Survey, Search And Seizure
The relevant provisions are contained in section 133A of
the Income-tax Act. The Income-tax Department may take recourse to these
provisions to verify whether the Income-tax returns filed/to be filed by an
assessee are inconsistent with the books, documents, cash, stocks or other
assets in physical possession with the assessee. For example, the assessee may
be in possession of stocks which is far in excess of stocks disclosed in the
last return of income even after making adjustments for purchases and sales
during the intervening period. This may be on account of under reporting of
inventories and consequently income chargeable to tax. This would be detected
during the process of survey.
It may be noted that unlike section 132, for taking action
under these provisions, it is not necessary that the Income-tax Authorities
should have any information to the effect that an assessee is in possession of
undisclosed assets, etc.
The powers of survey are with ‘Income-tax authority’,
meaning Chief Commissioner, Joint Commissioner, Director and Joint Director.
Also the powers may be exercised by Assistant Director, Deputy Director,
Assessing Officer and Tax Recovery Officer, and for specified provisions, also
Inspector of Income-tax, only after taking approval of Joint Director/Joint
Normally the decision to conduct a survey is taken by
Assessing Officer who is also involved in actual conduct of survey.
For the purposes of survey, an income-tax authority may
assigned to him, even if jurisdiction over the case is with another officer,
occupied by a person over whom he has jurisdiction, even if outside the area
assigned to him.
He may also delegate necessary powers to another Income-tax
authority for the purpose of these provisions.
Time and place
The powers are
given to conduct survey at a place at which business (including profession)
is carried on, which need not be the Principal place, as also other place at
which books of account, documents, cash, stock or other valuable article
relating to business are stated to be kept.
Hence, while survey cannot be done at residential premises, such premises
will get covered if books, etc. relating to business is stated to be kept
authority can enter a place of business for this purpose only during hours
at which such place is open for conduct of business. As regards the other
place at which books, etc. are stated to be kept, the entry can be only
after sunrise and before sunset.
Income-tax authority enters the place, there is no restriction regarding the
time by which the proceedings need to be completed.
normally contemplated at the place where business of the assessee is
conducted and not at his residence or business places of his consultants
(Circular dated 3rd May, 1967).
Powers of the Income-tax authority
The Income-tax authority is entitled to:
of account/documents, place identification marks thereon, get copies
thereof, or, after recording reasons for doing so, impound them. However,
they cannot be retained by him for more than 10 days unless necessary
approval is obtained from Chief Commissioner/Director General.
stock or other valuable article or thing and make inventory thereof. These
assets cannot be seized or retained.
information or record statement relating to matters relevant to any
proceedings (including proceedings which are pending/completed or may be
commenced) under the Income-tax Act.
Expenditure on function/ceremony or event
If Income-tax authority considers it necessary having
regard to nature and scale of expenditure in connection with a function,
ceremony or event, it may, after the function, ceremony or event, it may seek
information from or record statement of any person likely to possess necessary
information in relation thereto.
verify the identity of the Income-tax authority and during the process of
survey needs to be vigilant to ensure that the Income-tax authority does not
make an inventory or record statement which is incorrect and detrimental to
the interests of the assessee.
The assessee is
expected to co-operate and allow the Income-tax authority the facility to
carry out their duties.
However, acts of the
following nature, by the Income-tax Authority, may be considered high-handed
premises or enforcing stoppage of business
movement of persons to/from the place being surveyed.
disclosure of unaccounted income.
of the telephone and not allowing making or receiving of telephone calls.
obtained during survey may lead to search and seizure under section 132 only
if the conditions of that section are satisfied.
Cases in which
survey is conducted are normally selected for scrutiny and the information
gathered as a result of the survey is used for making assessments.
under section 132, Explanation 5 to section 271(1)(c) does not operate.
Hence, in case any unaccounted assets are found during survey, but later
disclosed in return of income, penalty is not leviable merely because these
were found during survey.
The Income Tax
Officer can inspect the business premises and record statements under the
provisions of Section 133A. But such an Authority cannot demand collection
of tax on the alleged undisclosed income then and there.
SEARCH AND SEIZURE
The relevant provisions are contained in section 132 of the
Income-tax Act. Search and seizure proceedings amount to serious invasion of
right to privacy and right to possess property. Hence, it is necessary that
these proceedings are carried out strictly within the framework of the
The prerequisite for action under this section is that the
concerned authority has information which provides a reason to believe that:
A person has
failed or will fail to produce books of account or documents required from
him by issue of summons under section 131 or notice under section 142 or
possesses money, bullion, jewellery or other valuable asset which represent
income or property which he has not disclosed or will not disclose for the
purposes of the Income-tax Act (undisclosed income or property).
Information to the effect that a person possesses large
amount of cash would not suffice in absence of information to the effect that
it is not disclosed or will not be disclosed. Also the information should
exist when the authorization is issued and authorization cannot be justified
with reference to findings in search. Reference may be made to decision of
Delhi High Court in case of Ajit Jain vs. Union of India (2001) (159
CTR 204, 242 ITR 305), decision of Bombay High Court in case of Diamondstar
Exports Limited vs. Director General of Income-tax (143 Taxman 16) and of
Allahabad High Court in case of Suresh Chand Agarwal vs. Director General
of Income-tax (269 ITR 22).
The powers under the section are vested in Director
General, Director, Commissioner or Chief Commissioner or Joint Director or
Joint Commissioner empowered by the Board.
These authorities may authorize Assistant Director, Deputy
Director, Assistant Commissioner or Deputy Commissioner to conduct the search
and seizure operations.
Further, the Director General, Director, Commissioner or
Chief Commissioner may also authorize Joint Director or Joint Commissioner or
Additional Director, Additional Commissioner or Assistant Director or Deputy
Director or Assistant Commissioner, Deputy Commissioner or Income Tax Officer
for this purpose. (Authorized persons referred to as Authorized Officer).
Action under the section is to be taken by the
Commissioner/Chief Commissioner who has jurisdiction over the concerned
In case books, assets, etc. relating to such person are
kept in a building, place, vessel, or vehicle located within the area of
jurisdiction of another Commissioner/Chief Commissioner, the proper procedure
would be to grant necessary authorization to the other Commissioner/Chief
Commissioner. However, the other Commissioner/Chief Commissioner is entitled
to act even without such authorization if he has reason to believe that delay
in getting authorization may be prejudicial to the interests of the revenue.
Commissioner/Chief Commissioner who has information to
suspect that any books/documents/undisclosed income or property are kept in
building, vessel, vehicle or aircraft not mentioned in authorization issued by
another Income-tax authority, he may issue authorization in respect of such
building, vessel, vehicle or aircraft.
Powers of the Authorized Officers
Unlike action under section 133A which is generally
restricted to business place, action under section 132 can cover any building,
including residential buildings, place, vessel, vehicle or aircraft.
The action can commence at any time of day or night.
If keys are not available, authorized officer may break
open lock of door, box, locker, safe, almirah or other receptacle.
He may also search a person who has got out of or about to
get into the building, or is in possession of books of account, tangibles,
He may inspect books of account or documents including
He may seize books of account, documents, money, bullion,
jewellery or valuable article or thing, other than stock-in-trade of business.
However, he would not be justified in seizing assets which are disclosed to
the Income-tax Department. Reference may be made to decision of Guwahati High
Court in case of Rajesh Sharma vs. ACIT (168 CTR 231). The seized items
are to be handed over to the Assessing Officer having jurisdiction over the
assessee within 60 days from the date of last authorization. Immovable
property cannot be seized — Reference — Decision of M.P. High Court in case of
Bapurao vs. ADIT (247 ITR 98). The books and documents are not to be
retained beyond 30 days from the date of relative assessment order unless
reasons are recorded and approval is taken from Commissioner/Chief
Commissioner/Director/Director General. Authorized officer is to allow
assessee to take copies thereof.
In case it is not practicable to seize books, documents,
money, bullion, jewellery or valuable article or thing, the Authorized Officer
may serve a prohibitory order to the effect that such asset (other than
stock-in-trade) shall not be removed or dealt with without his permission.
Except as regards valuable article or thing not seized on account of their
physical characteristics, the order shall not be considered as seizure and
shall be in force for up to 60 days.
He may place marks of identification on books or documents
or get copies thereof and also make inventory of money, bullion, jewellery or
valuable article or thing.
The Authorized Officer may requisition services of police
or other officer for this purpose.
He may examine on oath any person found in possession of
books, documents, money, bullion, jewellery or valuable article or thing.
There is rebuttable presumption that these assets belong to him and that
contents of the books/documents are true.
Application of seized/requisitioned assets
Mukundrai Shah (269 ITR 529).
This is dealt with in section 132B.
Application may be made to Assessing Officer within 30 days
of the end of the month of seizure for release of assets and the assets may be
released with the approval of Commissioner/Chief Commissioner if Assessing
Officer is satisfied regarding the nature and source of acquisition thereof,
after recovery of any existing tax liability. The release should be within 120
days from the date of execution of last authorisation.
Remaining assets are to be forthwith released after
recovery of existing liability under Income-tax Act, Wealth-tax Act, etc. as
also liability for tax, interest and penalty arising on completion of
assessments made in consequence of the search.
Assessing Officer may recover tax demands out of cash
seized or sale of assets.
Interest at 6% is payable on excess of money seized (less
amount released) and sale price of assets sold over the amount of liability
after exclusion of period of 120 days.
Assets cannot be retained for meeting potential
liabilities. Reference may be made to decision of Calcutta High Court in case
Sections 153A/153B/153C deal with assessments in pursuance
Irrespective of findings in search and irrespective of
whether assessments are already made for these years, there will be fresh
assessments in pursuance of search for six assessment years preceding the
assessment year relevant to the previous year of search. Assessments pending
on the date of initiation of search shall abate.
Notice will be issued by Assessing Officer to the person in
whose case the search is carried out, requiring him to furnish returns for
In an assessment or reassessment made in respect of an
assessment year u/s.153A, the tax shall be chargeable at the rate or rates
applicable to such assessment year.
Assessments shall be made within 21 months from the end of
the year of execution of last authorization subject to extended limitation
applicable in cases of stay by a court/audit under section 142/fresh
opportunity of hearing under section 129/applications to Settlement Commission
or Authority for Advance Ruling.
If Assessing Officer is satisfied that the seized items
belong to another person, the relative items shall be handed over to Assessing
Officer having jurisdiction over the other person and he shall undergo similar
proceedings. In his case, assessments pending on date of receipt of relative
items by his Assessing Officer shall abate. Extended limitation for assessment
shall apply in his case.
entitled to verify identity of the search party and search them and also
verify search warrant. Proceedings are to be conducted in the presence of
two witnesses and copy of Panchnama is to be given to assessee.
do not contain power to make arrest. Children are allowed to go to school
after search of their bags. Courts have frowned upon practice not to allow
doctors to attend to emergencies. Medical attention and meals are to be
allowed to assessee or his family members.
to be vigilant to ensure that the Income-tax authority does not make an
inventory or record statement which is incorrect and detrimental to the
interests of the assessee.
request for release of assets after furnishing bank guarantee or making
payment of tax demands, especially in cases of assets which assessee wants
to sell to take advantage of good market price or in cases of financial
assets which have matured.
section 132 cannot be stopped by Civil Court.
weighing up to 500 grams per married female member, 250 grams per unmarried
female member and 100 grams per male member are not seized by executive
instructions, even if assessee is not able to furnish any evidence regarding
nature and source of acquisition. Similarly, ornaments up to gross weight
declared in wealth-tax return should not be seized.
during search may be used by Department although search is held to be