The proposed subject is vast. It encompasses a wide array of principles, a range of possibilities, and a variety of occurrences. Unresolved issues in search & seizure, unresolved issues in search assessments and unresolved issues in surveys constitute separate and distinct topics with some common current running through them. Each is a subject in itself, and requires serious and deep consideration and meticulous handling.

2. Since the subject by itself is vast and unwieldy, the author may be excused for not being able to go in depth on all the facets as are adumbrated hereafter on each one of the above subjects. Only a few points are taken up for exposure and discussion.

Searches

3. Let the case of searches and seizures be taken up first. The death blow to the taxpayers’ attempt to cull searches and seizures and the arbitrary exercise of such power, and the provisions themselves as a colourable device was set to naught by a constitution bench of the Supreme Court in 1967 in the case of Ramkishan Shrikishan Jhaver [66 ITR 664]. The court opined that to check evasion of tax, provision for search and seizure in taxing statutes were necessary. Since the powers were braided with adequate safeguards in terms of section 165 of the Code of Criminal Procedure being made applicable, they could not be considered as conferring an arbitrary power on the State. The court opined that the government would see that officers of proper status were empowered to authorise searches. The court further elucidated, that since the sales tax provisions warranted that, (i) the officer should record his reasons in writing, which has to be done before the accounts are seized, (ii) the dealer should be given a receipt of the seizure, (iii) the accounts, etc. seized, should be retained only so long as may be necessary for their examination and for any enquiry or proceeding under the Act, and (iv) that such accounts should not be kept for a period of more than 30 days at a time, except with the permission of the higher authorities, there were indeed sufficient safeguards, and that they were in sync. with Article 19(3) of the Constitution which did provide reasonable restrictions on the right to hold property and the right to carry on trade.
    

4. As is generally fashionable to refer to foreign precedents, the bench did not pause to consider any such. Before handing out the verdict the fact as to whether such provisions or restrictions or the invasion of the basic rights of the citizens were permitted in other countries and if so to what extent was not gone into. On such an issue which fundamentally affects the rudimentary rights of the citizens of a much-touted democratic set-up, the court did not consider whether other democracies have permitted similar obnoxious excursions or despicable outrages in fiscal administration. The court perhaps forgot Lord Jesus invitation to throw the first stone on the alleged adulteress who himself had committed no sin ever in life. The court also did not consider the adequacy or practical limitation of the so-called safeguards. The court did not at all go into the aspect of the matter as to how far it was justified for the executive to utilise powers under the Criminal Procedure Code with regard to issues which are purely civilian and definitely non-criminal.
    

5. We talk of equality before law, and equal treatment for all before it. Should that not envisage that if there has to be a search for recovering from some person undisclosed income or evidence representing such income, then such should be done with regard to all those at the same time who are known to be harbouring such income/assets or evidence. There cannot be a pick and choose option causing discrimination in the process and letting the executive go after the job at its sole, questionable discretion. Courts ought to be wary of the future application of laws on the principles propound by them. Indeed much later, in the case of Podar Cement (1997) 226 ITR 625, the Supreme Court itself recognised this principle when it said that the application and utility of a law under challenge is required to be projected into the future and considered with relevance thereto also. In 1969, the Commissioner of Income-Tax was indeed the senior-most field officer. Does that situation obtain today? No!. The Commissioner of Income-Tax is very much of a subordinate to the Chief Commissioner. The Chief Commissioner himself reports to the Member assigned to the area. The Commissioner is not the principal officer in the field any longer. What the court thought then as a power being safe if vested in the ultimate repository of the administration, viz., the Commissioner, is no longer true today. The provisions were amended to provide similar powers for the Chief Commissioner. While doing so, the legislature did not bear in mind, that the Supreme Court while testing the laws validity, had vested such powers with the supreme authority in the executive, and by that logic, instead of providing for the concurrent exercise of the power by the Chief Commissioner and also the Commissioner, it ought to have stated that with the creation of the institution of the Chief Commissioner, the power would hereafter be vested only in the Chief Commissioner alone. Doing it that way would have meant not only showing respect to the pronouncement of the Supreme Court, but also would have meant solemnly abiding by its esteemed dictat. Despite that not being done, no court in the country has come forward to rule that the provisions are now basically flawed because of a dilution of this kind and, therefore, are vitiated and unenforceable. Notwithstanding the citations in 207 ITR 055 (KAR), 195 ITR 582 (KAR), 224 ITR 614 (SC), 260 ITR 067 (CAL), 276 ITR 456 (SIK), 278 ITR 036 (BOM), 194 ITR 032 (DEL), and a host of others. And that is how these retrograde provisions have come to stay.
    

6. It requires notice that many High Courts and apex Courts’ decisions have said that they would reject the challenge to the vires of the search provisions only because they were intended to be administered against persons with a peculiar .bent of mind and those who would not abide by the law. They are not meant for general application as a routine exercise. All that the court had said was virtually set to nought by the Finance Minister in 1995 when he openly declared in the budget speech “that the searches conducted by the Income-tax Department are important means of unearthing black monies.” When one recounts that the vires of the search provision are upheld only on the basis of the reasonable restrictions clause contained in Article 19(3) unqualified statement of the type as just cited would have at least caused court approvals to get inhibited and become infrequent, but alas that is not to be!
    

7. On the aspect of safeguards, it was none other than the Prime Minister of India, Mr. Rajiv Gandhi, who interceded through the issuance of a circular, for the so-called safeguarding the interests of the victims of a search. This happened at a time when his Finance Minister was going whole-hog against the industry, and highly respectable personages from the reputed industrial houses were publically humiliated through searches.
    

8. Those provisions were just like a prologue to a novel. It marked just a beginning requiring further fortification. That never happened. Instead what happened was that a Department which itself did not know what to do published a Tax Payer’s charter. The divine rule is first introspect and that practice is better than precept. But who says that administrative deeds are divine?
    

9. What do you say of a situation where the authorized officers are there to do search under the protection of policemen. The instructions to the policemen are clear and curt. They are there for the protection of the authorized officers and to help them in the discharge of their official duties. They are there to ensure the successful completion of the search which the authorized officers are to carry out. There is not one instance of the victim of a search getting any relief or protection from the police force. The police is there to help the oppressor and the presence of the police is nothing but undiluted coercion and intimidation. It is unfortunate that even the apex court refused to purchase this argument in Seth Bros. 74 ITR 836.
    

10. On the question of safeguards, the apex court thought that recording of reasons prior to the search and its authorization by the Commissioner backed by a timely real guard action ensuring for timely release of the seizure was adequate. The recording of reasons has always been shrouded in secrecy. There is perhaps a valid reason for doing so for the Department would be morally bound to veil its informer. But not all searches are initiated on the basis of information put in by an informer. In the class of cases where informers are not involved, at least after the search there should be no hesitation on the part of the department to provide the information leading to the reason to believe that there is undisclosed income and/or assets. For long nobody ever asked for the reasons and when it was indeed asked for in the case of H. L. Sibal by the High Court (see 101 ITR 181), privilege was claimed stating that the information is based on classified documents containing official secrets. The Punjab High Court was at pains to point out that at the level of Commissioners, immunity to produce the documents after a Court-call would not be available for the Commissioner was not such high an official as would enjoy the privilege of exemption on grounds of public policy. When the recorded reason was finally produced the Court found that the records had been interpolated. That appeared perhaps as the very reason for claiming immunity so as to hide the obnoxious fact of the tampering of records. What the court did thereafter to the Commissioner is now a part of the law reports (see 103 ITR 606). Should a clue not have been taken out of this instance? No one did. Little it was realized that searches are numerous though post search challenges are few. Court interventions are even fewer. That one case ought to have been an eye opener. Even today when we have the Right to Information Act any requisition or a copy of the warrant is met with strong resistance leave aside the objections to the supply of reasons. Reluctance is palpably perceptible whenever such points arise. The so called safeguards by way of recorded reasons before the action is in practical terms and practice, no viable safeguards at all.
     

11. During the course of the search whom should the victim approach in case of difficulty? The Commissioner is authorizing the search so he would have an abiding interest in the success of the search. His minions who carry out his bidding are the authorized officers being his sub-ordinates. They would leave no stone unturned to ensure that the Commissioners dictate is not dissipated. It is this pursuit with misplaced enthusiasm that causes untold problems and immeasurable difficulties at the point of time when the search is taking place. There is no independent authority or agency to which the search victim can turn to and in the absence of such a facility the entire exercise is just without any safeguard worth the name. Even the panchas are not appointed with the choice or on the selection of the person searched. There is thus no independent witness to recount the happenings in the event of a challenge as to their regularity and propriety.

Seizures

12. There is an ancient German belief that if lie is repeated and repeated again and again, that lie after a time sounds like the whole truth. Could the ratio be extended to the search operations? An optimal answer would be definitely no! But the hard fact, however, is that it is certainly a yes! Take the power of seizure, for example. Section 132(1) provides in the operative part, for seizing any such books of account, other documents, valuable article or thing found as a result of search of such assets. What is the meaning and significance of word ‘such’ used in the said phrase? This word ‘such’ refers to the anterior part of section where analogous terms are used in the context of clause (c) of sub-section (1) of section 132 where it says “any person who 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 of the property which has not been or would not be disclosed for the purpose of this Act. The word obviously qualifies the nature of money, bullion, jewellery or other valuable article or thing and that it is only those items of income or property which have not or would not be disclosed for the purposes of the Act. Put simply such refers to income and assets undisclosed.
     

13. To put more explicitly, it covers only such assets which will not or which would not be declared to the Department. They must be the concealed income or assets. Practical experience, however, shows that there is hardly any panchnama drawn by the Department during all these years where disclosed assets have not been seized. Wherefrom does the authorized Officer derive the power to seize declared assets? From nowhere and yet it is endemic if a Government authority commits an excess and contravenes the provisions of the law of which he himself is a creature, should it not be for his Department to provide deterrent punishment. This error has been committed so many times without number that even Gobbles would put humbled for his dictum being done one better. None is bothered especially after the seizure is made. Justice Krishna Iyer interdict in Ajit Mills Ltd. 40 STC 597 that quote, “certainly, the fiscal minions of the Government, if they blatantly misuse power and overtax to bring discredit to a benignant state, must be publicly punished since respect for the law is not a one way street” must not go always unheeded. It is only the hapless assessee who is left running from pillar to post. Even if one were to concede that within the limited time that is available for conducting the search, it may not be possible to address the aspect of every income and asset having been disclosed or not, the question that immediately arises thereafter is as to in how many cases as per the roster of the Department after the initial seizure, there have been releases on the disclosed assets wrongly seized in search. As long as it stood on the statute section 132(5) of the Act was a dead letter and the cap of section 132(ii) made the situation no better.
     

14. Section 132B clearly provides for the retention of seized assets only against demand arising out of search or any other pending demand. It is legion for the Department to create fresh demands and retain seized assets thereafter on that alibi. It is not as if the appeals have not gone to the administrative and/or appellate authorities on this point. None of them has to play a constructive or redemptory role in such situations. This has happened when the right to property fundamental. This is happening even when the right to property is reduced to a statutory right. Put differently whether the right to property is fundamental or statutory, it makes no difference to the action of the Department to seize explained assets and retain them without any plausible cause. Article 14 clearly provides for non-arbitrariness in the administration. Should that not apply to misdemeanours of this nature? Should a person or an authority entrusted with proper and efficient administration of the Act not take cognizance and work out an appropriate relief in such situations. The taxpayer is waiting and waiting and just waiting for more than four decades for a proper answer to this rudimentary query. The day it is decided that any authorized official if in his misplaced enthusiasm seizes any disclosed assets, then departmental action against him will be taken by the Government, this problem will solve itself and with it the need of the search itself may also vanish.
     

15. Often the authorized officers accompanying the search party are found to be blissfully unaware of the search provisions and its modalities. In the case of Mr. L. R. Gupta (194 ITR 32), the authorized officer threatened to arrest Mr. Gupta. The Delhi High Court had to tell Department that they have no power to arrest in a tax search. It is pity that despite the fact that the department has no trained manpower for the purpose of handling searches in a legally valid manner incidents such as in Mr Gupta’s case are not uncommon while the searches continue unabated. The courts have opined that in the atmosphere of tension and agitation some latitude will have to be provided to the Department if it errs in some respects but that perhaps is not in conformity with the concept that the intrusion into the solemnly rights of the individual should be least obtrusive. Especially when we say that we are in a society run on egalitarian lines are the largest democracy the citizens cannot be made hapless victims of the ignorance and harassment of the bureaucracy and if this aspect of the matter is given due weightage, then the searches should be down and out.

Assessments after searches

16. The assessments after search have always remained an enigma. Previously the searches were followed with reassessment notices. The assessments were made u/s 143(3) of the Income-tax Act, 1961 on the basis of return tendered after section 148 notices. This practice held the field until 1995. But by then the insatiable thirst of the Department to obtain surrenders had mucked up the whole scheme. The Finance Act, 1995 introduced a new Chapter XIV-B proposing block assessment at 60% tax. The concept of 10 years / 6 years period comprising the block and undisclosed income alone being the subject matter of treatment in such block for assessment and further that such assessment ought to be framed on the basis of material recovered during search was devised. It began with the Department being provided with a definition of undisclosed income which would even include the moon. Ultimately it came to the Department being stranded with some loose papers whose relevance and implications was also left for it to prove, and substantiate for purposes of assessment. It began with no penalty or interest for the 60% tax was thought as sufficient to cover all that. But subsequent changes made for levy of interest and imposition of penalty sullied the situation. Even these provisions became impalatable to the Government after a series of decisions from different Tribunals and the courts which found fault with the methodology generally adopted by the department for assessment of block cases, the concept of block assessment was ousted in 2003. Once again a return to the old format of a requisition for return after search of the parties covered by a search was proposed. The operative provisions are contained in sections 153A to 153D for the searches taking place after 1-6-2003. These frenetic movements of the Department with regard to the assessment of search cases would leave no informed person in any doubt that there is no clear concept on the method of completing assessment in search cases and the Department is just shuffling the available options as it pleases without the legislature sounding any warning. The law is well known that if the computation provision fails the law itself fails. No law which is arbitrary or imbalanced can survive for long. Equity and good conscience are at the base of every law and unless these fundamental principles are strictly adhered to no format will be either successful or durable.
     

17. When the harsh decision to launch a search has been taken and the search has been executed, then, why should thereafter sentimental considerations be allowed their play? One Direct Taxes Enquiry Committee had noted that such considerations are in place in order to facilitate and expedite the departmental investigative process, and also as a tool to arrive at other defaulters deploying the similar stratagems. So it was with this dubious objective in view, that Explanation 5 to section 271(1)(c) was inserted by the Taxation Laws (Amendment) Act, 1984, with effect from 1st October, 1984. This provided for a statement during the search or for making of entries in the books of account of the unexplained transactions. It also provided for making a declaration of the undisclosed income before the Commissioner. The Explanation provides that, if the victim of a search were to do that, then, such amounts as are declared would not be reckoned for the purposes of penalty under section 271(1)(c) of the Act as concealed income. During the search, authorized officials would take it upon themselves to inform the Assessee as to the existence of this provision. Having brought the assessee to notice this provision, they would thereafter goad the assessee to make the declaration on the promise of exemption from penalty. Before any declaration would be made, the authorized officers would themselves get into the act of bargaining, little realising as to how arduous and complex it will be to bargain with those whose very vocation it is to bargain for even to make their living. Normally, these deals are struck at the point of time when the rope itself is about to snap. The verbal assurances as given are rarely recorded. Then, the next exercise is to go about collecting tax on this income so-called ‘voluntarily declared’. Eventually, by the time assessment approaches, the declaration so made stands like a pigmy in face of the staggering total income which the tax assessor has magically construed up. The common practice at the basis of such exaggerated assessment would be that the assessee has declared this much, the documents say this much more, and the assessee’s normal income as per record is this much, and so, the total income would be the aggregate of the three. This provision caused so much of tension, ill-will, and a ignominy, that it was not only officially withdrawn, but the authorised officers were even warned vide letter dated 11-3-2003 that adverse view will be taken of their efforts if it comes to knowledge that officers have forced a declaration. But no one ever bothered, because in our system, accountability is something which is just unknown. We just believe in collecting. The means deployed are irrelevant. The maxim that means justify the ends died with the father of the nation. Though with the advent of the block assessment concept, Explanation 5 temporarily received a quietus during searches, yet, it has once again now been revived through the Finance Act 2005 with a new number, viz. 271-AAA. Now it is said that exemption from penalty would be available not only if it is declared, but also the manner of earning the undisclosed income would now have to be declared with proof. In other words, the provision is now grossly arbitrary and is amenable to widespread misuse on mere subjective considerations. No wonder this law is dead before it is born!

Surveys

18. Survey emerged in the tax scene as a highly diluted form of search. It required no recording of reasons for the belief as to existence of undisclosed assets etc. The middle level officers of the department viz. the IACs were empowered to order a survey. It did not originally provide for the impounding of books of accounts, documents and valuables etc. It was limited to only the business place and entry had to be before sun set. It was not necessary to record the statement of the owner of the business alone. The statement of any other person present at the premises at the time of the survey operation would have sufficed. With efflux of time, all these limitations have been systematically undone one by one. Now it is possible to impound and retain the books of account and other documents. Of course, the power of seizure of valuables is not still available. Further, the bar on surveys at the residential premises continues.
     

19. What, however, is intriguing in survey is the manner of taking the physical inventory of stock. Generally the disputes pertained to the discrepancies in the stock count. The department to arrive at the stock-in-hand on a certain date adopts an average GP rate in the middle of a year paying little heed to the fact that the average so applied is average for the year and not a few months of a year. Everyone proceeds on that basis to ascertain the accuracy of the stocks held. It is realized that the accuracy of stock-in-hand as computed on the basis of presumptive GP rate is bound to be flawed. Many a times, serious mistakes are made by the departmental officials in taking inventory either because they are not familiar with the items or even because the items are too numerous or are too bulky. The onus of proving the correctness of the inventory prepared by the department is always wrongly placed on the assessee. There are hardly any cases from the facts of which it should be culled out that the department was put to task of verifying the correctness of the inventory which it had itself drawn. Nobody ever asks for the departmental working papers which form the basis of such tabulation. Another practice which is rampant is to obtain surrenders during surveys. Surrenders are known to be obtained for items which exist and also for those which do not. There are numerous cases where with regard to stock discrepancy as noticed even if the assessee has compromised on those and returned it as part of its return voluntarily the penalties for concealment are initiated or levied. The fact that the time period for filing of the return was after to the date of survey and that the return as filed contains such declaration of mistake (if any) is completely side tracked. Pervisity at its best is the unfailing syndrome in most surveys assessments. How does one resolve these issues?. Such is possible only if equity and rationality take the front seat and the craze to collect more and more is relegated to the background.

Conclusion

20. As pointed out above, with regard to surveys, seizures assessments after search and surveys and the assessments after surveys there are several unresolved issues. Well it is true that for checking tax evasion, the department must have wide powers, yet if the powers are so assumed as would cause prejudice to well accepted cannons of social justice and equity then they are required to be abandoned. Resumption can always take place after proper methods and viable remedies are thought of. Till then let these provisions rest if not laid to rest.
    
    Source : Published in 14th National Convention held on 7th, 8th & 9th December, 2007 at New Delhi.