 79� Search warrant in the name of deceased person 79� Search warrant against minor 79� Search warrant against professionals 79� Search warrant in joint name 80� Premises jointly occupied 82

3.8 MANNER OF DRAWING SEARCH WARRANT 83� Authorization to be in writing with signature and seal of

the authorizing officer 83� Search warrant to specify name of person 83� Correct address of premise/place under search to be

mentioned 83� Mention of name of assessee and premises - Both 83� Subject matter not to be stated 84� Grounds for search action not to be stated 85� Separate search warrant for each premises 86� Issue of blank search warrant 86� Search warrant for benami business concerns 87� Punchnama may be in the name of bank account of the

assessee 873.9 NATURE OF SEARCH WARRANT 87

� Search warrant qua-assessee or qua-premises 87� No warrant for roving enquiry 88� Application of mind 88� No search without search warrant 88� Source of information not to be disclosed 88

I-17 CONTENTS

10 WHETHER WARRANT IS REQUIRED TO BE SERVED 89� Whether assessee can ask for copy of satisfaction note 90� Whether copy of search warrant and/or satisfaction note

can be obtained under RTI Act 913.11 MISTAKE IN DRAWING SEARCH WARRANT 92

� Non-striking of irrelevant portions of the warrant 92

� Clerical omission not fatal 93

� Mistake in the name in authorization 93

3.12 PROFORMA OF SEARCH WARRANT 94

3.13 SUMMARIZATION 94

4VALIDITY OF SEARCH - WRIT JURISDICTION

4.1 VALIDITY OF SEARCH 96

� Circumstances when search is held to be valid 99

� Circumstances when search is held to be invalid 100

� Allegation of mala fide or bias in search 102

4.2 ILLEGALITY OF SEARCH v. IRREGULARITY DURING SEARCH 104

� Delay in concluding search 105

� Bona fide irregularity not fatal 105

� Seizure of irrelevant documents 106

4.3 ILLEGAL SEARCH - CONSEQUENCES 106

� Awarding costs against department 108

� No civil suit for claiming damages 108

� Damages for undue retention 109

� Damages for illegal restraint 109

� Search assessment to be illegal 110

4.4 EVIDENTIARY VALUE OF DOCUMENTS FOUND DURINGILLEGAL SEARCH 110

� Challenging validity of search to weigh pros and cons 113� Who can examine validity of search? 114� Whether courts can examine sufficiency of reasons 116

4.5 CHALLENGING VALIDITY OF SEARCH - WRIT JURISDICTION 118

� Grounds for challenging validity of search 118� Observance of safeguards in-built in the provisions of

section 132 and rules is essential for exercise of powers 120

CONTENTS I-18

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� Mere allegation of existence of no material - Not a validground 121

HOW TO TACKLE THE SITUATION 121

� Challenging assumption of jurisdiction u/s 153A 122

� Different circumstantial indicators which may pointthat search was not in accordance with law thusprompting a challenge to search action in court 122

� Search warrant not drawn properly 123

� Serious procedural irregularities 123

� Indiscriminate seizure 124

� High Handedness exercised during search 124

� Statement of panchas 124

� Illegal restraint under section 132(3) 124

� Post search irregularities 125

4.6 WRIT FOR OTHER MATTERS 125

4.7 AT WHAT STAGE WRIT CAN BE FILED 126

� No injunction 127

� Repetitive writ petition 127

4.8 SCOPE OF WRIT PETITION 127� No factual dispute in writ 127� Writ not for deciding ownership of seized money 128� Jurisdiction of High Court - Cause of action arose wholly

or partly 128� Public interest litigation for not conducting search

against influential persons not entertained 1284.9 POWERS OF COURT IN WRIT JURISDICTION 128

� Court can mould the remedy to suit the facts of eachcase 128

� Inherent powers of Court under Article 226 128� Court’s power to review 129� Plea of alternative remedy 129

4.10 SUMMING UP 131

5ACTUAL CONDUCT OF SEARCH OPERATIONS

5.1 TEXT OF SECTION 132(1)(i) to (v) 134

5.2 LEGISLATIVE HISTORY - SIGNIFICANT AMENDMENTS 135

I-19 CONTENTS

3 OBJECTIVE 136

5.4 TO ENTER AND SEARCH 136

� “He has reason to suspect” and “such” - Significancethereof 136

� Which premises can be searched 137

� Multi-storied buildings 137

� Premises jointly occupied by several persons 137

� Timings of search 138

� Search of the premises found locked 138

� Free ingress 138

� Search at the premises not belonging to assessee 139

� Car parked outside the house 140

5.5 TO BREAK, OPEN LOCKS, ETC. 140

5.6 TO CONDUCT PERSONAL SEARCH 141

5.7 TO AFFORD FACILITY TO INSPECT ELECTRONIC RECORD 142

� Restoration of deleted data 142

� Information in electronic form in possession of searchedperson received via e-mail 143

5.8 TO MAKE SEIZURE 143

5.9 TO PLACE IDENTIFICATION MARKS 144

5.10 TO MAKE INVENTORY OF ASSETS 144

5.11 PREPARATION OF PANCHNAMA 144

� In case no panchnama is made out 145

� Irregularity in preparation of panchnama 145

� One or more panchnamas 146

� Forms of panchnama 146

5.12 ANALYSIS OF RULE 112 146

� Power to search and seizure 147

� Prescribed forms to be used for issue of search warrants 147

� Free ingress and obligation of the person present 147

� Power to make forceful entry 147

� Withdrawal by pardanasheen women 147

� Authority to stop a moving vehicle, vessel or aircraft 148

� Power to break open locker, almirah, safe, box, etc. 148

� Power to restraint 148

CONTENTS I-20

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� Personal search 148

� Two or more witnesses during search operation 149

� Witnesses to be appointed before making search 149

� Order may be passed for witnesses to be present 149

� Witnesses are not required to attend as a witness ofsearch in any proceedings under the Income-taxAct, 1961 150

� Witnesses to be independent 150

� Services of police officers or officers of CentralGovernment 150

� What is “Locality” 152

� What is respectable witness 152

� Choice of witness with the assessee or with theauthorized officer 152

� “Witness” must witness the search proceedings 153

� Witness turning hostile during search proceedings 153

� Witness refusing to continue or to sign the panchnama 153

� Presence of assessee during search proceedings 153

� Personal search 154

� Seized articles to be kept in sealed packages bearingidentification marks 154

� To convey the seized books of account or assets to thecustodian 155

� Procedure to be followed by the custodian 155

� Opening of sealed packages 155

� Assessing Officer is empowered to exercise the power ofsub-rules (11) and (13) 156

5.13 RULES 112A-112D 156

5.14 GROUND RULES FOR SEARCH AND SEIZURE 1565.15 TAXPAYERS’ CHARTER - RIGHTS & DUTIES OF TAXPAYERS

DURING SEARCH 156

5.16 RIGHTS OF THE ASSESSEE BEFORE COMMENCEMENT OFSEARCH 157

� Production of search warrant 157

� Production of evidence of identity of officers of searchteam 157

� To make personal search of search party 157

I-21 CONTENTS

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� Right of the assessee with respect to personal libertyduring search operation 158

� Right to medical aid 158

� Children to go to school 159

� To have meals 159

� Right to worship 159� Permission to leave the premises 159� Presence of legal adviser 160� Presence of legal adviser may facilitate the search

proceedings 1635.17 CASE STUDY RELATING TO SEARCH OPERATION 164

� Authorized officer to enter along with his team 164� Police force to accompany 164� Showing of search warrant and obtaining signature 164� No telephone calls 165� Offer for personal search 165� Calling for two witnesses 165� Search of each room, almirah or other place 165� What to search 166� Keep an eye on movement of each family member 167� Recording preliminary statement 167� Not to allow entry of other persons or exit of persons

inside 167� Call the valuer to get the jewellery valued 167� Operating bank lockers 168� Intimation to bank for stopping operation of bank locker

or other undisclosed bank accounts 168� Information coming to possession regarding other

premises/lockers 168� Recording statement of the searched person and other

persons 168� Seizure of undisclosed items 169� Preparing inventory of material found 169� Preparation of panchnama 169� Put restraint u/s 132(3) 169� Continuous reporting to controlling room 170� To keep searched person at ease and carry out whole

operation smoothly 170

CONTENTS I-22

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� Presence of mind and tackling any contingency 170� Calling counsel of the searched person 170� To obtain surrender of undisclosed income 171� Offences under other laws 171

� Conclusion of search 171

5.18 PLANNING OF SEARCH BY AUTHORIZED OFFICER 172� Triggering point 172� Verification of facts 172� Recording of satisfaction 173� Approval by Competent Authority 173� Search at the premise of the Counsel 174� Search at the premises of the employee 174� Planning of date of search 175� Sending teams 175� Monitoring from control room 176� Sending various reports 176

5.19 HOW TO FACE SEARCH 176� Immediately informing to related persons 177� Managing documents/papers to the extent possible 177� Assessee outside - Whether to reach or avoid 177� Collection of evidences of disclosed assets 179� Person going inside to ensure that he does not possess

any incriminating material 179� Misbehaviour or threat by authorized officer 180� Misbehaviour by person under search 180� Authorized officer occupying chair of person under

search 181� Stop from receiving or making telephone calls 181� Power of arrest 181� Assessee or his representative fleeing with records or

destructing evidences 182� Whether production, purchase and sale of goods can be

stopped 182� Role of counsel or legal representative 183� If searched person’s rights are denied 184� Under such circumstances remedies available with the

searched person 184� Physical cash short found 185

I-23 CONTENTS

20 POST SEARCH PROCEEDINGS 186� Opening of restraints 186� Collecting records from different destinations 186� Operation of lockers 187� Recording of statement - Explaining documents 187� Break up of surrendered income 187� Retraction of statement 188

� Third party enquiries 188

� Letters to authorized officer on various aspects 189

� Sending various reports to higher authorities 190

� Appraisal Report 190

� Finding of investigation 191

� Significance of Appraisal Report 191

� Decision of jurisdiction/centralization 192

� Reply to questionnaire issued by the Authorized Officer 193

� Records belonging to other persons 193

� Questionnaire to be prepared by the Authorized Officerfor Assessing Officer 193

� Issue of summons to assessee u/s 131 for personalpresence 194

5.21 PREPARATION PRIOR TO ASSESSMENT PROCEEDINGS 194

� Filing of pending returns or waiting for notices u/s 153A? 195

� Filing objection for transfer of cases u/s 127 195

� Completion of books and other records 196

� Ledgerization of individual affairs 196

� Obtaining photocopy of documents 196

� Explanation of key documents 197

� Filing returns of related persons 197

� Obtaining appraisal report 197

� Passing accounting entry of surrendered income in thebooks 198

� Payment of taxes 198

� Writ to High Court 198

� Whether to approach Settlement Commission 199

5.22 DECLARATION OF UNDISCLOSED INCOME 199

� Why to make surrender? 200

CONTENTS I-24

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� To avoid penalty u/s 271AAA/271AAB 200

� To mitigate rigours of search 201

� Decision of surrender by assessee 202

� Conditions of surrender 202

� Surrender for earlier years 203

� Surrender subject to no penalty 204

� Surrender of different items - Precautions 204

� Cash 204

� Stock-in-trade 204

� Investment in fixed asset 206

� Jewellery, bullion or other valuables 206

� Investment in fixed deposit/shares/bonds 206

� Advances given for properties 207

� Creditors no longer payable 207

� Share capital 207

� Noting in loose papers 208

� Household expenses 208

� Capital gains 208

� Immovable property - Registered value v. Fairmarket value 208

� Declaration by corporates/listed companies 209

� Dumb document 209

� “Surrender” letter 209

� Whether declaration can be made for assets not foundduring search? 212

� Whether surrender can be made by a third personvisiting the assessee during search when his personalsearch is undertaken and asset is seized from him? 212

5.23 PLANNING OF SURRENDER 212� Generation of income v. Application in assets 213� Set off of losses 213� Assets acquired prior to seven financial years 215� Conditional surrender 215� Current year income not recorded, advance tax not paid 215� Principle of peak balance 216� Challenging valuation 216� Creation of capital 216

I-25 CONTENTS

SEIZURE OF BOOKS OF ACCOUNT,

DOCUMENTS AND ASSETS

6.1 SEIZURE OF ASSETS 217

6.2 WHAT CAN BE SEIZED? 218

� Whether regular books of account and records can beseized? 218

� Whether disclosed assets can be seized? 220

� What is disclosed asset? 220

� Seizure of the assets belonging to other persons 222

� In case of search or survey at the premises of the Coun-sel/Chartered Accountant, whether files/documents ofother Clients can be seized? 224

� Seizure of asset acquired prior to 7 assessment yearspreceding to the year of search - Whether valid? 226

6.3 MANNER OF SEIZURE 226

� Opportunity to assessee before seizure is made 226

� Seizure of disclosed assets for want of evidences 227

� Release of assets illegally seized 228

� Location of the asset seized - Significance 229

� Illegal seizure v. Illegal search 229

� Seizure of asset whose location is known 229

� Whether search has to precede the seizure 230

6.4 DEEMED SEIZURE 231

� Only valuable article or thing covered 231

� “Not possible or practicable” 232

� No deemed seizure of stock-in-trade 232

� Deemed seizure not applicable to bank lockers, FDRs,Deposits etc. 232

� Deemed seizure v. Restraint u/s 132(3) 233

6.5 NATURE AND PROCEDURE OF SEIZURE 233

� Not to record reason for seizure 233

� To take actual possession of assets 233

� Immediate realization of seized assets illegal 234

� Arbitrary seizure held illegal 234

CONTENTS I-26

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� Volume of papers seized is irrelevant 234

� No power to seal 234

6.6 SEIZURE OF DIFFERENT KIND OF ASSETS 235

� Money 235

� Cash found at business premises 235

� Cash found at residential premises 235

� Jewellery 236

� Minimum jewellery not to be seized 236

� Seizure in case of diamond/other precious stonesjewellery 238

� Valuation of jewellery 239

� Matching of items of jewellery 239

� Jewellery in person 239

� Jewellery of others kept with the assessee in safecustody 240

� Pledged gold ornaments 240

� Jewellery short found 240

� Seizure of immovable properties 241

� Seizure of title deeds of immovable property 242

� Seizure of Will or other confidential documents 244

� Valuable article or thing 244

� Seizure of passport 244

� Immunity from seizure of special bearer bonds 245

� Gold bonds 245

� Seizure of fixed deposit, NSC, KVP, shares etc. 245

� Seizure of bank deposits in saving or current accounts 245

� Seizure of contents of bank locker 246

� Seizure of antiques, paintings or work of art 247

� Seizure of stock-in-trade 247

� Seizure of foreign liquor or excess liquor 248

� Seizure of fire arms or other weapons 248

� Seizure of foreign exchange 248

� Seizure of promissory notes, hundies 248

� Seizure of computers 249

� Seizure of books of account or other documents 249

� Seizure of deposits or proceeds from third parties 251

I-27 CONTENTS

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� Seizure of gifted items 252

� Seizure of loose papers or evidences, attempting to bedestroyed by assessee 252

� Seizure of papers brought from outside 253

6.7 MANNER OF SEIZURE - TAKING PHYSICAL POSSESSION 253

� Assets found but not seized 254

� Placing of mark of identification on books of accountand other documents 254

� Whether taking over keys amounts to seizure 254

7RESTRAINT ORDER - SECTION 132(3)

AND SECTION 132(8A)


7.2 LEGISLATIVE HISTORY 257

7.3 OBJECTIVE 257

7.4 WHEN CAN RESTRAINT ORDER UNDER SECTION 132(3)BE PASSED? 257

� Not practicable to seize - Meaning 258

� Restraint order only for books of account, otherdocuments or assets which can be seized 259

� Restraint order only in respect of an asset representingconcealed income 261

� Restraint order not to be used as a tool for temporarysuspension of search 263

� Power under section 132(3) not to be used to keep thesearch operation pending 263

7.5 MANNER OF PASSING ORDER UNDER SECTION 132(3) 264

� Broad framework 264

� Whether reasons to be recorded before passing restraintorder 265

� Prohibitory order, to be addressed to the assessee 266

7.6 PERIOD OF VALIDITY OF RESTRAINT ORDER 266

� Restraint order to expire after sixty days 266

� Restraint order cannot be renewed from time to time 267

� To complete proceedings expeditiously 267

CONTENTS I-28

7 RESTRAINT ORDER IN RESPECT TO WHICH KIND OFASSETS 267

� Immovable property 267

� Bank lockers 267

� Intangible assets, debts recoverable 267

� Bank accounts, fixed deposits 268

� Indiscriminate restraint on bank accounts 269

� Stock-in-trade 269

� Operation of computers 270

� Whether restraint order can be put on whole premises 270

7.8 NATURE OF RESTRAINT ORDER 271

� Restraint order doesn’t amount to seizure 271

� Restraint order, not for recovery 271

7.9 CONSEQUENCES OF CONTRAVENTION 272

� Consequences of invalid restraint order passed 272

� Prosecution for contravention of restraint order passedunder section 132(3) 272

� Undue delay in lifting restraint order 273

� Restraint order cannot be used to dump articles anddocuments in a particular place and seal it 273

7.10 OTHER JUDICIAL PRONOUNCEMENTS 274

� Constitutional validity 274

� No abuse of process of Court 274

8RECORDING OF STATEMENT - SECTION 132(4)

8.1 TEXT OF SECTION 132(4) 275

8.2 LEGISLATIVE HISTORY - SIGNIFICANT AMENDMENT 275

� Scope of Explanation to section 132(4) 276

8.3 OBJECTIVE 278

8.4 SIGNIFICANCE OF STATEMENT UNDER SECTION 132(4) 279

8.5 MANNER OF RECORDING STATEMENT 280

� Examination on oath 280

� During the course of search and seizure 281

� Powers to the authorized officer to record statementunder section 131(1A) in the course of search 282

I-29 CONTENTS

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� Who may record the statement? 283

� Reference of wrong section 283

� No protection under Article 20(3) of the Constitution 283

8.6 RIGHTS OF ASSESSEE DURING STATEMENT 284

� Signing of the statement 284

� Amending or improving of earlier statement 284

� Copy of the statement 284

� Presence of counsel during recording of the statement 285

� Right of cross examination 285

8.7 STATEMENT OF WHOM 286

� Statement of any person 286

� Statement of minor 287

� Statement of illiterate person 287

� Statement of visitor 2878.8 EVIDENTIARY VALUE OF STATEMENT RECORDED

U/S 132(4) 287

8.9 EXAMINATION AT DIFFERENT STAGES 291

� Recording of preliminary statement - Common issuesof examination 291

� Recording of final statement 292

� Recording of statement u/s 132(4) - Before theconclusion of search 293

� Issuing of summon under section 131(1A) beforeconclusion of search 294

� Issuing of summons and recording of statement afterconclusion of search 295

8.10 RETRACTION OF STATEMENT GIVEN UNDER SECTION 132(4) 297

� Instruction of CBDT on confessional statement 298

� Circumstances prompting assessee to make retraction 299

� Retraction in the nature of amendment/modificationof earlier statement given u/s 132(4) 300

� Manner of retraction 301

� Consequences of retraction 302

� Statement recorded during odd hours 303

� In case of retraction, burden of proof on assessee 304

� Shifting stand not acceptable 305

� Undisclosed income may be assessed having regard tonature of evidence 305

CONTENTS I-30

11 FACING EXAMINATION DURING SEARCH 307

� Exercise of threat or coercion 307

� Refusal to reply vis-à-vis evasive reply 307

� Not a test of memory 308

� Enquiry relating to bank accounts, firms and companiesto which assessee is associated 308

� Enquiry regarding bank lockers 309

� Continuous questioning 309

� Alleged admission by third party 309

� Attempt to decode 310

� Dumb document 310

� Explanation on behalf of others 310

� Explain fully 310

� To get recorded 310

� Disclosed assets being seized 311

� Password/Software for computer operation 311

� Year of acquisition of undisclosed assets 311

8.12 HANDLING QUESTIONS RELATING TO CERTAIN SPECIFICASPECTS 312

� Regular books of account not found - Explanationdepending upon the facts 312

� About jewellery 312� Investment in movable/immovable assets 312� Loans given/taken 313� Sources of income and particulars of income-tax return

filed 313� Household expenses 313� Incomplete books/cash book 313� Discrepancy in inventory 314

8.13 OBTAINING COPY OF STATEMENT RECORDED 314

8.14 POWER TO ISSUE SUMMONS FOR DISCOVERY, PRODUC-TION OF EVIDENCES ETC. 315

� Text of section 131 315� Applicability of sub-section (1) of section 131 316� No power to the authorised officer in the course of

search to issue summons under sub-section (1) 317� Salient features of sub-section (1A) of section 131 317

I-31 CONTENTS

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� Certain significant issues 318� Validity of summons issued by ADI/Authorized Officer

under sub-section (1) of section 131 318� Whether summon under section 131(1A) can be issued

to the person searched 319

� Invoking power under section 131(1A) before takingaction under clauses (i) to (v) of section 132(1) bythe Authorized Officer - Meaning thereof 319

� Whether summon under section 131(1A) can be issuedto the persons other than the person searched 320

� Consequences of non-compliance of summon issuedunder section 131 to the person searched 321

� In case of non-compliance of summon, power of theincome-tax authorities to enforce attendance througharrest warrant 322

8.15 INTRODUCTION OF NEW SECTION 133C BY FINANCE(NO. 2) ACT, 2014 GRANTING POWER TO CALL FORINFORMATION BY PRESCRIBED INCOME TAXAUTHORITY 322

9PRESUMPTION UNDER SECTION 132(4A)

9.1 TEXT OF SECTION 132(4A) 323


� Rationale for introduction of new section 292C 324

9.3 OBJECTIVE 326

9.4 BROAD FRAMEWORK 3269.5 LEGAL PRESUMPTION IS AGAINST THE PERSON HAVING

POSSESSION OR CONTROL 327

� Meaning of possession or control 329

� Possession or control may be different from ownership 329

� No addition on the basis of derivative evidence 331

9.6 PRESUMPTION IS A REBUTTABLE PRESUMPTION 331

9.7 NOT BINDING ON ASSESSING OFFICER 335

� Presumption - Whether available under regularassessment proceedings? 336

� Presumption u/s 292C available not only in regularassessment proceeding but also in any other proceedingunder the Act 336

CONTENTS I-32

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� Presumption under section 132(4A) v. Section 68 337

� Presumption under section 132(4A) v. Section 69 3379.8 ONUS TO ESTABLISH INCOME OF THE ASSESSEE REMAINS

ON ASSESSING OFFICER 338

� What in case of dumb document 340� Applicable to “any” books of account........and not to “such”

books of account........... 341� Presumption as to the signature and handwriting not

against the assessee 3419.9 NO PRESUMPTION AGAINST THIRD PARTY 343

9.10 CONSTITUTIONAL VALIDITY UPHELD 344

10SECTION 132(8)/132(10)/132(9)/132(9A)

PART 1

MISCELLANEOUS PROVISIONS RELATING TO SEARCH

10.1 TEXT OF SECTION 132(8) AND SECTION 132(10) 345� Section 132(8) 345� Section 132(10) 346

10.2 LEGISLATIVE HISTORY - SIGNIFICANT AMENDMENTS 34610.3 OBJECTIVE 346

� Retention and release of books of account or otherdocuments covered under section 132(8) whileretention and release of assets covered undersection 132B 347

� Rationale behind amendment of sub-section (8) ofsection 132 347

10.4 SCOPE AND MANNER 348� No approval of Commissioner required for retention of

books of account or other documents till completion ofassessment 348

� Retention of books of account or other documents aftercompletion of assessment - Extension of period 349

� Approval for extension to be granted before the expiryof period 350

� Communication of Commissioner’s approval 351� Effect of belated communication of reasons recorded 352

� Extension for retention of books of account ordocuments - Application of mind 352

I-33 CONTENTS

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� No opportunity of hearing required to be granted to theassessee before granting approval for extension 353

� Extension can be granted repeatedly as may be required 354

10.5 ILLEGAL SEIZURE OF BOOKS OF ACCOUNT OR OTHERDOCUMENTS 354� Release of books of account or other documents illegally

seized 354� Release of books of account or documents illegally

seized - Can the department compel the attestationof the documents by the assessee? 355

� Release of books of account or documents relating toother person seized 355

� Illegal seizure v. Illegal retention 35610.6 ILLEGAL RETENTION OF BOOKS OF ACCOUNT OR OTHER

DOCUMENTS 356� Release of books of account illegally retained - Can

the department compel the attestation of the documentsby the assessee? 357

� Illegal retention - Remedies with the assessee 358� Retention and release of computer/laptop 358

10.7 I. SECTION 132(10) - APPROVAL FOR EXTENSION TO RETAINBOOKS OF ACCOUNT OR OTHER DOCUMENT BY COMMISS-IONER ETC. - OBJECTION BY ASSESSEE 359

II. SECTION 132(9) 359


10.9 LEGISLATIVE HISTORY - SIGNIFICANT AMENDMENTS 360

10.10 OBJECTIVE 360

10.11 RIGHT TO OBTAIN COPIES OF BOOKS OF ACCOUNT OROTHER DOCUMENTS SEIZED - SECTION 132(9) 360

� Time limit for supply of copies of books of account orother documents seized 361

� Copies of books of account or documents beforereplying show cause notice issued by theauthorized officer 362

� Copies of books of account or documents before filingthe return 362

10.12 WHETHER INSPECTION OF BOOKS OF ACCOUNT OR OTHERDOCUMENTS IS PERMISSIBLE TO AN EMPLOYEE? 363

III. SECTION 132(9A) - HANDING OVER OF SEIZED BOOKSOF ACCOUNT OR DOCUMENTS AND ASSETS TO THE ASSES-SING OFFICER 363

CONTENTS I-34

13 TEXT OF SECTION 36310.14 LEGISLATIVE HISTORY - SIGNIFICANT AMENDMENTS 36410.15 OBJECTIVE 36410.16 TIME LIMIT FOR HANDING OVER BOOKS OF ACCOUNT OR

DOCUMENTS 365� Handing over within a period of sixty days from the date

on which the last of the authorizations for search wasexecuted 365

� Rationale for amendment of section 132(9A) 365� Ambiguity in the provision still prevails 366� The Authorized Officer having no jurisdiction over the

person - Meaning thereof 36710.17 NOT HANDING OVER THE SEIZED MATERIAL WITHIN SIXTY

DAYS - CONSEQUENCES THEREOF 36910.18 SCOPE OF HANDING OVER 370

� Handing over seized material to the Assessing Officer ofthe person searched 370

� Handing over of books of account or documents to otherGovernment Agencies/Department 370

PART 2

APPLICATION OF SEIZED ASSETSUNDER SECTION 132B

10.19 TEXT OF SECTION 37110.20 LEGISLATIVE HISTORY - SIGNIFICANT AMENDMENTS 37310.21 OBJECTIVE 37310.22 BROAD FRAMEWORK 37310.23 APPLICATION AND RELEASE OF DISCLOSED ASSETS

SEIZED 374� Existing liability under all Direct Tax Acts to be

adjusted 374� Explanation to be applicable prospectively 374� Liability arising on application to settlement commission

can also be adjusted 374� Application of disclosed assets, if seized 375� Provision regarding the release of disclosed asset -

Difficult to be implemented 377� Certain unanswered questions 378� Release only upon satisfactory explanation 379� Immediate release of deposits seized from disclosed

bank accounts 379

I-35 CONTENTS

24 APPLICATION AND RELEASE OF UNDISCLOSED ASSETSSEIZED 380� Liability to be determined on completion of assessment 380� Liability determined on completion of assessment -

Including penalty levied or interest payable 381� Realization of assets in kind and application thereof 381� Conversion of assets in kind into money 382� Release of surplus asset 383� No retention of seized assets during pendency of

appeal by the department 383� Release of jewellery seized 384

� Release of assets against deposit of cash, furnishing ofbank guarantee 387

� Release of assets after all dues are paid 388� Release of assets of third party seized 389� Treatment of cash seized and kept in Personal Deposit

Account (P.D. A/c) of Commissioner 39010.25 SCOPE FOR APPLICATION AND RELEASE OF SEIZED

ASSETS 392

� Application of seized assets only when assessee is indefault 392

� No application of seized assets for liabilities ofsubsequent years 393

� No application of seized assets against tax liabilities ofthird person 393

� Mandatory for Assessing Officer to adjust seized amountagainst demand under section 140A 394

� No civil suit for non-payment of interest undersection 132B(4) 394

10.26 MANNER OF RELEASE OF SEIZED ASSETS 394� Release of assets in the presence of witnesses 394� Who is entitled to release of seized assets under

section 132B 395� Release of assets belonging to third parties 395� Power of release of assets with whom 396

10.27 RECOVERY OF LIABILITIES BY ANY OTHER MODE 39610.28 DELAY IN RELEASE OF THE SEIZED ASSETS 397

� Delay in release of assets - Remedies with the assessee 397

CONTENTS I-36

29 PAYMENT OF INTEREST ON RELEASE OF MONEY SEIZED 398� Interest under section 132B(3) & (4) read with

section 244 400� Interest payable upto last assessment order 402� Interest at value of silver bars not payable 403� Interest on value of shares not payable 403� Whether seized cash can be treated as advance tax paid

by the assessee 403� Cash seized in case of income tax search not to be treated

as advance tax paid 406� Reduction or waiver of penal interest for late filing of

return of income, etc. 409� Damages in case of delay and irregularities 410� Department’s responsibility to take care of seized assets 411

10.30 RELEASE OF SEIZED ASSETS WHEN SEARCH IS HELDILLEGAL 411

11REQUISITION UNDER SECTION 132A

11.1 TEXT OF SECTION 132A 413


11.3 OBJECTIVE 415

� Circumventing Supreme Court decision in the case ofTarsem Kumar 415

� Rationale of provision of section 132A 416

11.4 NATURE OF PROVISION OF SECTION 132A 417

� Applicability of section 132(4A) to 132(14) 418� Comparison and substitution of various situations

under section 132A with section 132 418� Who can issue authorization for requisition under

section 132A? 419� Who can be requisitioning officer? 419� To form “reason to believe” in consequence of

information in possession 420� Before authorization for requisition - Whether

opportunity to be granted to the assessee 425� Opportunity to the person before taking delivery of

material from the possession of other GovernmentAuthority/Officer 426

I-37 CONTENTS

PAGE

� There may be huge time gap between requisitionmade and actual delivery of material affected 426

� No requisition, pending decision about confiscation 42711.5 PROCEDURE OF REQUISITION 427

� No format for requisitioning letter to be issued byrequisitioning officer 427

� Copy of authorization to the person or the assessee 427� Consequences of not serving the authorization to the

assessee 428� Procedure regarding taking delivery of the seized

material 42811.6 REQUISITION CAN BE MADE FROM WHICH AUTHORITY/

OFFICER 428

� To which Authority or Officer, requisition can be made 428

� No requisition from the possession of Court 429� No requisition from the possession of bank officers 430� Requisition from the custody of Police Officers 430� Assets may be requisitioned from the custody of Police

Authorities under order of the Court 430� Court ordering release of cash seized on furnishing

bank guarantee 431� Requisition from Excise Department in case of auction 432� Overriding powers to Income Tax Authorities over

other Authorities 43211.7 RECORDING OF STATEMENT IN CASE OF REQUISITION 432

� Recording of statement under section 131(1A) 432

� Benefit of making declaration of undisclosed incomeunder section 132(4) and also deeming fiction of“undisclosed income” under section 271AAA notapplicable in case of requisition u/s 132A 433

� Penalty in case of revision of return consequent uponrequisition under section 132A 434

11.8 ASSESSMENT IN CASE OF REQUISITION 434� Assessment in accordance with provisions of

section 153A 434� In case of requisition, which six years to be covered 434� Delay in receiving requisitioned material - Assessment

for the year of requisition 435� Time limit for completion of assessment under section

153A in case of requisition under section 132A 436

CONTENTS I-38

PAGE

� Nature of assessment proceeding in case of requisitionunder section 132A 437

� Applicability of provision of section 292C regardingpresumption 437

� Application and release of requisitioned assets 438� Provision of section 153C may also be applicable for

requisitioned assets 438� Whether provision of section 153A would be applicable

when requisition is made but actual delivery of seizedmaterial is not handed over to the requisitioning officer 439

� Delay in issuing requisition 44011.9 ILLEGAL SEIZURE BY OTHER GOVERNMENT AUTHORITY/

OFFICER 441

� Validity of action under section 132A - Whether can beexamined by ITAT 442

12ASSESSMENT OF SEARCH CASES

UNDER SECTION 153A/153C

A. SECTION 153A - ASSESSMENT IN CASE OFSEARCH OR REQUISITION

12.1 TEXT OF SECTION 153A 443


� Concept of block assessment 445

� New procedure for assessment as prescribed undersection 153A 446

� Amendment Introduced by Finance Act, 2012 446

� Constitutional validity 448

12.3 OBJECTIVE 448

12.4 NATURE AND SCOPE OF PROVISION OF SECTION 153A 448

� Mandatory reopening of preceding six years’ cases 448� Rationale for reopening of preceding six years’ cases 450� Significance of non obstante clause 452� Applicable in case of search initiated after 31st May, 2003 453� Discrepancy regarding “search is initiated” and “search is

conducted” 453� Meaning of “search is initiated” and “search is conducted” 454� How to resolve the controversy 455

I-39 CONTENTS

PAGE

� Whether drawing of Panchnama is mandatory to decideconduct of search? 456

� Assessment under section 153A not the assessment onlyfor undisclosed income found as a result of search aswas the case in block assessment under Chapter XIV-B 457

� Concept of undisclosed income under section 271AAAentirely from a different perspective 457

12.5 ASSESSMENT YEARS COVERED UNDER SECTION 153A 457

� Preceding six years covered under section 153A -What about preceding seventh year? 457

� What about year of search? 458

� No duality of assessment as in the case of blockassessment 460

12.6 PROCEDURE FOR MAKING ASSESSMENT UNDERSECTION 153A 460

� Flexibility in issue of notice 460

� No time limit for issue of notice 460

� No time limit for filing return 461

� No separate prescribed form for return of income 461

� Implication of the phrase ‘So far as may be’ 462

� All other provisions of the Act to apply 462

� Rate of tax applicable in the case of assessment undersection 153A 463

� Search warrant/panchnama drawn in joint name 463

12.7 ABATEMENT OF PENDING ASSESSMENT ORREASSESSMENT PROCEEDING(S) 464

� Pending assessment or reassessment to abate 464

� Fresh assessments to be framed for all the precedingsix years whether assessment proceedings are abatedor not 466

� Abatement of pending assessment proceeding - Whatremains the status of return filed? 468

� Abatement to revive 469

� No other assessment or reassessment proceedingsduring pendency of proceeding u/s 153A 470

� Application for rectification under section 154 not toabate 470

� No abatement of pending appellate proceedings 471

CONTENTS I-40

8 ISSUES REGARDING FILING OF RETURN UNDERSECTION 153A 471

� Whether exemption/deduction can be claimed first timein the returns filed under section 153A, which could notbe made in the original return 471

� Interest provisions applicable as in normal course 473� Applicability of provisions regarding imposition of

penalty and prosecution 473� Filing of return after search under normal provisions of

the Act - Whether required? 474� Late filing of return under section 153A - Consequences

thereof 475� Whether return filed in pursuance to notice under

section 153A can be revised? 476� Whether assessee should file income-tax returns under

section 153A when opting to apply to SettlementCommission? 477

� Cash seized during search - Whether adjustable asadvance tax 478

12.9 CERTAIN ISSUES RELATING TO ASSESSMENT UNDERSECTION 153A 480

� No repetition of addition under section 153A for thesame issues relating to which addition already madein earlier assessment or reassessment proceedings 480

� Fresh material found relating to issue with respect towhich addition already made in earlier assessmentfinalized 481

� Whether to assess or reassess as required undersection 153A tantamount to de novo assessmentproceeding? 482

� Arguments against the concept of de novo assessment 485

� Change of opinion by the Assessing Officer duringassessment/reassessment proceedings under section153A relating to issue already considered andexamined during earlier assessment proceedings 489

� Judicial controversy regarding de novo assessment 490

� No addition in case no incriminating material found duringSearch and assessment proceedings not abated 497

� In case of search, whether invoking provision of section153A is mandatory? 497

� Invoking provision of section 153C instead of provisionof section 153A even in case of searched person 499

I-41 CONTENTS

PAGE

� Invoking provision of section 147/148 instead ofinvoking provision of section 153A in the case ofsearched person 500

� Whether provision of section 148 or 263 can beinvoked with respect to assessment framed asper provisions of section 153A 501

� Seized material from the authorized officer receivedlate - Beyond time limit as prescribed u/s 132(9A) -Validity of assessment proceeding 501

� Issue of notice under section 153A prior to receipt of theseized material from the authorized officer 502

� Assumption of jurisdiction - Notice under section 143(2)within time limit - Whether mandatory in case ofproceedings u/s 153A? 502

� Status of assessment order passed under section 153Awhen search is held illegal 503

� “Reason to believe” recorded by the competent authorityfor authorization of the search not available with theAssessing Officer 505

� Significance of appraisal report during assessment forsearch cases 505

� For assessment of search cases, integrated investigationapproach is adopted 506

� Whether ITO can be Assessing Officer undersection 153A? 506

� Whether authorized officer can be the AssessingOfficer? 506

� Application of presumption under section 292Cduring assessment of search cases 507

� Introduction of section 115BBE & flat rate of tax rate onundisclosed income/investment/expenditure etc. 508

B. SECTION 153C - ASSESSMENT OFINCOME OF ANY OTHER PERSON

12.10 TEXT OF SECTION 153C 50912.11 LEGISLATIVE HISTORY 51012.12 OBJECTIVE 51112.13 NATURE OF PROVISION OF SECTION 153C 511

� Provision of section 153C - Plain interpretation 511� Rationale of the provision 512� Provision of section 153C is harsh 512

CONTENTS I-42

14 ANALYSIS OF PROVISION OF SECTION 153C 513� “Where the Assessing Officer is satisfied” 513� Whether satisfaction to be recorded in writing? 515� Time limit for recording satisfaction 518� Nature of satisfaction 519� Recording of satisfaction when Assessing Officer is

common 520� Material seized - What in case of illegal seizure? - Whether

seized material to be of incriminating nature? 521� “Belongs or belong to other person” 524� Belonging to more than one person 528� To hand over to the Assessing Officer of other person 528� Time limit for issuing notice as per section 153C 529

12.15 ASSUMPTION OF JURISDICTION U/S 153C 529� Assumption of jurisdiction u/s 153C at what stage? 529� That Assessing Officer shall proceed against each such

other person - Recording of satisfaction by the AssessingOfficer having jurisdiction over the other person beforeassuming jurisdiction under section 153C? 531

� The word ‘shall’ to be interpreted as mandatory ordirectory? - Whether all search years to be re-assessed? 534

� All provisions of section 153A to apply 536

� Relaxation regarding requirement of framing asessmentor re-assessment of earlier six years 537

12.16 ISSUES REGARDING ASSESSMENT UNDER SECTION 153C 537

� Assessment or reassessment of seven years - Whichseven years? 537

� Abatement of pending proceedings 539

� Assessment of undisclosed income of third person onthe basis of entries in books of account or documentsof the person searched 540

� Seized material belonging to some other person, whethersection 153C is the only recourse? 540

� Once jurisdiction under section 153C is invoked -What kind of additions can be made? 541

� Presumption under section 292C - Whether availablein the case of assessment under section 153C? 541

� Mention of wrong section/designation of assessee inorder does not invalidate the order 542

I-43 CONTENTS

PAGE

C. SECTION 153D - PRIOR APPROVAL OFJOINT COMMISSIONER

12.17 TEXT OF SECTION 153D 542


12.19 OBJECTIVE 543

12.20 MANDATORY REQUIREMENT 543

D. SECTION 153B - TIME LIMIT FOR COMPLETIONOF ASSESSMENT UNDER SECTION 153A

12.21 TEXT OF SECTION 153B 545


12.23 OBJECTIVE 548

12.24 TIME LIMIT FOR COMPLETING ASSESSMENT IN SEARCHCASES 548

� Advancement of time limit for completion of assessmentfor the year of search by twelve months 551

� Date on which search is conducted and the date onwhich search is concluded may fall in differentfinancial years 552

� Different time limits for different persons within thegroup 552

� Time limit for completion of assessment in case of theperson covered under section 153C 553

� “Service of assessment order also should be within thelimitation period” 554

� Last of the Authorisation executed - Meaning thereof 554

12.25 EXCLUSION OF TIME PERIOD IN CERTAIN CIRCUMSTANCES 555

� Time limit when reference is made to transfer pricingofficer under section 92CA 556

13HANDLING OF ASSESSMENT IN SEARCH CASES

13.1 CERTAIN STEPS/TECHNIQUES WHICH MAY BE USEFUL TOTHE ASSESSEE DURING ASSESSMENT OF SEARCH CASES 557

� Obtaining copies of seized materials 557

� Ledgerisation of transactions relating to individuals 557� To avoid duplicate additions - Apply principle of sources

of income v. Application in assets 558

CONTENTS I-44

PAGE

� Principle of peak balance 559� Use of affidavits/confirmations 561� Submit complete and voluminous details 561� Request for cross examination 562� Intangible additions 562� In case of general declaration of undisclosed income,

benefit of telescoping 563� Direction by Joint Commissioner under section 144A 563� Approaching to Settlement Commission 564

13.2 TOOLS AVAILABLE WITH ASSESSING OFFICER DURINGASSESSMENT OF SEARCH CASES 564

� Centralization of search cases 564

� Availability of appraisal report 565

� Summons under section 131 565

� Calling for information under section 133(6) 565� Availability of presumption under section 292C 566� Reference to Valuation Officer 566� Protective and substantive assessment 566� Special audit under section 142(2A) 567� Ex parte assessment 569� Provisional attachment under section 281B 569� To undertake proceedings under section 148/153C 569� Applicability of deeming provisions of income under

sections 68 to 69D 56913.3 CONSTRAINTS WITH THE ASSESSING OFFICER 569

� All cases of seven years required to be assessed together 570� Huge burden of time barring 570� Lack of availability of skilled staff 570

� Indiscriminate seizure of books of account, documentsand electronic data 571

� Delay in centralization 571� Late commencement of assessment proceedings 571� Technical defaults 571

13.4 CERTAIN ISSUES RELATING TO ASSESSMENT IN SEARCHCASES 572� General questionnaire requiring explanation of all the

documents found during search 572� Conditional surrender 573

I-45 CONTENTS

PAGE

� Explanation of documents/assets not belonging toassessee 574

� Reliance on statement recorded by authorized officerduring search 574

13.5 DECIDED CASE LAWS RELATING TO CERTAIN SIGNIFICANTISSUES 575� Addition for undisclosed jewellery 575� Assessment when there is retraction of surrender of

undisclosed income 578� Dumb documents 581� Extrapolation of income 584� No addition on estimated/ad hoc basis 586� Unrecorded business expenditure - Whether deduction

can be claimed? 590� Addition on the basis of Statement 591� Addition on the basis of loose papers, diaries, etc. 596� Burden of proof 600� Benefit of Telescoping 603� No assessment for non-existent company 603� Notice for filing returns 604� Normal disallowances 604� No duplicate additions 605� No additions possible in block assessment under

Chapter XIV-B when no incriminating material isfound during search 606

� Levy of penalty in case of agreed addition duringassessment 607

� Addition for difference in stock 608� Addition u/s 68 610� Addition u/s 69 611� Assessment based upon instructions of other officers 613� Levy of interest 613

14ATTRACTION OF WEALTH TAX IN

SEARCH CASES


CONTENTS I-46

2 LEGISLATIVE HISTORY 622

14.3 OBJECTIVE 62214.4 SIMILARITIES BETWEEN THE PROVISIONS UNDER BOTH

THE ACTS 622

14.5 WHY IS THERE A SEPARATE PROVISION UNDER THEWEALTH TAX ACT? 624

14.6 ASSETS ON WHICH WEALTH TAX IS LEVIABLE 624

14.7 USE OF THE PHRASE “DISPROPORTIONATE TO HISKNOWN ASSETS” 624

14.8 COLLECTION OF EVIDENCES 625

14.9 SEIZURE OF ASSETS FOR EVASION OF WEALTH TAX 625

15PENALTIES AND PROSECUTION

IN SEARCH CASES

15.1 INTRODUCTION - PENALTY FOR CONCEALMENT OF INCOMEIN SEARCH CASES 627

15.2 PENALTY PROVISION UNDER SECTION 271AAA 62815.3 TEXT OF SECTIONS 271AAA & 271AAB 62815.4 LEGISLATIVE HISTORY - SIGNIFICANT AMENDMENTS 63115.5 OBJECTIVE 63215.6 RATIONALE OF THE PROVISIONS OF SECTION 271AAA 63315.7 NATURE AND SCOPE OF PENALTY PROVISION UNDER

SECTION 271AAA 633� Applicable in the case of search initiated on or after

1st June, 2007 633� “Specified previous year” 634� “Undisclosed income” 635� Non obstante clause under section 271AAA 638� Whether penalty u/s 271AAA mandatory 638� Penalty at the rate of ten per cent of the “undisclosed

income” 638� Penalty for specified previous year in the case of search

initiated on or after 1-6-2007 can be levied u/s 271AAA/271AAB and not u/s 271(1)(c) 639

15.8 PROVISION OF SECTION 271AAA - IN NUTSHELL 639

15.9 IMMUNITY FROM PENALTY UNDER SECTION 271AAA -MANNER OF DECLARATION 640

� Declaration to be made in the course of search 640

I-47 CONTENTS

PAGE

� Specifies and substantiates the manner 641

� Requirement of substantiating the manner of deriving theundisclosed income to be complied with at which stage 643

� Pays the tax and interest in respect of the undisclosedincome 645

15.10 PENALTY UNDER SECTION 271AAA v. PENALTY UNDERSECTION 271(1)(c) 647

� Penalty provision u/s 271AAA applicable even whenno declaration of “undisclosed income” relating to“specified previous year” is made during search andsuch “undisclosed income” is declared in the return ofincome filed or such “undisclosed income” is added byAO in the assessment order 647

� Situation when penalty for “specified previous year”may be applicable/leviable under section 271(1)(c) 648

� No penalty u/s 271(1)(c) for concealment of income ifincome not covered within the definition of “undisclosedincome” under section 271AAA, is declared in thereturn of income relating to specified previous year 649

15.11 MISCELLANEOUS 650

� Instructions of the CBDT regarding not pressurizingfor declaration of undisclosed income during search 650

� Provisions of sections 274 and 275 to apply 650

15.12 PENALTY FOR UNDISCLOSED INCOME RELATING TOEARLIER YEARS 651

� Provision of section 271AAA applicable only for “speci-fied previous year” and not for earlier years - Declara-tion of undisclosed income for earlier years may betreated as admitted concealment 651

� Clinching evidences of undisclosed income for earlieryears 652

� Declaration made for earlier years subject to no penalty 652

� Penalty for concealment of income for earlier yearsapplicable under section 271(1)(c) read withExplanation 5A 654

� No penalty merely on surrender of Income 654

15.12A NATURE AND SCOPE OF PROVISION UNDER SECTION 271AAB 655

� Applicable in the case of search initiated on or after1st day of July, 2012 655

� Rationale of introducing section 271AAB 655

CONTENTS I-48

PAGE

� Staggering of quantum of penalty under section 271AAB 655

� Levy of penalty at the rate of 10% of undisclosed incomewhen declaration of undisclosed income is made duringsearch 656

� Levy of penalty at the rate of 20% of undisclosed incomewhen declaration of undisclosed income is made notduring the course of search but in the return ofincome filed for the specified previous year 657

� Levy of penalty at the rate of 30% to 90% of undisclosedincome when declaration of undisclosed income is notmade by the searched person but additions are made bythe Assessing Officer during assessment proceedings 657

� Provisions of section 274 and section 275 to apply 658

� Analysis of significant issues 658

� Interpretation of the definition of “Undisclosed Income” 658

� Ambiguity in the definition of “Specified Date” 660

� Cash seized - Whether to be treated as payment oftax before the “specified date”? 660

� Decision regarding declaration of “undisclosedincome” during search to be made more cautiously 661

� Application with Settlement Commission may beopted by searched person 662

� Whether penalty u/s 271AAB is mandatory in nature? 662

15.13 TEXT OF EXPLANATION 5A TO SECTION 271(1)(c) 663

15.14 RATIONALE FOR INSERTION OF EXPLANATION 5A TOSECTION 271(1)(c) 663

� To cover a situation where due date of filing of returnis expired but concealed income is included in thereturn filed after search 663

� After search having taken place, return of incomealready filed is revised showing undisclosed incomefound as a result of search pertaining to such year 664

� Whether Explanation 5A to section 271(1)(c) shall beattracted regarding normal profits as per balance sheetfinalized but income-tax return pending on the dateof search 666

15.15 PROVISION OF SECTION 271AAA AND EXPLANATION 5ATO SECTION 271(1)(c) NOT APPLICABLE TO REQUISITIONMADE UNDER SECTION 132A 668

15.16 ATTRACTION OF PENALTY FOR CONCEALMENT IN CASESCOVERED U/S 153C 669

I-49 CONTENTS

17 PENALTY PROVISION RELATING TO SEARCH INITIATEDBEFORE 1ST JUNE, 2007 - EXPLANATION 5 TOSECTION 271(1)(c) 671

� Text of Explanation 5 to section 271(1)(c) 671

� Salient features of Explanation 5 to section 271(1)(c) 672

15.18 PENALTY FOR OTHER DEFAULTS 675

� Failure to answer questions, sign statements recordedu/s 132(4) or u/s 131(1A) 675

� Failure to comply with the summons issued undersection 131 676

� Penalty for unaccounted business transactions 676

� Penalty for loans or deposits taken or repaid in cash 678

� Whether penalty is attracted for non-filing or late filingof income-tax returns under section 153A 679

� Power to reduce or waive penalty etc. in certain casesas provided under section 273A 679

� Power of Commissioner to grant immunity from penaltyunder section 273AA 680

15.19 OFFENCES AND PROSECUTION 681

� Contravention of prohibitory order passed under section132(3) - Section 275A 681

� Non-compliance of provision of section 132(1)(ii)(b) -Section 275B 681

� Wilful attempt to evade tax - Section 276C 682

� Failure to furnish return of income in search cases -Section 276CC 682

� False statement and verification - Section 277 682

� Falsification of books of account or documents, etc. -Section 277A 682

� Abatement of false return - Section 278 683

� Presumption as to assets, books of account in case ofsearch for the purpose of prosecution - Section 278D 683

� Whether there can be prosecution for non-complianceof summons issued under section 131 683

� Refusal to answer questions or to give incorrect replyto questions put during recording of statement undersection 132(4)/131 684

� Offences by companies 684

CONTENTS I-50

PAGE

� Principles emerging from decided cases aboutprosecution proceedings 684

� Power of Commissioner to grant immunity fromprosecution 685

16APPLICATION TO SETTLEMENT COMMISSION

IN SEARCH CASES

16.1 INTRODUCTION 686


� Search held before 1st July, 1995 687

� Search held between 1-7-1995 till 31-5-2003 whenconcept of block assessment for undisclosed incomewas applicable 688

� Search held between 1st June, 2003 till 31st May, 2007 688

� Search held between 1st June, 2007 till 31st May, 2010 -Revised Settlement Scheme - No application toSettlement Commission permitted 688

� Search held on or after 1st June, 2010 689

� Taxpayers can approach Settlement Commission evenfor pending re-assessment cases 691

16.3 WHETHER TO APPROACH THE SETTLEMENT COMMISSIONIN SEARCH CASES 693

� Decision by the assessee for approaching the SettlementCommission - Merits and demerits 693

� Merits 693

� Demerits 694

� Nature of proceedings before Settlement Commissionv. Assessing Officer 694

� Circumstances under which application to SettlementCommission may be advisable to the assessee 695

16.4 FILING AND ADMISSION OF APPLICATION WITHSETTLEMENT COMMISSION - CERTAIN CONDITIONSTO BE FULFILLED 696

� Stage for filing application to Settlement Commissionin search cases 696

� Application to Settlement Commission may be filedwhen assessment proceedings are pending with theAssessing Officer 696

I-51 CONTENTS

PAGE

� For admission of application by Settlement Commission,there has to be additional income-tax payable by theassessee 697

� Additional tax payable - Meaning thereof 698

� Whether regular income, tax return for which has notbeen filed, may be part of additional income to bedisclosed before Settlement Commission 698

� Whether seized cash, money, FDRs etc. may be adjustedtowards additional tax payable? 699

� Application to Settlement Commission separately byeach person, but for all the years together 700

� Assessee is required to make full and true disclosure ofhis undisclosed income in the application 701

� All taxes to be paid otherwise application may be rejected 702� Whether undisclosed income declared by the assessee

during search in the statement under section 132(4),may be considered as additional income to be declaredbefore Settlement Commission 702

� Copy of application to be given to the Assessing Officersimultaneously 702

� Application to be submitted carefully, in case of anydefault application is liable to be rejected 703

� Consequences when application is not proceeded with/rejected by the Settlement Commission 703

� Filing application with the Settlement Commission,jurisdiction of the Assessing Officer to be excluded 705

� Before filing application to Settlement Commission,whether Income Tax Returns under section 153A tobe filed? - Consequences of non-filing of returns? 706

16.5 PROCEEDINGS BEFORE SETTLEMENT COMMISSION -NATURE AND SCOPE 706

� Procedure of proceedings before Settlement Commission 706

� Limitation for passing order by Settlement Commission 707

� Application once filed with the Settlement Commissionunder section 245C cannot be withdrawn 707

16.6 POWER OF SETTLEMENT COMMISSION TO GRANTIMMUNITY FROM LEVY OF INTEREST, PENALTY ORPROSECUTION 707

� Whether Settlement Commission has the power to grantwaiver from levy of interest? 707

� Power of Settlement Commission to grant immunityfrom penalty and prosecution 708

CONTENTS I-52

7 CERTAIN POST SETTLEMENT ISSUES 709

� Payment of demand raised as per order of SettlementCommission 709

� Settlement to become void if it is found that it wasobtained by fraud or misrepresentation of facts 710

� Order of Settlement Commission not appealable 711

� Power of review/revision/rectification by SettlementCommission 712

� Abatement of proceeding before SettlementCommission 713

17PRECAUTIONS BEFORE FACING

SEARCH ACTION

17.1 MENACE OF BLACK MONEY 715

� It is in the interest of the assessee not to generate blackmoney 716

� Though unacceptable, sometimes circumstances maycompel for evasion of income-tax 717

17.2 PERIODICAL REVIEW AND COUNSELLING 718

� Periodical review of unwarranted papers, documents 718

� Incriminating documents/details found in search mayfasten huge tax liability 719

� Vigilant family members - Counselling required 719

� Mock search exercise 720

17.3 APPROACH TO MAINTAIN RECORDS 720

� Details of unrecorded transactions in coded form arealso liable to be decoded 720

� Details beyond earlier seven years 721

17.4 AVAILABILITY OF EVIDENCES SO AS TO AVOID SEIZURE 721

� Separate file of jewellery containing evidences ofacquisition 721

� Cash belonging to business firm, kept at residence 722

� Evidence regarding assets of other persons kept 722

� Tangible assets to be duly recorded 723

� In case of joint premises, clear cut demarcationdesirable 723

I-53 CONTENTS

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CONTENTS I-54

17.5 VIGILANCE WITH RESPECT TO OTHERS 723

� In case of financial disputes, handle the situationtactfully 723

� Damaging details/evidences available with thecorresponding person may be a source of expensivelong drawn litigation 724

� Senior employees or consultants to remain vigilant 725

17.6 POWERS OF DEPARTMENT 725

� To be aware regarding powers of tax authorities 725

� Lot of information relating to assessee within thedomain of income-tax department 726

APPENDICES

APPENDIX 1 : Taxpayers’ charter 731

APPENDIX 2 : Ground rules for search and seizure 734

APPENDIX 3 : Relevant provisions of the Income-tax Act, 1961 738

APPENDIX 4 : Relevant provisions of the Income-tax Rules, 1962 801

APPENDIX 5 : Warrant of authorisation 808

APPENDIX 6 : Proforma of panchnama 816

APPENDIX 7 : Model forms used during search 819

APPENDIX 8 : Relevant provisions of the Wealth-tax Act, 1957 824

APPENDIX 9 : Relevant provisions of the Wealth-tax Rules, 1957 833

APPENDIX 10 : Relevant provisions of Code of CriminalProcedure, 1973 836

APPENDIX 11 : Relevant provisions of Indian Penal Code, 1860 849

APPENDIX 12 : Relevant provisions of Code of Civil Procedure,1908 853

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