What is the Object of
search?
S.132 elaborates the
circumstances under which a search and seizure action can be undertaken.
As per the section 132, a search
and seizure action can be undertaken against any person is in possession of any
money, bullion, jewellery or other valuable article or thing and such money,
bullion, jewellery or other valuable article or thing represents either wholly
or partly income or property which has not been disclosed or would not be
disclosed for the purpose of this Act (i.e to unearth undisclosed income or
property)
The search and seizure action can
also be taken when there is failure to produce books of accounts, documents
etc. in respect of summons issued or notice issued under section 143(2).
2.2. Non-residents.
Ram Kumar Dhanuka v. UOI
(2001) 252 ITR 205 (Raj)(HC), The court held that, even a non-resident
Indian can be subjected to a search under this section if the department has
definite information that the person concerned has income earned in India which
may be taxable under the Act and which might not have been disclosed or would
not be so declared.
2.3. Recovery of tax at
pre-assessment stage.
Section 132 relates to the
pre-assessment stage, and it cannot be invoked after an assessment is made to
recover the tax due. There can be no question of making a seizure under section
132 of the Act and proceeding further under the provisions of that section,
once an assessment is completed”.
K.Choyi v. Syed Abdulla
Bafakky Thangal & Ors. (1980) 123 ITR 435 (SC) (437)
2.4. No arrest or detention
can be made under this section.
2.4.1.Mere failure
to disclose property purchased is not enough. No power to arrest or restraint
in movement of individual.
“There is no power contained in
the Act or the Rules where by the movement of a person against search is
ordered can be restricted. By refusing to give permission to the
petitioner to attend his work in effect, it amounted to his confinement
which is not permissible in law”.
L. R. Gupta & Ors. v.
UOI (1992) 194 ITR 32 (Delhi) (HC) (55) [SLP granted (1992) 194 ITR 239 (St)].
2.4.2.Search and Seizures:
New ground rules (1986) 159 ITR 1-4 (Journal) also reads as under,
there is a growing tendency among
investigating officers (either police or other departments) to inform the
media, before the completion of investigation, that they have caught a criminal
or an offender. Such crude attempts to claim credit for imaginary
investigational breakthrough should be curbed
8. Arrests- The
power of arrest vests with the Customs, Central Excise and Enforcement
Officers. Income-tax Officers have no powers of arrest. Arrests are generally
resorted to in cases where the detected offence is of a serious nature and the
case appears to be fit for criminal prosecution. Persons are generally not
arrested when the intention is only to have departmental proceedings. Persons
are arrested when there is a gravity of offence, evidence of personal
culpability, a strong and prima facie case and a likelihood of person tampering
with evidence by remaining at large or absconding.
3. Can survey be converted
in to search?
3.1. Under normal
circumstances, “no”. However, in exceptional cases, “yes”.
- A survey undertaken under section
133A can be subsequently converted into a search if the conditions of this
section are satisfied.
Vinod Goel v. UOI (2001)
252 ITR 29(P&H)(HC)(40)
- Where survey action u/s 133A was
taken at the business and consequent search u/s 132 was authorised at the
residential premises without recording independent reasons for satisfaction,
the search was declared illegal.
Dr. Nalini Mahajan and
others v. DIT (Inv)(2002) 257 ITR 123 (Delhi)(HC)
- Survey operation converted into
search and seizure – No reason given for such conversion – No independent
application of mind –Search and seizure operation was held to be invalid –
Hospital premises belongs to Trust and not assessee.
Jinesh Farshubhai Kakad v.
DIT (Inv.) (2003) 264 ITR 87 (Gau.)(HC)
Dr. Pratp Singh and Anr v.
Director of Enforcement and ors (1985)155 ITR 166 (SC)
“Illegality of a search does
not vitiate the evidence collected during such illegal search. The only
requirement is that the Court or the authority before which such material or
evidence is placed has to be cautious and circumspect in dealing with such
material or evidence”
Prakash V. Sanghvi v.
Ramesh G., Major, DDIT (Inv.) (2013) 356 ITR 426 (Karn) (HC), the
court held that in case of trespassing of assessee’s property, the delinquent
officers may be prosecuted by a competent Criminal court. However, warrant
issued was held to be valid.
The Act does not invest in the
Deputy Director, the power to have a camp office at the residence of the
assessee and call the assessee’s attendance in connection with proceedings
under the Act. The allegation that the Deputy Director trespassed into the
house of the assessee and, thereafter, issued the notice to him was not
controverted. Therefore, the Deputy Director without the authority of law,
having trespassed into the house of the assessee deserved to be prosecuted
before a competent criminal court, if so advised.
DCIT v Mahesh Kumar Agrawal
(2003) 262 ITR 338 (Cal) (HC)
Before issue of warrant of
authorisation, they record the satisfaction and reasoning. Court cannot sit
in appeal over the opinion formed. Existence of materials to be looked into,
Court has to examine whether on such material a reasonable man can form
opinion. Change in life style of assessee not a material for purpose of
formation of opinion.
4. Taxpayer’s Charter –
Rights and duties of the persons searched (1994) 208 ITR 5 (St.)
Rights of the person searched –
(i) To see the warrant of
authorisation duly signed and sealed by the issuing authority.
(ii) To verify the identity of each member of the search party.
(iii) To have at least two respectable and independent residents of the
locality as witness.
(iv) To have personal search of all members of the search party before the
start of the search and on conclusion of the search.
(v) To insist on a personal search of female members by another female
member only with strict regard to decency.
(vi) To have a copy of panchnama together with all the annexures.
(vii) To put his own seals on the packages containing the seized assets.
(viii) A woman occupying any apartment etc., to be searched, has the right to
withdraw before the search party enters, if according to the customs he does
not appear in public.
(ix) To call a medical practitioner if he is not well.
(x) To have his children permitted to go school, after examining of their
bags.
(xi) To inspect the seals on various respectable placed in the course of the
search and subsequently reopened by continuation of search.
(xii) To have the facilities of having meals etc., at the normal time.
(xiii) To have a copy of any statement before it is used against him in an
assessment or prosecution proceedings.
(xiv) To inspect books of account etc. seized or to take extracts there from in
the presence of any of the authorised officers or any other person empowered in
this behalf.
(xv) To make application objecting to the approval given by the Commissioner
for retention of books and documents beyond 180 days from the date of seizure
Duties of person searched:-
(i) To allow
free and unhindered ingress in to the premises.
(ii) To see the warrant of authorisation and put signatures on the same.
(iii) To identify all receptacles in which assets or books of account and
documents are kept and to hand over keys to such receptacles to the authorised
officer.
(iv) To identify and explain the ownership of the assets, books of account and
documents found in the premises.
(v) To identify every individual in the premises and to explain their
relationship to the persons being searched. He should not mislead by
impersonation. If he cheats by pretending to be some other person or knowingly
substitutes one person for other, it is an offence punishable under section 416
of the Indian Penal Code.
(vi) Not to allow or encourage the entry of any unauthorised person in the
premises.
(vii) Not to remove any article from its place without notice or knowledge
of the Authorised Officer. If he secrets or destroys any document with the
intention of preventing the same from being produced or used as evidence before
the Court or public servant, he shall be punished with imprisonment or fine or
both, in accordance with section 204 of the Indian Penal Code.
(viii) To answer all questions truthfully and the best of his knowledge. He
should not allow any third party to either interfere or prompt while his
statement is being recorded by the Authorised Officer. In doing so, he should
also keep in mind that:-
(a). If he refuses to answer a
question on a subject relevant to the search operation, he shall be punishable
with imprisonment or fine or both, under section 179 of the Indian Penal Code.
(b). Being legally bound by an oath or affirmation to state the truth or
affirmation to state the truth, if he makes a false statement, he shall be
punishable with imprisonment or fine or both u/s 181 of the Indian Penal Code.
(c). Similarly, if he provides evidence which is false and which he knows or
believes to be false, he is liable to be punished u/s 191 of the Indian Penal
Code.
(viii). To affix his signature
on the recorded statement, inventories and the panchnama.
(ix) To ensure that peace is maintained
throughout the duration of the search, and to co-operative with search party in
all aspects so that the search action is concluded at the earliest and in a
peaceful manner.
(x) Similar co-operation should be
extended even after the search action is over, so as to enable the Authorised
Officer to complete necessary follow-up investigations at the earliest.
The Search manual also contains the
Instruction No. 1916 dated 11-05-1994 which lays down the following guidelines
for seizure of Jewellery:
1. In the case of a Wealth Tax
assessee, gold jewellery and ornaments found in excess of the gross weight
declared in the wealth tax return only need be seized.
2. In the case of a person not
assessed to wealth tax, gold jewellery and ornaments to the extent of 500 gms
per married lady, 250 gms per unmarried lady and 100 gms per male member of the
family, need not be seized.
4.10. CIT v. Ratanlal
Vyaparilal Jain (2011) 339 ITR 351 (Guj) (HC), the Court held that the
approach adopted by the Tribunal considering the extent of jewellery specified
under the said circular to be a reasonable quantity cannot be faulted with.
Addition made under section 69 was deleted.
Sunil Batra v. Delhi
Administration, AIR 1978 SC 1675.
6. Stock in trade cannot be
seized
6.1. S.132(1)(iii). Seize
any such books of account, other documents, money, bullion, jewellery or other
article or thing found as a result of such search.
Provided that bullion, jewellery or
other valuable article or thing being stock in trade of the business, found
as a result of such search shall not be seized but the authorised officer
shall make a note or inventory of such stock in trade of the business. (w.e.f.
1-06-2003-Finance Act, 2003)
As per the third proviso to section
132 1)(v), stock in trade cannot be seized even in case of deemed seizure given
in the second proviso.
7. Validity of search
7.1.If the search
is not in accordance with the law, it can be challenged by way of a writ. The
burden to prove so is on the assessee. Before approaching the court, assessee
must be very cautious. As per section 132(13), the provisions of the Code of
Criminal Procedure 1973, relating to search and seizure apply as far as may be
applicable, to search and seizure proceedings under the Income–tax Act, 1961.
7.2.
Where there is no rational nexus between the information on record and reason
to believe that books of account or other documents would not be produced or
the assets representing the income will not or would not be disclosed.
H. L. Sibal v. CIT (1975)
101 ITR 112 (P&H) (HC)
7.3. Where the
search is directed on the basis of information that a particular person is in
possession of various assets etc., without any reason to believe that those
assets represent concealed income of that person – Probe into the wealth of
assessee – Non application of mind –Search and seizure action was held to be
illegal.
Anand Swaroop v. CIT (1976)
103 ITR 575 (P&H) (HC)
7.4. Where there
is no application of mind by the Officers of the department who authorised the
search, search was held to be not valid.
Dwaraka Prasad Agrwalla v.DIT (1982) 137 ITR 456(Cal.)(HC)
7.5. Where the
information on the basis of which a search is conducted on based on conjectures
and surmises or on vague information.
Mere rumour that Doctor was charging high fees and living in posh house –
Search and seizure was held to be invalid.
Dr. Nand Lal Tahiliani v.
CIT (1985) 170 ITR 592 (All.)(HC)
Affirmed by Supreme Court in CIT v. Dr. Nand Lal Tahiliani (1988) 172
ITR 627 (SC)
7.7. Where the warrant of authorisation is
blank or proper name and address is not recorded-Blank warrant of authorisation
without filing up the name was issued by the Commissioner-Search warrant was
quashed and the respondents were directed to return the articles recovered from
the possession of the petitioners.
Jagmohan Mahajan & Anr.
v. CIT(1976) 103 ITR 579 (P&H)(HC)
7.8. Sealing of
business premises during the course of survey or section 132,133A, or any other
provision of the IT Act is not permitted, as it would amount to violation of
the fundamental right guaranteed under Article 19(1)(g) &300A of the
Constitution of India.
Shyam Jewellers and another
v. CCIT (1992) 196 ITR 243 (All.)(HC)
8. Alternative remedy-Writ
is not maintainable.
The assessee shall avail and exhaust the remedies available to him/it under the
Act. (A.Ys. 2001-02 to 2006-07)
CIT v. Vijaybhai N.
Chandrani (2013)357 ITR 713(SC)
9. Tribunal cannot consider
validity of Search.
The satisfaction to be reached by the authority issuing a warrant of
authorisation is an administrative function and its validity cannot be called
into question by Assessing Officer or Tribunal.
CIT v. A. K. Bansal (Dr.)
(Individual) (2013) 355 ITR 513(All) (HC)
10. Suit
for damages
10.1. No suit lies
for any damage caused which is unintentional or incidental to the carrying out
of the search action.
11. Violation of human
rights
Interrogation till late night
amounts to “torture” & violation of “human rights” – Officers are held
liable for to pay compensation from their salary
CCIT v. State of Bihar,
Through Chief Secretary (Rajendra Singh) (2012) 205 Taxman 232 / 71 DTR 268 /
250 CTR 304 (Patna)(HC).www.itatonline.org
12.Trail by media.
12.1. When a
survey or search is conducted on a well-known business house or well-known
personality – Based on the report, media houses give their own verdict. But
when the matter is finally decided by the Tribunal after four years, there may
not be any addition sustained by the Tribunal. One can visualise the damage to
the reputation of a person’s business, his family members – especially school
going children.
12.2. Ground
Rules 11:
The raiding party will not make any statement to the press. Statement to the
press if any will be made by the head of the department and will be factual in
nature. It may be necessary in some cases to give out a press note especially
where distorted version have been released to the press by other parties.
12.3. The apex
court in Rajendran Chingaravlelu (Mr) v. R. K. Mishra, Addl. CIT (2010)
320 ITR 1 (SC) (10) observed that “there is a growing tendency
among investigating officers (either police or other departments) to inform the
media, before the completion of investigation, that they have caught a criminal
or an offender. Such crude attempts to claim credit for imaginary
investigational breakthrough should be curbed”
12.4. What
can be done?
If the reports are false, send a
legal notice to the concerned tax officials asking for an appropriate
explanation and media houses may be asked to clarify that the contents of their
information are not correct. Or give a statement in the paid column of a
newspaper clarifying your position. This will help in the appellate proceedings
as well as save you from further damage due to wrong reporting by the media.
13. Right of information
Act, 2005
13.1. Assessee can get the information, which may be useful in
the regular assessment. In one of the matter the notice was issued under
section 158BC. In appeal proceedings the assessee realised that his name may
not be there in the warrant of authorisation. He made an application under
right to Information Act. He received the reply in which his name was not there
in the warrant. This helped him to win the appeal only on technical grounds.
13.2.Similarly in
the reassessment proceedings, in one of the matter it was found that recording
of reason and PAN and address of different person and notice was issued to
another person, because the name was common.
13.3.There could
be number of instances the Right of information Act can help to bring more
transparency in tax administration.
14. Information Technology
Act,2000 – Assent 9th June 2000
If any person is tampering with
computer system he may be liable for penalty. In the course of search, in spite
of receiving co-operation from the assessee, if tax officials tamper with
computer system, they may be held personally liable for penalty.
Section 81 – Acts
to have overriding effect
The provisions of this Act shall
have effect notwithstanding anything inconsistent therewith contained in any
other law for the time being in force; Information Technology Act has
overriding provisions against other Acts.
Section 43:
(Penalty and compensation) for damage to computer, computer system, etc. – If
any person without permission of the owner or any other person who is in charge
of a computer, computer system or computer network.
Section 64:
Offences – Penalty may extent up to 2 lakhs.
16. Whether recording of
entire search or survey be permitted. Modern technology – Whether recordings
collected in sting operation is admissible as evidence in the court?
16.1. S.
Pratap Singh v.The State of Punjab AIR 1964 SC 72.
The tape recording of a
conversation was admitted in evidence, to corroborate the evidence of witnesses
who had stated that such a conversation had taken place.
16.2. Yusufalli Esmail
Nagree v. The State Of Maharashtra, 1968 AIR 147 (SC)
Court held that the contemporaneous dialogue between the appellant and S is
relevant and admissible under s. 8 of the Indian Evidence Act. The process of
tape recording offers an accurate method of storing and later reproducing
sounds. The court must be satisfied beyond -reasonable doubt that the record
has not been tampered with.
16.3. Ram
Singh v. Col. Ram Singh AIR 1986 SC 3 Fazal Ali, J. for the majority
laid down specific guidelines regarding the admissibility of a tape recorded
statement, fine tuning the process as follows:
(1) the voice of the speaker must
be duly identified by the maker of the record or by others who recognise his
voice. In other words, it manifestly follows as a logical corollary that the
first condition for the admissibility of such a statement is to identify the
voice of the speaker. Where the voice has been denied by the maker it will
require very strict proof to determine whether or not it was really the voice
of the speaker.
(2) The accuracy of the tape
recorded statement has to be proved by the maker of the record by satisfactory
evidence direct or circumstantial.
(3) Every possibility of tampering
with or erasure of a part of a tape recorded statement must be ruled out
otherwise it may render the said statement out of context and, therefore,
inadmissible.
(4) The statement must be relevant
according to the rules of Evidence Act.
(5) The recorded cassette must be
carefully sealed and kept in safe or official custody.
(6) The voice of the speaker should
be clearly audible and not lost or distorted by other sounds or disturbances.
16.6. Z.
B. Bukhari v. B. R. Mehra AIR 1975 SC 1788, an election case, Supreme
Court held that the tape records are really ‘documents’ under Section 3 of the
Evidence Act. The court therein reiterated that the same are admissible on
satisfying the following conditions:
"(a) The voice of the
person alleged to bespeaking must be duly identified by the maker of the record
or by others who knew it. (b) Accuracy of what was actually recorded had to be
proved by the maker of the record and satisfactory evidence, direct or
circumstantial, had to be there so as to rule out possibilities of tampering
with the record. (c) The subject matter recorded had to be shown to be relevant
according to rules of relevancy found in the Evidence Act".
DIT (Inv.) v. S. R.
Batliboi & Co. &Ors. (2009) 31 DTR 187 / 227 CTR 238 / (2010) 186
Taxman 350 (SC)
18. S.132B: Application of
seized or requisitioned assets – Moneys in the bank account is not equivalent
to cash cannot be impounded.
Cash in bank is conceptually
different from cash in hand and it is not permissible for the department to
convert asset to cash and thereafter impound it in case of search conducted
under section 132 of the Act. The relationship between the banker and the
customer is not that of trustee and beneficiary but is one of debtor and
creditor.
ITO v. U. K. Mahapatra
& Co. (2009) 225 CTR 131 / 186 Taxman 181 / 27 DTR 155 (SC)
20. Retraction of statement
recent trend
20.1. Very
recently, the Customs and Excise Tribunal, in the case of Sidhharth
Shankar Roy v. Commissioner of Customs, Mumbai 2013 (291) ELT 244 (Trib.) (Mum.)
held that retraction must be addressed to the same officer to whom
confessional statement was given.
21.
Natural Justice
21.1. If the
department relies on certain documents or statements, it is a right of the
assessee to be furnished a copy of the statements and an opportunity for cross
examination. Such requests made before the Tribunal for the first time, may not
be entertained.
21.2. Non-furnishing
of “all documents” does not violate principles of natural justice.
21.4. Question of law –
Statement is on a point of law – Even though such statements are not retracted,
they will not bind the assessee. E.g. I will not claim deduction under section
80IB(10) or will not set off against carried forward losses. This is so because
there is no estoppel against the law.
21.5. Question of fact -
I have received this much amount on money – is a fact. My drawings are this
much is a question of fact.
23. Settlement commission –
Advantages
It may be desirable to approach the
Settlement Commission in appropriate cases, which will save the assessee from
penalty, prosecution. Assessee gets an opportunity to capitalise the amount
disclosed and the matter comes to an end within a reasonable time. In matters
involving bogus purchases, some assesses have approached the Settlement
Commission. The petitions are admitted on the basis of offering of GP. However,
the matters are yet to be finally decided.
24.7. Failure to inform
assessee of reasons for transfer – Objections of assessee to be considered.
Unless a party is informed of the reasons for the proposed action, it would be
impossible for the notice to put forth its point of view with regard to the reasons
for the proposed action. A show-cause notice to be effective must be adequate
so to enable a party to effectively object/respond to the notice and the
authority concerned is obliged to consider the objections, if any. Merely
because the assessee had not specifically asked for a personal hearing it would
not absolve the Revenue of its obligation to ordinarily grant such a hearing.
Shikshana Prasaraka Mandali
v. CIT (2013) 352 ITR 53 / 258 CTR 289/85 DTR 345 / 215 Taxman 191 (Bom.)(HC)
25. Representation
Representation before lower
authorities has to be on facts and not law. E.g. Officer may be desire to make
addition as cash credits which is coming from earlier years. The reply should
be on facts. If AO makes an addition, you may file an appeal before the CIT
(A). Against the order of CIT (A), we may file an appeal before Tribunal . When
Tribunal decides that is the final fact finding authority. Appeal to the High
court will be on substantial question of law. Therefore representation before the
Income tax appellate Tribunal is very important. Once Tribunal decides that is
the final on facts. Assuming the appeal is admitted it may take a decade or
more to get the final hearing of appeals.
26. Practical guide or
check lists after search and seizure and survey – Do’s and don’ts.
Do’s
1. Panchanama-Copy must be obtained immediately.
2. Inventory-Copy must be obtained.
3. Copies of documents seized-Make application to furnish the copies seized.
4. Copies of statements-Make application to furnish copies
5. Factual error-Valuing stock-Inventory etc- Write immediately to the
concerned Officials who have conducted the search or seizure
6. Goods of Perishable in nature if kept under prohibitory order-Ask to release
or sell –If loss is occurred the department is responsible.
7. Adjustment of cash-Ask adjust against tax liability.
8. Disposal of assets seized-Release of assets or sell by the tax department.
9. Damages- File petition for loss due to action of the tax Officials.
10. Retraction- Within reasonable time before the same Officials who have taken
the statement. If required copy to higher authorities.
11. If any valuable or documents of third party is seized-Ask the party
concerned to make an application for release and claiming the ownership.
12. If any documents or statement is proposed to be used against me, ask for
the copies and opportunity for cross examination of the parties who have given
statements.
13. Discuss with consultant possibility of approaching Settlement Commission
advantages and disadvantages.
14. Co-operate with proceedings
Don’ts
1. Goods put under prohibitory order cannot be removed.
2. Never mislead on facts.
3. Don’t try to destroy the documents or books.
Repasted from http://www.itatonline.org/articles_new/index.php/s-132-a-practical-guide-to-the-law-and-procedure-of-search-and-seizure/
