Search and Seizure [Section 132]

Section 132 of the Income Tax Act empowers tax authorities to conduct searches and seize undisclosed income, assets, or documents to combat tax evasion. This is one of the most stringent provisions under the Act, allowing the Income Tax Department to take direct action against tax evaders.

1. When Can a Search Be Conducted?

A search can be initiated if the Principal Director General, Director General, Principal Chief Commissioner, Chief Commissioner, Principal Director, or Director of Income Tax has “reason to believe” that:

• A person has failed to disclose incomeor evade taxes.
• Any books of accounts, documents, money, bullion, jewellery, or other valuable itemsare hidden and represent undisclosed income.
• The information is based on intelligence inputs, complaints, or other credible sources.

2. Authority & Procedure for Search

• Authorization Required: A search warrantmust be issued by a senior officer (Joint Director or above).
• Who Can Conduct Search?Authorized officers (Income Tax officials, police, or other authorized persons).
• Powers During Search:
  • Enter and search any building, place, vehicle, or locker.
  • Break open locksif necessary.
  • Seizeundisclosed cash, jewellery, documents, or other assets.
  • Examine personspresent and record statements.
  • Restrain a personfrom leaving during the search if needed.

3. Seizure of Assets

• What Can Be Seized?
  • Cash, jewellery, bullion, or other valuablessuspected to be undisclosed income.
  • Books of accounts, documents, digital data(pen drives, hard disks).
• Limits on Seizure:
  • Jewellery up to 500g per married woman & 250g per unmarried womanis exempt (if explained).
  • Cash below ₹2 lakhmay not be seized if properly accounted for.

4. Post-Search Procedures

• Panchnama: A witnessed inventory(panchnama) must be prepared.
• Retention Period:
  • Seized assets can be retained for 30 days(extendable with approval from higher authorities).
  • After assessment, assets can be adjusted against tax duesor returned if no liability is found.
• Assessment:
  • A special assessment under Section 153Ais triggered for 6 previous years + current year.

5. Rights of the Person Being Searched

• Right to Verify Warrant: The taxpayer can ask for the search authorization.
• Right to Legal Representation: Can consult a lawyer during the search.
• Right to Receive Copy of Panchnama: Must be provided after the search.
• Right to Object to Illegal Seizure: Can challenge wrongful seizure in court.

6. Consequences of Search & Seizure

1. Tax & Penalty: Undisclosed income is taxed at 60% + 25% surcharge + cess (effective ~78-83%)under Section 115BBE.
2. Prosecution: In severe cases, criminal prosecution(under Section 276C/277) may apply.
3. Special Assessment: Mandatory reassessment for 7 years (6 past + current year)under Section 153A.

7. Judicial Safeguards Against Misuse

• Reason to Believe: The tax department must have credible information, not just suspicion.
• High Court/Supreme Court Intervention: Taxpayers can challenge illegal searches.
• Prior Approval Needed: Senior officers must authorize the search.