Section 132: Search and Seizure Under Income Tax Act, 1961

Section 132 of the Income Tax Act, 1961, empowers the Income Tax Department to conduct search and seizure operations to uncover undisclosed income, assets, or wealth. This provision is a critical tool for the department to combat tax evasion and ensure compliance with tax laws. Below is a detailed explanation of Section 132:

OFFICER AUTHORIZED FOR SEARCH AND SEIZURE

Who is authorized to issue orders for search and seizure?

• the Director General of Income Tax, or
• the Director of Income Tax, or
• the Chief Commissioner of Income Tax, or
• the Commissioner of Income Tax, or
• any such Joint Director or Joint Commissioner of Income Tax as may be empowered by the Board.

The Director General, Director, Chief Commissioner, Commissioner, Joint Commissioner, or Joint Director empowered by the Board can authorize officers subordinate to them, not below the rank of Income Tax Officer, to conduct searches. The authorized officer issues a search warrant in Form 45.

CIRCUMSTANCES FOR SEARCH AND SEIZURE

Under Section 132(1), a duly empowered authorized officer possessing information must have reasonable grounds to believe that:

a) A person to whom a summons under section 131(1)or a notice under section 142(1)has been served has failed to produce or caused to produce the requested books of accounts or documents, or

b) A person to whom a summons under section 131(1)or a notice under section 142(1)may be issued is unlikely to produce or cause to produce any relevant books of account or documents, or

c) A person is in possession of undisclosed money, bullion, jewelry, or other valuable assets, representing undisclosed income or property.

KEY PROVISIONS OF SECTION 132:

1. Authority to Conduct Search and Seizure:
   • The Director General, Director, Chief Commissioner, Commissioner, or any authorized Joint Director, Deputy Director, or Assistant Directorcan authorize a search and seizure operation.
   • The authorization is based on “reason to believe”that:
     • The person is in possession of undisclosed income, assets, or wealth, or
     • The person has not disclosed income or assets to evade tax.

2. Grounds for Search and Seizure:
   • The authorized officer must have reason to believethat:
     • The person has failed to produce books of accounts or documents as required under the Income Tax Act.
     • The person is in possession of money, bullion, jewelry, or other valuable items that represent undisclosed income or assets.

3. Procedure for Search and Seizure:
   • Search: The authorized officers can enter and search any building, place, or vessel where they suspect undisclosed income or assets are kept.
   • Seizure: During the search, the officers can seize:
     • Money, bullion, jewelry, or other valuables.
     • Books of accounts, documents, or assets that may be useful for investigation.
   • Restraint Order: If seizure is not feasible, the officer can issue a restraint order to prohibit the person from dealing with the assets.
4. Examination of Persons:
   • The authorized officer can examine any person found in possession of undisclosed income or assets.
   • The person can be required to provide information or explanations regarding the assets or income.
5. Retention of Seized Assets:
   • Seized assets can be retained for up to 180 days(6 months).
   • If further investigation is required, the retention period can be extended with the approval of the Principal Chief Commissioneror Chief Commissioner.
6. Release of Seized Assets:
   • The seized assets can be released if the taxpayer provides adequate security or pays the tax liability determined by the department.
7. Appeal and Revision:
   • The taxpayer can appeal against the search and seizure action before the Commissioner (Appeals)or the Income Tax Appellate Tribunal (ITAT).

POWERS OF THE AUTHORIZED OFFICER FOR SEARCH AND SEIZURE

The officer to whom authority is granted for search and seizure possesses the following powers:

a) Enter and search any building, place, vessel, vehicle, or aircraft where there is reasonable suspicion that books of accounts, documents, money, bullion, jewelry, or other valuable items are kept.

b) Break open the lock of any door, box, locker, safe, almirah, or other container if the keys are not available, to exercise the aforementioned powers.

c) Search any person who is in or around the premises if there is reason to suspect that they possess any of the aforementioned items.

d) Require any person found in possession or control of electronic records in the form of books of account or other documents to facilitate inspection.

e) Seize any books of account, documents, money, or other valuable items found during the search. However, as of June 1, 2003, the officer cannot seize bullion, jewelry, or valuable items constituting stock-in-trade; instead, they must make note or inventory of such items.

f) Place identification marks on books of account or documents, or make extracts or copies from them.

g) Make a note or inventory of any money, bullion, jewelry, or other valuable items found during the search.

ADDITIONAL POWERS OF THE AUTHORIZED OFFICER

a) Deemed Seizure: If it`s impractical to physically seize valuable items due to volume, weight, or dangerous nature, the officer may issue an order restricting the owner from dealing with the item without permission, which will be deemed as seizure.

b) Restraint Order: If seizing certain items is not possible, the officer can issue an order restricting the owner from dealing with them without permission.

c) Power to Requisition: The officer can requisition the services of police or central government officers for assistance during the search.

d) Examination on Oath: The officer can examine any person found in possession of relevant items under oath, and statements made can be used as evidence.

e) Presumption of Ownership: Certain presumptions regarding ownership and truthfulness of documents are established.

f) Retention of Seized Items: Seized items must not be retained beyond 30 days without written approval from higher authorities.

g) Copies of Extracts: The person from whose custody items are seized may make copies or extracts under supervision.

h) Handing Over Seized Items: Seized items must be handed over to the assessing officer within 60 days.

These powers and procedures govern the requisition of books of accounts and documents under Section 132.

When invoking such power under Rule 112D:

The Director General, Chief Commissioner, or Commissioner may invoke this power when:

i) A person who was issued a summons under section 131(1)or a notice under section 142(1)fails to produce the required books of account or documents, and these items have been taken into custody by another officer or authority under different laws.

ii) There is reason to believe that certain books of account or documents will be relevant to proceedings under the Act, but the person to whom summons or notices have been issued will not produce them upon return from custody under other laws.

iii) Assets seized under other laws represent undisclosed income or property for the purposes of the Act.

APPLICATION OF SEIZED OR REQUISITIONED ASSETS (SEC 132B)

Seized assets are dealt with as follows:

• They may be applied towards existing and future liabilities.
• Seized assets may be released after meeting existing liabilities in certain cases.
• Money seized may be applied to discharge liabilities.
• Assets other than money may also be used to discharge liabilities.

Excess assets seized must be returned.

Interest is payable at the rate of 0.5% per month or part of the month on the aggregate sum of:

1. a) Seized money reduced by any released amount, and
2. b) Proceeds of assets sold to discharge liabilities.

Interest accrues from the expiry of 120 days from the execution of the last authorization for search until the completion of assessment under section 153A or block assessment.

CONSEQUENCES OF SEARCH AND SEIZURE:

1. Assessment of Undisclosed Income:
   • The department will assess the undisclosed income or assets seized during the search.
   • The taxpayer will be required to pay tax, interest, and penalties on the undisclosed income.
2. Penalties:
   • Penalties under Section 271AABmay be imposed for undisclosed income detected during the search.
3. Prosecution:
   • In cases of serious tax evasion, the taxpayer may face prosecution under the Income Tax Act.

RIGHTS OF THE TAXPAYER:

1. Right to Information:
   • The taxpayer has the right to know the reasons for the search and seizure.
   • A copy of the Panchnama must be provided to the taxpayer.
2. Right to Legal Representation:
   • The taxpayer can consult a legal or tax professional during the search.
3. Right to Appeal:
   • The taxpayer can appeal against the search and seizure action or the assessment of undisclosed income.

Practical Example:

• Suppose the Income Tax Department receives credible information that a businessman has accumulated undisclosed income in the form of cash and jewelry. Based on this information, the department authorizes a search and seizure operation at the businessman’s premises.
• During the search, the officers find ₹1 crore in cash and jewelry worth ₹50 lakh, which the businessman cannot explain satisfactorily.
• The department seizes the cash and jewelry and initiates proceedings to assess the undisclosed income. The businessman is required to pay tax, interest, and penalties on the seized assets.