[FAQs] on Income Tax Search & Seizure

Provisions relating to income tax search and seizure are likely to remain on the same lines as the provisions contained under Income-tax Act, 1961. Therefore, the analysis and detailed discussion with case laws made in this book relating to the provisions of income tax search and seizure shall remain equally useful and relevant.

Income tax search and income tax raid is one and the same thing. Income tax survey is another tool in the hands of the tax authorities for making investigation under the Income-tax Act. Income tax survey is comparatively milder action and can be undertaken only at business premises and no seizure of assets is permitted in the case of survey.

Yes, powers of almost similar nature are available with the tax authorities for making investigation and un-earthing black money in other developed and developing countries. In other developed countries, such powers are more transparent, system driven and technology based than being discretionary in nature.

Yes, there are in-built safeguards provided within the provisions of section 132 itself so as to restrict misuse of the powers of search and seizure with the tax authorities. There is no power of arrest given to the income tax authorities in the case of search as is the case with respect to the enforcement of other economic laws such as excise duty, customs, enforcement directorate, etc.

This is a controversial issue and there is no direct authority available from any court on the above issue. As per literal interpretation of section 132(1), it seems that search action cannot be initiated for non-compliance of summons issued under section 131(1A) but if we go by purposive interpretation, such view is not free from doubt.

To take a view that search action cannot be initiated on the basis of information regarding investment in immovable properties, does not seem to be the correct view. The underlying asset may be immovable property which is a visible asset and location of which may be in the knowledge of the department, but the test would lie upon the fact that whether income representing such assets or the assets itself, have been disclosed to the department or not.

It is very difficult to know the identity of the informer since such information is kept highly confidential in possession of senior officers only. However, in case the informer is a professional informer and claims reward from the Department at a later stage for information supplied by him, assessee may lay hand at such details of reward, though the same is also kept confidential. In case such professional informers approach court for seeking a direction to the tax department to give them the reward, their identity in that case becomes exposed.

There is no time limit which can be prescribed for this purpose. It depends upon the nature of information regarding existence of undisclosed income and likelihood of seizure of assets, according to which case may be prepared for taking action of search. However, in all cases, search warrant by competent authority is required to be issued before taking action of search.

In the case of property transaction, when there is information available with the department regarding exchange of huge unaccounted cash consideration, search may be planned even in one day. In yet another case, unless the information received is reliable and verified, search action may not be planned and remain pending for months or sometimes years together.

It is not easy and is not at the whim and fancy of the survey team to convert survey into search, though in practice, it has been observed that sometimes such pressure is exercised by the survey team. It may be possible only on the fulfilment of either of the conditions prescribed under clause (a), (b) or (c) of section 132(1) and after obtaining the search warrant from the competent authority. Survey is generally conducted by assessment wing of the department whereas competent authority to authorize search in such a case would normally be Commissioner of Income Tax. The Additional Commissioner of Income-tax, who may be heading the survey team, may not normally be the competent authority to authorize search and he will have to obtain search warrant from CIT.

As per various judicial pronouncements, assessee does not have legal right to get the copy of search warrant authorizing search against him. Copy of search warrant is shown and signature of assessee on search warrant is obtained by the authorized officer before commencing action of search but the copy of search warrant is not supplied to the assessee.

The reasons recorded by the competent authority authorizing search are kept in confidential folder and the same are not shown to the assessee. The assessee cannot get the copy of the reasons; moreover, he cannot even read the contents of the reasons recorded. In a case when validity of search is challenged in writ petition before the High Court and copy of reasons is summoned by the High Court, the reasons recorded are seen and read by their lordships themselves and the contents are not made public or available to the assessee. In certain judicial cases reported, it has been seen that the reason for conducting search has been reproduced in the judicial orders.

Any premises relating to the person searched may be searched on the basis of suspicion but authorized officer is required to obtain search warrant from the competent authority to enter and search such premises. He cannot, at his own, enter and search any of the premises relating to the person searched.

No search warrant can be issued by the competent authority in the name of some other person merely on the basis of suspicion. For issuing search warrant in the name of some other person, the competent authority has to record “reasons to believe” in consequence of information in his possession.

Yes, it is possible.

No, use of search warrant in this manner is illegal.

A person who is in joint occupation with the person searched may also be searched by the authorized officer to find out any incriminating material relating to the person searched available in his possession. However, in case the premises are independent, separate search warrant is required to enter and search such premises. Independence of the premises is a matter of fact and will depend upon particular case.

Yes, search warrant can be issued in joint name and in such a situation, each person covered in the search warrant can be searched and would be liable to be assessed/re-assessed in accordance with the provisions of section 153A. However, in such a case, “reason to believe” is required to be recorded by the competent authority separately for each person before including his or her name in the search warrant.

For conducting a valid search at the residential premises of the employee, “reason to believe” should be recorded by the competent authority with respect to such person in his individual capacity. “Reason to believe” recorded for the group as a whole may not be sufficient for issuing search warrant in his personal name and conducting search at his residential premises and in such a case search action may be declared as invalid by the High Court if it is found that reason to believe has not been recorded against him in his individual capacity. However, search warrant can be issued in the name of the company to conduct search at his residential premises in case, there is suspicion that incriminating material relating to the company is kept at his residential premises.

It is not always advantageous to challenge the validity of the search in the High Court. The decision is required to be taken keeping in view several factors and after weighing all the pros and cons.

Yes, as per various judicial pronouncements, incriminating material found and seized even in an illegal search action may be used by the income tax department against the assessee in appropriate proceedings

No, validity of search cannot be examined by CIT(A)/ITAT during appellate proceedings. The validity of search can be examined by High Court in writ jurisdiction.

No, non-filing of return of income/wealth cannot be a sufficient ground for conducting search.

There is no restriction provided under the Act with respect to the timings for initiating action for search. Search action can be initiated at any time depending upon the urgency of the matter.

Yes, the authorized officer has the power to break open the lock and enter the premises and make the search irrespective of whether the occupant/owner or some other person is available at the premises or not. The authorized officer may call upon two independent witnesses and in the presence of such witnesses; he may conduct the search proceedings.

Yes, search can be conducted at any premises for which search warrant has been issued in consequence of information available with the authorities that incriminating material belonging to the target person is kept at such premises.

Yes, there are softwares available to restore the deleted data and sometimes the department does make use of such technique. The assessee cannot disown such data.

Yes, any person staying in, coming out or going in the premises may be made subject of personal search.

Yes, assessee is duty bound to disclose password/software for operation of files in the computer. In case of non-co-operation in this regard, assessee may be prosecuted.

Yes, in case of suspicion or non-co-operation from the assessee to make available the keys, the authorized officer has power to take such action.

Search can be temporarily suspended by passing prohibitory orders as prescribed under section 132(3) of the Act.

Yes, it is a mandatory requirement and the entire search proceedings are conducted in the presence of two independent witnesses.

No, it is not the right of the assessee to select witnesses of his choice. However, in practice, selection of witnesses is made by the authorized officer with the consent of the assessee so that whole proceedings may be carried out smoothly.

No, it is not possible to forcibly require any person to act as witness. However, a person refusing to act as witness without any justifiable cause, inspite of direction of the authorized officer may be prosecuted for his denial.

Yes, a person under search can ask for medical aid in case he is not feeling well and he requires medical aid. He can call his family doctor to look after him and on the advice of doctor, if required he may be admitted to hospital.

No, assessee does not have legal right to insist the presence of his counsel at the time of search operations. Search proceedings are the investigation proceedings and are conducted in the presence of two independent witnesses.

No, income tax authorities in the course of income tax search and seizure operation do not have any power to arrest or detain any person.

Assessee has the right to get copy of panchnama along with all annexures and generally it is handed over by the authorized officer to the assessee at the time of conclusion of search. But copy of statement recorded is not given to the assessee on the plea that the same shall be given at the time when it is to be used against the assessee.

No, there is no such power to the authorized officer to stop/restrain the production or movement of the goods during search operation. However, since inventory list of goods is prepared by the search team, assessee is required to make available necessary facilities to the search team so as to enable them to carry out this work smoothly.

Yes, assessee can ask for production of identity card of the members of search team. In the absence of identity card some other evidence proving identity and genuineness of the person forming part of the search team, may be produced.

In such a situation assessee should try to resolve the matter after having discussion with the higher authorities. In case the matter is not resolved, he can file writ under Article 226 of the Constitution with the High Court at a later stage.

As such there is no time limit prescribed for conclusion of search proceedings. However, search proceedings are required to be undertaken at a stretch and be concluded at the earliest. Search proceedings may be temporarily suspended by passing prohibitory order as prescribed under section 132(3) of the Act and such prohibitory order is required to be lifted within a period of 60 days.

There is no specific power with the authorized officer to prevent the assessee from receiving or making telephone calls during search unless he believes that such permission would hinder the very object of search and the assessee may use the telephone calls to spread the message of search or manipulate the evidences. However, in practice it has been observed that such permission is not granted unless the telephone calls are very urgent and personal in nature and are made in the presence of the authorized officer.

Assessee gets immunity from penalty with respect to undisclosed income relating to specified previous year declared during search while recording statement under section 132(4) in case declaration is made in the manner as prescribed under section 271AAA.

There is no immunity from penalty by making declaration of undisclosed income relating to earlier years and penalty for concealment under section 271(1)(c) shall be attracted.

Yes, according to CBDT’s Instruction No. 1741 dated 24th January, 1986, the words in the “course of search” would include the period during which any locker, godown etc. is put under restraint under section 132(3).

Yes, regular books of account and supporting records relating to the person searched can be seized during search.

Legally speaking, such books of account and records cannot be seized. However, it is seen in practice that these are seized on the ground that the person searched may have nexus with these books of account and supporting records.

Seizure of disclosed assets cannot be made during search provided evidences regarding disclosure of assets to the department are produced by the assessee to the satisfaction of the authorized officer. Sometimes, such assets are seized for want of sufficient evidences in this regard available and produced by the assessee.

Seizure of such incriminating material can be made on the pretext that such material may have connection with the person searched.

Assets acquired prior to seven years representing income relating to those years which cannot be made the subject matter of assessment or reassessment under any of the provisions of the Act cannot be seized legally. However, burden to prove that such asset was acquired during that period would lie upon the assessee.

Original title deeds of immovable property which is a disclosed property cannot be seized. However, original title deeds of the undisclosed immovable property can be seized.

It would depend upon the satisfaction of the authorized officer. In case he believes that the jewellery found is different from the jewellery already declared by the assessee, seizure of such jewellery can be made.

Such jewellery will form part of total jewellery and will be required to be valued along with total jewellery. But generally, such jewellery is not seized as it forms part of total minimum jewellery not required to be seized as per instructions of CBDT.

No, passport of the assessee cannot be seized.

No, operation of regular bank accounts of the assessee cannot be restrained during pendency of search proceedings nor any seizure of money from such bank accounts can be made.

Yes, operation of bank lockers of the assessee can be restrained during search operations by passing order under section 132(3).

No as per amendment made by Finance Act, 2003 w.e.f. 1st June, 2003, no seizure or deemed seizure of stock in trade of the business entity can be made.

Generally speaking operation of computers and normal working of the business cannot be halted or restrained during search operation. However, necessary steps may be taken so that data in the computer is not manipulated and seizure of such data is made by the search team smoothly.

In case, such personal assets of the employee are of undisclosed and/or incriminating nature, such assets are also liable to be seized.

In case any incriminating evidences relating to the other companies are found at such premises, such evidences can also be seized on the pretext that target company may have connection with such evidences.

No, such assets cannot be seized unless there is reason to believe by the authorized officer that such asset belongs to the assessee and it represents his concealed income.

Yes, the authorized officer can seize such assets after recording the complete facts and circumstances in the presence of the witnesses.

Yes, technically search is treated as pending till all the restraint orders passed u/s 132(3) are passed. Search is treated as finally concluded when all the restraint orders are lifted.

As per sub-section (8A) of section 132, a restraint order passed under sub-section (3) of section 132 shall be in force for a period exceeding 60 days from the date of such order. It implies that in case restraint order is not lifted up to 60 days, it shall become ineffective and no seizure of assets/documents can be made thereafter. Moreover, search shall be treated as concluded on the expiry of the period of 60 days.

Restraint order cannot be passed for items which are not required to be seized. Since stock in trade cannot be seized, no restraint order with respect to stock in trade can be passed. Further there is no power with the authorized officer to restrict or stop movement/production of goods.

The authorized officer may take such steps as may be necessary for ensuring compliance with the order passed u/s 132(3). In case he apprehends removal, damage or alteration to the items put under restraint, he may take necessary steps, inter alia, including posting of security guards.

Disclosed assets/jewellery cannot be seized therefore one can say that no restraint order with respect to disclosed assets/jewellery can be passed. However, the authorized officer can pass restraint order till the evidences regarding disclosure of assets/jewellery are produced before him and he is satisfied regarding the fact of disclosure of such assets/jewellery. Regular books of account can be the subject matter of seizure. Therefore, restraint order with respect to the same can be passed.

No, restraint order u/s 132(3) cannot be passed against regular bank accounts of the person searched.

Yes, statement u/s 132(4) is recorded on oath and a person is duty bound to answer all questions put to him truthfully and honestly. However, answering to questions is not test of his memory and in case assessee does not remember certain facts or he requires to consult his books of account or other records, he can say so and may submit the facts at a later date.

Yes, examination of any person may be conducted u/s 132(4) in respect to all the matters which may be relevant and useful for the purpose of any investigation under the Income-tax Act.

In case question is asked by the authorized officer while recording statement u/s 132(4) to explain the nature and contents of the documents/notings/slips found at his premises, assessee is required to answer such question to the best of his memory. In case he declines to answer the question, he may be penalized and prosecuted under the Income-tax Act.

This is a controversial issue and judicial opinion is divided on this aspect. For detailed discussion, kindly refer to chapter on statement u/s 132(4).

Yes, a person can amend or correct his statement earlier given at any stage before conclusion of statement, whenever he realizes that the statement earlier given is not correct or complete.

Yes, authorized officer can examine on oath any visitor visiting the assessee in the course of search proceedings in case he has reason to suspect that any income has been concealed or is likely to be concealed by such person which may have connection with the person searched.

There is no legal bar in making retraction of undisclosed income declared by the assessee earlier during his statement in the course of search. The ultimate decision regarding undisclosed income of the assessee shall be taken by the
Assessing Officer or higher authorities keeping in view the evidentiary value, relevant evidences and circumstances under which statement declaring undisclosed income and its retraction was made by the assessee.

No, there is no such presumption. Presumption u/s 132(4A)/292C is to the extent that evidences found from the possession of the assessee belong to him and the contents mentioned therein are true and correct.

Yes, such presumption is rebuttable presumption and the assessee can rebut the presumption by leading cogent evidences to this effect. The onus would lie upon the Assessing Officer to establish that undisclosed income can be attached to the assessee emanating from the evidences found from his possession.

Dumb document may be said to be a document on which certain figures/details are mentioned but from such details no meaningful interpretation can be drawn. No undisclosed income can be attached to the assessee on the basis of dumb document.

A transporter or agent can shift his burden by leading evidences regarding actual owner of the assets. In such a situation undisclosed income if any, can be assessed in the hands of the actual owner and not in the hands of the agent. In case the transporter or agent fails to prove the identity of actual owner, presumption of undisclosed income can be drawn against him.

As per departmental internal instructions, computer hardware/laptop is not required to be seized but seizure is required to be made of hard disk or other electronic devices on which data has been stored. As per normal practice adopted now-a-days, computer hardware/laptop is released after seizing hard disk or other electronic device containing data. Copy of such hard disk/other electronic device is also given to the assessee at his request.

Yes, copy of documents or books of account seized in an illegal action can be retained by the department. Such evidences may be made use of by the department wherever required and deemed appropriate in terms of the law.

Yes, as per section 132(9) assessee has right to get copies of the documents or books of account seized from his possession from the authorized officer immediately after search. But there is no time limit prescribed for this purpose and, in practice, it has been observed that such copies are seldom supplied by the authorized officer. Assessee gets such photocopies later on from the Assessing Officer when notices for filing returns of income u/s 153A are received by him.

In case disclosed assets are seized by the authorized officer for want of satisfactory evidences produced by the assessee in the course of search, such assets cannot be released by the authorized officer but may be released by the Assessing Officer. Assessee can move application to the Assessing Officer within 30 days from the end of the month in which seizure was made with all the evidences for release of such assets. Such assets can be released by the Assessing Officer with the approval of CIT but after adjusting any existing tax liability under all the Direct Tax Acts, if any outstanding for payment by the assessee.

After amendment to section 132B, cash seized can not be treated and adjusted towards advance tax payment. However, cash seized can be adjusted towards the self assessment tax liability.

No, seized assets cannot legally be retained on the above ground and department is required to release assets immediately after payment of all the tax liabilities.

Yes, it is possible and CBDT has issued Instruction No. 286/97/2003 dated 3-3-2004 prescribing procedure for release of jewellery against deposit of cash or furnishing of bank guarantee of equivalent amount.

No, there is no such provision u/s 132A to grant opportunity to the assessee before issuing authorization for requisition.

Yes, a person against whom requisition has been authorized is required to be assessed or reassessed for earlier six years in accordance with the provisions of section 153A.

There is no deeming fiction of “undisclosed income” relating to “specified previous year” as given u/s 271AAA, applicable in the case of requisition. Since no penalty u/s 271AAA is attracted in the case of requisition, there is no need of making declaration by the assessee and therefore provision of section 132(4) is also not applicable in the case of requisition. There is no immunity from penalty u/s 271(1)(c) for undisclosed income relating to earlier years irrespective of declaration made by the assessee during search.

Jewellery, with respect to which there is evasion of wealth tax, can be seized for recovery of wealth tax liability since action of search is generally taken jointly under the Income-tax Act and Wealth-tax Act.

No, there is no immunity from penalty by making declaration of undisclosed income relating to earlier years in the course of search. For any concealment of income relating to earlier years, penalty provisions u/s 271(1)(c) shall be attracted.

This is an established principle that there is no estoppel against law. When there is no specific provision under the Act for such immunity, assessee cannot claim it on the basis of the manner of his declaration.

As per section 271AAA there is deeming fiction of undisclosed income and the income relating to current year not recorded in the regular books of account may also be treated as undisclosed income on which penalty at the rate of 10% of such undisclosed income may be attracted as provided u/s 271AAA. By making declaration of undisclosed income during search in the manner as provided under sub-section (2) of section 271AAA, assessee can get immunity from such penalty.

Penalty provision u/s 271AAA has been discontinued in respect of search initiated on or after 1.7.2012 and new provision of section 271AAB has been enacted wherein there is no immunity from penalty but two rates of penalty have been given for different situations.

As per amendment made by Finance Act, 2010 there is one opportunity available to the assessee for making settlement of cases relating to search subject to conditions spelt therein.

Finance Act, 2021 has abolished the institution of Settlement Commission and with effect from 1st February, 2021 no new application may be filed for settlement. Therefore such option is no longer available to the searched person.

It will depend on the facts and circumstances of the case. It cannot be said that it would always be advantageous for the assessee to approach the Settlement Commission. Decision will have to be taken by the assessee after weighing all the pros and cons relating to above issue.

No, levy of interest is a mandatory requirement provided under the Act and it cannot be waived by Settlement Commission.

Yes, Settlement Commission has discretion to grant immunity from penalty and prosecution as prescribed under Income-tax Act and Wealth-tax Act, in appropriate cases.

No, order of Settlement Commission is final and binding and no appeal with the High Court/Supreme Court can be filed against such order.

Yes, as per requirement of the provision of section 153A, a person who has been searched is mandatorily required to be assessed or reassessed for earlier six years.

No, the concept of assessment/reassessment u/s 153A is entirely different from the concept of block assessment and it is not assessment/reassessment of undisclosed income found as a result of search only.

Broadly speaking, nature of assessment/reassessment for earlier six years in pursuance to notice u/s 153A shall be governed by normal provisions of the Act and the additions can be made as applicable in the case of assessment u/s 143(3) or in the case of reassessment u/s 147/148 as the case may be.

No, there is no separate form prescribed for this purpose. Income Tax return is required to be filed on the same form as applicable in the normal course mentioning that the return is being filed in pursuance to notice u/s 153A.

Such proceedings shall abate and shall in a way be merged with the new proceedings to be undertaken in pursuance to notice u/s 153A.

Such other person can be assessed or reassessed for earlier six years as per provisions of section 153C in case evidences found during search belong to such person. In case there is undisclosed income emanating from the evidences belonging to the person searched but such evidences do not belong to the other person, such undisclosed income can be assessed or reassessed in the hands of such other person as per provisions and principles of section 147/148 and not as per provisions of section 153C.

Yes, as per provisions of section 153C, in case a person is covered within the ambit of such provision, he is required to be assessed or reassessed in the same manner as the person searched in accordance with the provisions of section 153A. However, Hon’ble Supreme Court has laid down in the case of CIT v. Sinhgad Technical Education Society 397 ITR 344 (SC) have held that only that year would be subject to assessment u/s 153C relating to which incriminating material has been found.

There is no time limit prescribed under the Act for invoking provision of section 153C. However, as per various judicial pronouncements, notice u/s 153C should be issued before passing order in the case of person searched u/s 153A or within reasonable time.