Search and Seizure under Income- Tax Act , 1961, in what circumstances ? Critical Analysis of Notification No. 1 of 2023 of CBDT

1. Introduction & object of search: We are dealing with various issues with regard to Income Tax Search & Seizure, in this article. Search and seizure is obviously a serious invasion on the rights of citizens, therefore the I.T. Department is required to be cautious while ordering and conducting a search. As observed by Justice Om Prakash of Allahabad High Court in the case of Dr. Nand Lal Tahilliani v. CIT [1988] 170 ITR 592 (All.)(HC) “Privacy is a very valuable right of a civilised society and violation thereof is not permissible except by authority of law ”. The object of search under Income Tax Act and other economic laws is to curb the economic offences relating to evasion of taxes, duties and to unearth unaccounted income. The warrant of authorization issued should be based on the existence of materials to justify the reason to believe as stipulated in section 132 of the Income-Tax Act. There are inbuilt provisions to safeguard the interests of taxpayers. The object is to get hold of the evidence relating to undisclosed income. The powers under section 132 are neither unbridled nor arbitrary. The authority empowered to issue the warrant of authorization has to satisfy himself that the basic conditions as laid down under section 132(1) of the Income- Tax Act are fulfilled. Such satisfaction must be in good faith and bona fide. The reasons for issuing the warrant of authorization are to be recorded in writing, so that the existence of information and the formation of belief, is proved to the hilt in the event the search action is subjected to challenge in a Court of law. The recording of satisfaction notes by the authority empowered to issue the warrant of authorization, should be based on pre-search records. The relevant rules as per Income-tax Rules, 1962 are Rules 112, 112A, 112B and 112C.

2. Circumstances in which authorisation for search and seizure can be issued: According to section 132(1), an Income- Tax Act, 1961 search can be ordered by a competent Income-Tax Authority who in consequence of information in his possession, has reason to believe that –

any person to whom a summon u/s 131(1) of the Income-tax Act or a notice u/s 142(1) of the Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account or other documents as required by such summon or notice, or
any person to whom a summon or notice as aforesaid has been or might be issued, will not, or would not, produce or cause to be produced, any books of account or other documents which will be useful for or relevant to, any proceedings under the Income-tax Act, or
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, or would not be, disclosed for the purposes of the Income-tax Act (hereinafter in this chapter referred to as the undisclosed income or property).

The above provisions are being analysed hereunder in light of the various judicial pronouncements.

3. Search warrants cannot be issued indiscriminately: The power of authorising a search has to be exercised in an honest manner and search warrants cannot be indiscriminately issued as a matter of policy. On a reading of section 132(1) of the Income-tax Act with section 165 of the Code of Criminal Procedure 1973 , it indicates that section 132(1) is intended to apply in limited circumstances to persons of a particular bent of mind, who are either not expected to co-operate with the authorities by the production of the relevant books or who are in possession of undisclosed money, bullion, jewellery etc. If an assessee has been regularly producing his books of account before the assessing authorities, who have been accepting those books as having been maintained in proper course of business, it would be somewhat unjustified use of power on the part of the authority to issue a search warrant for the production of those books of account, unless, of course, there is information to the effect that he is keeping some secret books also – H.L. Sibal v. C.I.T. [1975] 101 ITR 112, 138, (Punj)(HC)

4. A search warrant may be issued subject to the satisfaction of the officer issuing the warrant: A warrant authorising a search may be issued subject to the satisfaction of the officer issuing the warrant as required under section 132(1). This would enable a search and consequent seizure of the offending items of income so as to bring them within the purview of the Act. If in the course of such search operation, property including jewellery or even books of account are discovered to have a reasonable proximity with the object of the search but such property is located in another premises, a consequential search warrant can be issued authorising a search of the other premises where such property may be located. Under section 132(3), the officer conducting the search may not effect any seizure but may issue prohibitory order requiring the owner of the property or the person in control of the same not to deal with the property in question except with the previous permission of the authorised officer. In Harihar Shah v. CIT [2006] 281 ITR 199 (Karn.)(HC), a search and seizure operation was conducted in the premises of one D, a courier agency doing business within the city of Guwahati. In course of the search and seizure operation, evidence of two fixed deposit certificates issued by the then ANZ Grindlays Bank were found. The said fixed deposits certificates were issued in the name of the petitioner, who had shown his address in the care of one S of D. A consequential warrant of authorisation u/s 132(1A) was issued for search of the premises of the bank and thereafter on January 20, 2000, the respondents converted the value of the certificates into a bankers cheque payable to Department, whereafter the money was deposited in the account of the Commissioner. On a writ petition against the order, the Karnataka High Court held that there was no satisfaction recorded by the authorised officer to the effect that the amount covered by the fixed deposit certificates was in any way relatable to D in respect of whom satisfaction as regards suppression or concealment of income had led to the initiation of search on the strength of the original warrant. In the absence of such satisfaction, the consequential warrant authorising the search of the premises of the ANZ Grindlays Bank could not be held to be authorised u/s 132. The action of the department in converting the property of the petitioner in the form of the fixed deposit certificates and further action of the department in obtaining a bankers’ cheque for the amount covered by the two certificates and the consequential deposit of the amount of the bankers’ cheque into the account of the Commissioner were unauthorised actions. The Court directed refund of the amount by the Income-tax Department to the petitioner with interest at 11 per cent, the rate of interest on fixed deposits prevailing in the year 2000.

5. “Reason to believe” – a must : The authority ordering a search must have reason to believe that any of the above circumstances exist. In case no such circumstance exists, he has no power to authorise a search. In case, the action of the authorising authority is challenged in Court, it must be shown that prima- facie circumstances existed in conformity with provisions of section 132(1) and were considered before the authorisation was made – Pooran Mal v. Director of Inspection [1974] 93 ITR 505, 518 (SC).

6. Necessity of recording reasons: The necessity of recording reasons for issue of warrant of authorisation for search u/s 132 of the Income-tax Act, 1961 so as to ensure accountability and responsibility in the decision making process acts as a cushion in the event of a legal challenge being made to the satisfaction reached. The reasons enable a proper judicial assessment of the decision taken by revenue. The principles as regards search and seizure that can be deduced from the decision of the Apex Court and continue to hold the field even as on date were summarised in the decision of Apex Court in the case of Director General of Income-tax (Inv) v. Spacewood Furnishers Pvt. Ltd. (2015) 374 ITR 595 (SC) at page 596/ [2015] 232 Taxman 131 (SC).

7. The requisite belief to be formed by the Authorising Authority only: Section 132(1) enjoins that before a warrant of authorisation can be issued, the authorising authority must have reason to believe the existence of any of the factors mentioned in clauses (a), (b) and (c) of section 132(1) and that reason to believe must be in consequence of information in his possession. The opinion must be formed by the authorising authority. The authority may, however, do so from the information supplied by the sub-ordinate authority. But the authorising authority cannot delegate the function of the formation of the opinion or belief to his subordinate authority as also pronounced in the case of Dwarka Prosad Agarwalla v. Director of Inspection [1982] 137 ITR 456, 467- 8 (Cal)(HC) In the above case, the Assistant Director of Inspection recorded the reasons and the Director of Inspection, one of the authorizing authorities u/s 132(1), issued the warrants of authorisation on the basis of these reasons. It was held that the formation of the belief could not, on those facts, be said to be one by the authorising authority himself. The searches conducted on the basis of such warrants were not valid.

8. Circumstances must exist on the date of issue of warrant: Kerala High Court held in the case of Kalpaka Bazar v. CIT [1990] 186 ITR 617, 620,(Ker)(HC) that such circumstances should exist on the date of issue of the authorisation or search warrant. Similarly Allahabad High Court in the case of Dr. (Mrs.) Anita Sahai v. DIT (Inv.) & Ors. [2004] 266 ITR 597 (All.)(HC) held that before authorising search u/s 132(1), the CIT or Director (Inv.) must be in possession of information giving him reason to believe that a person is in possession of jewellery, bullion or money, etc., which represents wholly or partly his income which was not disclosed or would not be disclosed. If the said condition is missing, he would have no jurisdiction to issue warrant of authorisation. If the reason to believe comes into existence later, then the authorisation as also consequent proceedings would be illegal even if material existed prior to issue of warrant. The very fact that the DIT(Inv.) issued notices u/s (1A) after the search and seizure operation u/s 132 goes to show that there was neither reason to believe nor material before the authorising officer on the basis of which he could issue a warrant u/s 132. Also refer- Khem Chand Mukim v. PDIT (2020) 113 taxmann.com 529 (Del)(HC). In Smt. Kavita Agarwal & Anr v. DIT(Inv.) & Ors. [2003] 264 ITR 472 (All.): 185 CTR(All.)(HC) 129, it was held that mere reason to suspect cannot be equated with reason to believe and in the absence of reason to believe, the search operation was quashed. Similar view has been expressed in Madhu Gupta v. DIT (Inv) [2013] 350 ITR 598 (Del.); Spacewood Furnishers (P) Ltd. & Others v. DGIT (Inv.) & Others [2012] 340 ITR 393 (Bom). In the absence of satisfaction note, the assessment framed has been cancelled as it is bad in law – DCIT v. L.K. India Pvt. Ltd. [2015] 43 CCH 0263 (Ahd.) Trib).

9. Requirement of Due satisfaction of the officer issuing the warrant of authorization: In Parasnath v. Union of India & others 225 ITR 365 (MP)(HC) it has been held that the question as to whether there was due satisfaction or not of the officer issuing the warrant of authorisation was to be determined by taking into consideration the circumstances which existed on the day the warrant was issued and whether the requisite satisfaction satisfied the test of judicial review. This satisfaction was not to be judged by taking note of subsequent events and explanations which might be furnished.

10. Mere possession of assets is not enough, the belief must be that the assets are wholly or partly undisclosed:

In CIT v. Vindhya Metal Corporation (1997 ) 224 ITR 614 (SC), it was held that mere possession of large amount without anything more could not be said to constitute information which could be treated as sufficient by a reasonable person leading to an inference that it was income which would not have been disclosed by the person in possession, so as to justify issuance of authorisation for requisitioning such amount.
Allahabad High Court held in the case of Ganga Prasad Maheshwari & others v. CIT [1983] 139 ITR 1043 (All)(HC), 1050-53, that the mere fact that the warrant of authorisation has been issued does not amount to having reason to believe that the person, against whom it was issued, was in possession of assets which represented his undisclosed income. Therefore, where the authorising authority issues warrant of authorisation without there being any reason to believe that the asset which was in possession of a person represented wholly or partly his undisclosed income, his action is to be held to be without jurisdiction.
In the case of Tej Bahadur Dube v. CIT [1985] 152 ITR 476 (AP)(HC) the assessee left a certain amount, which was not accounted for or disclosed in any records, with the manager of a bank for a specified purpose of buying Special Bearer Bonds 1991. The same was seized by the Department. It was held by the Supreme Court in Tej Bahadur Dube v. CIT, Afzalumissa Begum v. UOI [1992] 195 ITR 612 (SC) that the seizure was justified. In respect of such amount the assessee was not entitled to immunity or exemption u/s 3 of the Special Bearer Bonds (Immunities and Exemption) Act, 1981. Filing of returns or completion of assessments do not preclude search: The fact that returns were being filed and assessments were being made cannot, by itself, preclude the department from ordering a search and seizure, if reliable information reaches the concerned authorities regarding large undisclosed income of the assessee – Jain & Jain v. Union of India [1982] 134 ITR 655, 666 (Bom) (HC) relying on Pooran Mal v. Director of Inspection [1974] 93 ITR 505, 520-21 (SC); Kalpaka Bazar v. CIT [1990] 186 ITR 617, 620 (Ker) (HC).

11. Deeming provisions of section 69A cannot be used at the time of forming belief: The deeming provisions of section 69A confers a power on the Assessing Officer and the same is available only at the time of assessment. The deeming provisions cannot be availed of at the time of issuance of the warrant of authorisation u/s 132(1). The two stages of issuing authorisation and assessment are different. If section 69A as such or its principle could be invoked at the stage of issuing authorisation it would result in negation of safeguard provided by the expression “reason to believe” in section 132(1). In this view of the matter, a warrant of authorisation could not be held to be valid by virtue of section 69A – Ganga Prasad Maheswari & Ors. v. CIT [1983] 139 ITR 1043, 1051-52 (All)(HC)

12. Power of search to be exercised bonafide:

If the action of the officer issuing the authorisation or of the designated officer is challenged, the officer concerned must satisfy the Court about the regularity of his action [ITO v. Seth Bros. [1969] 74 ITR 836, 843 (SC); Kalpaka Bazar v. CIT [1990] 186 ITR 617, 620 (Ker) (HC)]. If challenged, it is the duty of the authorising officer to show to the Court that he had prima facie “reason to believe” so as to bring the matter within the four corners of section 132(1). He has to show facts which prima facie will convince the Court that a reasonable man could, under the circumstances, form a belief which will impel him to take action under the law. The Court will not go into the sufficiency or adequacy of such reasons. Similar view has been expressed in the case of Ajay Kumar Singh v. DG (Inv) [2021] 124 taxmann. com 518 (Patna)(HC)
If the Commissioner fails to disclose even a prima facie case or if the action is maliciously taken or power under the section is exercised for a collateral purpose, it is liable to be struck down by the Court. For example: mere possession of money is not sufficient material to form a belief that the same has not been and would not be disclosed by the assessee, when it appears in his books of account – Ajit Jain v. UOI & Sons 159 CTR 204 (Delhi)(HC) , affirmed by the Supreme Court in UOI v. Ajit Jain (2003 ) 260 ITR 80 (SC).

13. The competent authority must have information in its possession-

For taking action u/s 132 conditions precedent are to be followed. Firstly, the competent authority must have information in its possession. Secondly, on the basis of the said information, it must have reason to believe that the conditions as stipulated in sub-clause (a), (b) and (c) of section 132(1) exist. It is only then that it can authorise the search of the premises and seizure of the documents. Section 132 impinges upon the privacy of a citizen. It even carries a social stigma. To a sensitive man, the consequences can be serious. The Legislature has consequently provided in-built safeguards. These have to be satisfied before any order for search, etc., can be passed. The Punjab & Haryana High Court, on this point, has held, that repeated assertions had been made, both in the files of the Department as well as in the pleadings before the High Court that information was available “ on record”. However, at the time of hearing of the case and in spite of repeated opportunities, the respondents could not produce any record indicating the existence of any information. In the “satisfaction note” it had been stated that B was likely to have invested, in the business of the petitioner. However, this was a mere surmise. Admittedly, the “note” did not constitute “ information” as contemplated under the law. In the absence of information, the order for search and seizure could not be sustained – Janak Raj Sharma v. Director of Inspection (Inv.) & Others (1995) 215 ITR 234 (P & H) (HC). Similar view has been expressed in Suvidha Association v. Addl. DIT (Inv.) (2010) 320 ITR 461 (Guj.)(HC)
However, where reasons to believe exist, the Court cannot examine the adequacy or sufficiency of the reasons – Doctors X-Ray and Pathology Institute P. Ltd. v. DIT [2009] 318 ITR 125 (All.) (HC)

14. Two respectable witnesses necessary: The authorized officer is required to call two respectable inhabitants as witnesses to the search action, before the commencement of the search. Sometime it is seen that the home servants are used as witnesses, which is inconsistent with law and improper.

15. Recording of Statement: Statements can be recorded before the search action commences and after the commencement and before the conclusion of search. Such statements recorded forms part of evidence for the purposes of assessment. The law provides for retraction of such statements within reasonable time, if the statements are extracted under coercion or undue influence. However acceptability of retraction will depend upon the facts and circumstances of each case.

16. The power of seizure to be exercised with great restraint: The power of seizure should be exercised with great restraint on the part of the authorized officer. The searched party should also produce relevant evidences about Cash, Jewellery and other assets if these are disclosed. The authorized officer need to consider the evidences properly in the interest of justice.

17. CBDT Instruction for deciding the cases for conducting search: As per the present practice, the searches are to be conducted keeping in view the recent CBDT Instruction No. 7/2003, dated 30.07.2003, the contents of which are summarised hereunder –

“1. With a view to focus on high revenue yielding cases and to make the optimum use of manpower, the Board has decided that officers deployed in the Investigation Wing should restructure their activities. They should henceforth strictly adhere to the following guidelines :

Searches should be carried out only in cases where there is credible evidence to indicate substantial unaccounted income / assets in relation to tax normally paid by the assessee or where expected concealment is more than Rs. 1 crore;
Search operation will also be mounted when there is evidence of hidden unaccounted assets arising out of a conspiracy to cause public harm, terrorism, smuggling, narcotics, fraud, gangsterism, fake currency, fake stamp papers and such other manifestations;
Tax payers who are professionals of excellence should not be searched without there being compelling evidence and confirmation of substantial tax evasion. 2. Henceforth, search operations shall be authorized only by the concerned DGIT (Inv.), who will be accountable for the action initiated by the officers working under him. He should also ensure that all the work relating to search & seizure, like post-search inquiries, preparation of appraisal report and handing over of seized books of account etc., should be completed by the Investigation Wing within a period of 60 days from the date on which the last of the authorizations for search was executed.
3. DGsIT (Inv.) are requested to ensure that officers of competence and proven integrity are taken in the Investigation Wing. The officers posted in the Investigation Wing will be trained at NADT in a special course for which arrangements will be separately made….”

18. Extract from Report of Task Force on Direct Taxes chaired by Dr. Vijay Kelkar: Para 3.25 of its final report was as follows -

“ 3.25 Search and seizure has a limited role, in the Income tax proceedings. Search and seizure is not a substitute for investigation. It is only a tool for investigation. It is not an end in itself. Search and seizure cannot be a way of life for any civilised society. Search and seizure should be used in rarest of rare cases, when it is a must and where alternative measures of investigation have failed. And once it is used, it should have its full impact as a deterrent. The tax evader should suffer the penal consequences of interest, penalty and prosecution in respect of the concealed income detected as a result of the search.”

19. Furnishing of the reasons recorded for initiating search or requisition of books of account and other documents u/s 132A to assessee: As per explanation inserted in sec. 132(1) amended by the Finance Act, 2017 with retrospective effect from asst. year 1962-63 and similar explanations inserted in sec. 132(1A) and sec. 132A (w.e.f. 1.10.1975), the reason to believe, as recorded by the income-tax authority for initiating search proceedings or requisition of books of account, shall not be disclosed to any person or any authority or the Appellate Tribunal. In this connection the decision of the Supreme Court in the case of DGIT (Inv.) v. Spacewood Furnishers Pvt. Ltd. [2015] 374 ITR 595 (SC) may be referred to, wherein the apex court held that reasons recorded prior to authorizing search need not to be disclosed or communicated to the person against whom the warrant of authorization is issued. No right is conferred on taxpayer of inspection of documents or to a communication of the reasons for the belief at the stage of issuing of the authorization. The Supreme Court observed: “Any such view would be counterproductive of the entire exercise contemplated by Section 132 of the Act” and material may be disclosed only at the stage of commencement of the assessment after search is completed.

Further, the amendment has nullified the decision of ITAT Jodhpur Bench in the case of Shri Parma Ram Bhakar [TS-515-ITAT-2013 (Jodhpur)(Trib)], wherein it was held that search conducted without recording reasons to believe is invalid and quashed the assessment framed in pursuance of invalid search.

It has been held by Apex Court in the case of Ess Dee Aluminium Ltd. and Etc. [TS-625- SC-2016], that “if the assessment order which is based on the search operations is under challenge, the validity of the search proceedings can also be gone into by the CIT (Appeals).

20. Whether non-production of information, records and documents by assessee despite constant direction of revenue can be a reason for invoking provisions of sec. 132: It has been held that where assessee fails to produce information, records or documents despite constant direction of the revenue, it shall form the reasons to believe for the purpose of initiating a search u/s 132 – Aditya Narayan Mahasupakar v. CCIT [2017] 79 taxmann.com 111 (Orissa)((HC)

21. Whether information from CBI that a particular person possesses money and according to CBI the money is undisclosed, constitute information for the purpose of search u/s 132: For a valid search there should be information which provides reason for believing that the person concerned is in possession of money or other assets representing, either wholly or partly income which has not been disclosed by such person and in the absence of such information search cannot be validity authorised.

Mere intimation by CBI that money was found in the possession of a person, which according to CBI was undisclosed, without something more did not constitute “information” within the meaning of section 132, on the basis of which a search warrant could be issued, and the search conducted on the basis of such information and the block assessment made pursuant to such search was not valid – UOI v. Ajit Jain & Another [2003] 260 ITR 80/ 129 Taxman 74 /181 CTR 22(SC)

22. Whether information that documents, papers, undisclosed cash, jewellery and other assets is likely to be found, can form reason to believe so as to authorise a search u/s 132: Since the exercise of power u/s 132 is a serious invasion upon the rights, privacy and freedom of the assessee, the power must be exercised strictly in accordance with law and only for the purpose for which the law authorised it to be exercised. The Commissioner or the Director of Investigation must have, in consequence of information, reason to believe that the statutory conditions for exercise of the power to order search exist. The condition precedent for search and seizure is “reason to believe’ u/s 132 of the Act which cannot be equated with “reason to suspect”. The information that documents, papers undisclosed cash, jewellery and other assets were likely to be found at the residence of the assessee can at best be a “reason to suspect” but does not form any “reason to believe”. Therefore no valid search warrant under such circumstances can be initiated – Spacewood Furnishers (P) Ltd. & Others v. DGIT (Inv.) & Others [2012] 340 ITR 393 (Bom) (HC); Madhu Gupta v. DIT (Inv.) [2013] 350 ITR 598 (Delhi) (HC).

23. Cases of Fishing enquiry and non- fulfilment of the conditions precedent: The warrant of authorisation can be challenged in a writ petition on the ground that it is a fishing enquiry and the conditions precedent as specified in section 132 of the Income-tax Act, 1961 are not satisfied. This issue has come up for consideration before the Supreme Court in the latest judgment in the case of Pr. DIT (Inv) v. Laljibhai Kanjibhai Mandalia [2022] 288 Taxman 361 / 446 ITR 18 (SC). The Gujarat High Court in Laljibhai Kanjibhai Mandalia v. PDIT (Inv) [2019]263 Taxman 604 / 416 ITR 365 (Guj.) (HC) quashed the warrant of authorisation issued under section 132 of the Income- tax Act, 1961, in the case, holding that all actions taken pursuant to such warrant of authorisation were invalid. The Principal Director of Income-tax (Inv) challenged the judgment of the Gujarat High Court and the Apex Court, in its Order dated July 13, 2022 elaborately stated the principles in exercising the writ jurisdiction in the matter of “search and seizure” under section 132 of the Act, in para No. 33 of the judgment, as under :-

The formation of opinion and the reasons to believe recorded is not a judicial or quasi judicial function but administrative in character;
The information must be in possession of the authorised official on the basis of the material and that the formation of opinion must be honest and bona fide. It cannot be merely pretence. Consideration of any extraneous or irrelevant material would vitiate the belief satisfaction:
The authority must have information in its possession on the basis of which a reasonable belief can be founded that the person concerned has omitted or failed to produce books of account or other documents for production of which summons or notice had been issued, or such person will not produce such books of account or other documents even if summons or notice is issued to him; or
Such person is in possession of any money, bullion, jewellery or other valuable article which represents either wholly or partly income or property which has not been or would not be disclosed;
Such reasons may have to be placed before the High Court in the event of a challenge to formation of the belief of the competent authority in which event the Court would be entitled to examine the reasons for the formation of the belief, though not the sufficiency or adequacy thereof. In other words, the Court will examine whether the reasons recorded are actuated by mala fides or on a mere pretence and that no extraneous or irrelevant material has been considered;
Such reasons forming part of the satisfaction note are to satisfy the judicial consciousness of the Court and any part of such satisfaction note is not to be made part of the order,
The question as to whether such reasons are adequate or not is NOT a matter for the Court to review in a writ petition. The sufficiency of the grounds which induced the competent authority to act is not a justiciable issue;
The relevance of the reasons for the formation of the belief is to be tested by the judicial restraint as in administrative action as the Court does not sit as a Court of appeal but merely reviews the manner in which the decision was made. The Court shall not examine the sufficiency or adequacy thereof,
In terms of the explanation inserted by the Finance Act, 2017 with retrospective effect from 1-4-1962, such reasons to believe as recorded by income tax authorities are not required to be disclosed to any person or any authority or the Appellate Tribunal.

It may be noted that in para 34 of the judgment the Apex Court held: “We find that the High Court was not justified in setting aside the authorisation of search dated 7th August, 2018 consequently the appeal is allowed and the order passed by High Court is set aside. As a consequence, there of the revenue could be at liberty to proceed against the assessee in accordance with law”.

24. Lapse or failure in panchanama recorded in a search action, whether it affects the validity of the search and nullify the notice issued pursuant to Search Action: This issue has come up for consideration before the Delhi High Court in the decision of MDLR Resorts (P) Ltd. v CIT [2014] 221 Taxman 83 (Del.) (Mag.)/ 361 ITR 407 (Delhi) (HC) in the context of section 153A of the Act. In this case, there was a lapse and failure to comply with the requirement of search and seizure manual as the panchanama did not contain the names of 22 petitioners. Therefore, it was contended by filing a writ that the proceedings under section 153A of the Act are void and bad for want of jurisdiction. The High Court held that when there is existence of alternative remedy, the writ petition is not maintainable against the order. The Court held that “A lapse or failure in the panchanama does not affect the validity of the search, and does not nullify the notice under section 153A of the Act. It certainly would not affect the initiation of the search which is the starting point and precondition for invoking section 153A of the Act”. The High Court further held :“A search and seizure under the Income-tax Act, 1961, has to be carried out in the presence of at least two respectable inhabitants of the locality where the search and seizure is conducted. These respectable inhabitants are witnesses to the search and seizure and are known as “panchas”. The documentation of what they witness is known as the panchanama. The word “nama” refers to a written document. Its type is usually determined by the word which is combined with it as a suffix. The word “panchanama” is used in Explanation 2(a) to section 158BE. A panchanama is nothing but a document recording what has happened in the presence of the witnesses (panchas). A panchanama may also document the return of the seized articles or the removal of seals. But the panchanama that is mentioned in Explanation 2(a) to section 158BE is a panchanama which documents the conclusion of a search. A panchanama should be prepared even in cases where nothing is found or seized in the search”.

25. Whether a single Search warrant can be issued for search against a group of persons or for two or more individuals: There is no bar in authorizing search of a group of concerns by a single warrant issued u/s 132 – Jose Cyriac v. CIT [2012] 20 taxmann.com738 (Kerala), Embassy Classic (P.) Ltd. v. ACIT [2012] 20 taxmann.com 291 (Bang) (Trib)).

26. Where search warrant is issued in the name of a person, can other member residing in the same premises be also searched: Where warrant of authorisation indicated premises where search and seizure operation was to be conducted and said premises had not been partitioned by metes and bounds, while searching said premises, search of portions occupied by other person can also be made even though their names were not mentioned in authorisation of search- Harbhajan Singh Chadha v. DIT [2015] 58 taxmann.com 21 (All)(HC).

27. Whether multiple premises of a person can be searched on a single search warrant: Separate search warrant for separate premises is required. Since, the address of the place to be searched is required to be mentioned on the search warrant therefore no search can be conducted on the premises whose address is not mentioned in the search warrant.

28. Mere statement without any corroborative evidence, should not be treated as conclusive evidence against the deponent of the statement: The Madras High Court in the case of CIT v. Jayalakshmi Ammal (Smt.) [2017] 390 ITR 189 /242 Taxman 449 (Mad.)(HC) that if there is no corroborating documentary evidence, then the statement recorded under section 132(4) of the Income- tax Act, 1961 should not be the basis for arriving at any adverse decision against the assessee. It was on the basis of material collected during search a notice has been issued directing the assessee to file the return of income. Nil return of income was filed. Additions were made by the Assessing Officer. The matter reached the Income Tax Appellate Tribunal which granted relief. The revenue preferred appeal before the High Court, challenging the order of the ITAT. The High Court held “In case of Block Assessment for deciding any issue against the assessee the authorities under the Income-tax Act, 1961, have to consider, whether there is any corroborative material evidence. If there is no corroborating documentary evidence, then the statement recorded under section 132(4) of the Income- tax Act, 1961 should not be the basis for arriving at any adverse decision against the assessee”.

29. Statement recorded on oath u/s 132(4) of Income-tax Act, 1961 – whether carries significant evidentiary value, and is binding on the person who makes it: Madras High Court in the case of Thiru. A. J. Ramesh Kumar v. Dy. CIT [2022] 139 taxmann.com 190 / 441 ITR 495 (Mad.)(HC) held that Section 132 of Income-tax Act deals with “search & seizure” and section 132(4), permits the authorized officer to record a statement on oath during the course of a search. Such statement recorded carries significant evidentiary value. Such statement can be used by the Assessing Officer in the course of assessment proceedings as corroborative evidence along with documentary evidence relating to the material found during the course of “search and seizure”. As per section 132(4A), there is a statutory presumption with regard to books of account, documents, money, bullion, jewellery or other valuable article or thing found in the possession or control of the person in the course of search, that they belong to the searched person. The statutory impact provided to the statement recorded under section 132(4) during the Search Action enables the Assessing Officer to proceed on the basis that the contents of such statement as correct and represents true state of affairs. The statement made by a person u/s 132(4) has significant evidentiary value and thus binding on the person who makes it. However, if the deponent is of the view that according to him, such statement recorded on oath, is not correct he should demonstrate with sufficient, credible corroborative and cogent, convincing material evidence at the earliest point of time in terms of retraction. Such retraction should not be a mere assertion.

30. Admissibility, relevancy and evidentiary value of statement: On the substantial question of law relating to admissibility, relevancy and evidentiary value of statement, obtained under section 132(4) of Income-tax Act, 1961 the issue is no longer res integra. This is because Apex Court has not granted special leave in the case of Bannalal Jat Constructions Pvt. Ltd. v. ACIT (2019) 413 ITR 322. Bannalal Jat Constructions Pvt. Ltd. v. ACIT (2019) 418 ITR 291 / 106 taxmann.com 127 (Raj.)(HC). The legal position in relation to statement under section 132(4) of the Income-tax Act, 1961, has been set out as under, in the decision of Madras high Court in Thiru. A. J. Ramesh Kumar v. Dy. CIT (2022) 441 ITR 495 at page 501/ 139 taxmann.com 190 (Mad.) (HC).

An admission is an extremely important piece of evidence though it is not conclusive.
A statement made voluntarily by the appellant could form the basis of assessment.
The mere fact that the appellant retracted the statement could not make the statement unacceptable.
The burden lay on the appellant to show that the admission made by him in the statement earlier at the time of Search/Survey was wrong. Such retraction, however, should be supported by a strong evidence stating that the earlier statement was recorded under duress and coercion, and this has to have certain definite evidence to come to the conclusion indicating that there was an element of compulsion for the appellant to make such statement.
However, a bald assertion to this effect at much belated stage cannot be accepted.

Accordingly, the settled judicial proposition is that a statement made under section 132(4) of the Income-tax Act, 1961, has a strong evidentiary value and is binding on a person who makes it, unless retracted with cogent evidence at the earliest point of time.

31. Statement recorded after the closure of Search Action, whether it can be brought under the purview of section 132(4) : Telangana & Andhra Pradesh High Court in the case of CIT v. Naresh Kumar Agarwal [2015] 53 taxmann.com 306 / [2014] 369 ITR 171 (Telangana)(HC) held that “The circumstances under which a statement is recorded from an assessee in the course of search and seizure are similar to those under section 94 of the Code of Criminal Procedure 1973, by operation of sub- section (13) of section 132. Parliament never intended to place the proceedings under the Act on a higher pedestal than those under the criminal enactment”. In this case Search action was on 9th of January 1996. The statement u/s 132(4) was recorded on 30th March, 1996. The issue before the Court was “such a statement whether could be brought under fold of section 132(4)” of the Income-tax Act, 1961. The Court also held : “The statement of the assessee under section 132(4) is required to be made during the course of search or seizure. Sub-section (4) of section 132 does not permit of any doubt that the statement must be recorded while the search is in progress and before the search is concluded. The question of recording a statement after the conclusion of the search does not arise. There is not even any scope, to explain the delay, once the statement is recorded, after the search. The recording of statement even during the search is not a matter of course. It is only when material such as books of account, documents, money, bullion, jewellery and the like is found or discovered during search, that the statement can be recorded. If the search did not lead to the discovery of any matters there would not be any occasion to record the statement at all. The provision itself is to the effect that the statements recorded shall be treated as evidence in the proceedings under the Act. That would be so, as long as the statement is not retracted. If the assessee comes forward with a plea that his statement was recorded under threat or coercion, the evidentiary value of the statement suffers a serious dent. This is particularly so when the person from whom it is recorded is going to be visited with penal consequences. The provision cannot be taken as a provision laying down any new principle in the law of evidence. The statement recorded under sub-section (4) of section 132 partakes of the character of one recorded by an investigating officer under section 162 of the Code of Criminal Procedure, 1973. It cannot be ascribed the status of a proven fact. At the most, it would constitute the basis for the prosecution to frame its case and correspondingly be material for the defence to ensure that the prosecution sticks to its version. The question of a statement of that nature being treated as clinching evidence by itself, leading to any penal action does not arise”. The Telangana & Andhra Pradesh High Court followed the decision of Andhra Pradesh High Court in the case of CIT v. Shri Ramdas Motor Transport (1999) 238 ITR 177 /102 Taxman 300 (AP)(HC). The Court, dissented from the judgment of Kerala High Court in the case of CIT v. O. Abdul Razak (2013) 350 ITR 71 /207 Taxman 193 (Ker.)(Mag.)(HC), which was the case relating to retraction of voluntary statement, later permitted and whether the voluntary statement has evidentiary value.

32. Placing much reliance on the appraisal report, prepared by the Search Officer, known as ‘appraisal report’ and whether such appraisal report is of relevance for the purposes of assessment: In this context and the reliance, on appraisal report, the decision of Allahabad High Court in the case of CIT v. N K Laminates Pvt. Ltd. [2014] 45 taxmann.com 544 / 365 ITR 211 (All) (HC) is relevant and may be referred to and relied upon. In respect of any case, where search Action takes place, the Search Officer makes a report, termed as appraisal report. This report consists of income computed as inferred by him, as the undisclosed income unearthed during the search, based on his verification of the seized material. Such report is in the nature of a direction to the Assessing Officer, to enable him to proceed with the assessments and computation of income after due appreciation of evidence forth coming in the course of assessment proceedings for the respective assessment year falling within the purview of the Search Action. The law warrants that the Assessing Officer should compute the income with reference to the evidence found during search, after gathering further evidence in the course of hearing. It therefore follows that the Assessing Officer, for all practical purposes of assessment, cannot merely place total reliance on such appraisal report. If according, to the Assessing Officer, the contents of appraisal report are based on inferences and presumptions, he should rely on the evidences further submitted by the assessee before him which suggest that the quantification of undisclosed income as revealing by the appraisal report is not correct, and there being no such undisclosed income as quantified in the appraisal report.

33. Retention of seized assets beyond the time specified in section 132B: The retention of seized assets beyond the time specified in section 132B of Income-tax Act, 1961, is not valid. Gujarat High Court, held in the decision of Ashish Jayantilal Sanghavi v. ITO (2022)139 taxmann.com 126 / 444 ITR 457 (Guj.)(HC) that “The provisions contained in section 132B(1) of the Income-tax Act, 1961, are very clear and unambiguous. Section 132B deals with the assets seized under section 132 or requisitioned under section 132A of the Act. A detailed procedure is prescribed under section 132B(1)(i). Out of such seized assets, the amount of the existing liability or the amount of the liability determined on the completion of the regular assessment or reassessment including any penalty levied or interest payable in connection with such assessment or reassessment is required to be recovered. The first proviso to this section enables the assessee to make an application within 30 days from the end of the month in which the asset was seized. For release of the assets the assessee is required to explain the nature and source of acquisition of such assets to the satisfaction of the Assessing Officer. On such satisfaction and with prior approval of the Chief Commissioner the Assessing Officer is empowered to release the asset to the person from whose custody the assets were seized. The second proviso to this section makes it clear that the assets are required to be released within a period of 120 days from the date on which the last of the authorizations for search under section 132 or for requisition under section 132A, as the case may be, was executed. The statutory provision of section 132B of the Act is very clear. There appears to be a mandate and such mandate is mandatory and not directory. The courts should attach considerable importance to the time frame provided under sections 132A and 132B when it comes to a question of retention of books of account or of seized assets. It is not permissible for the Court to read the time limit provided in the proviso to clause (i) of sub-section (1) of section 132B of the Act as being merely directory. The respondents were directed to hand over the seized asset (diamonds) to the assessee within a period of four weeks from the date of receipt of this order”.

34. The case of Pr. CIT v. Abhisar Buildwell (P.) Ltd.:

The Hon’ble Supreme Court has passed important judgement in the case of Pr. CIT v. Abhisar Buildwell (P.) Ltd. [2023] 149 taxmann.com 399 (SC)/[2023] 293 Taxman 141 (SC). The matter of the civil appeal in the said case pertained to the scope and ambit of section 153A/ 153C of the Income Tax Act, 1961. It was held :

The question which is posed for consideration in the instant set of appeals was, as to whether in respect of completed assessments/unabated assessments, whether the jurisdiction of Assessing Officer to make assessment is confined to incriminating material found during the course of search under section 132 or requisition under section 132A or not, i.e., whether any addition can be made by the Assessing Officer in absence of any incriminating material found during the course of search under section 132 or requisition under section 132A or not. [Para 5]

The Apex Court noted that various High Courts have taken the view that no addition can be made in respect of completed/unabated assessments in absence of any incriminating material. [Para 7]; No addition can be made in respect of completed assessment in absence of any incriminating material. [Para 8]

While considering the issue involved, one has to consider the object and purpose of insertion of section 153A and when there shall be a block assessment under section 153A. [Para 9]

That prior to insertion of section 153A in the statute, the relevant provision for block assessment was under section 158BA. The erstwhile scheme of block assessment under section 158BA envisaged assessment of ‘undisclosed income’ for two reasons, firstly that there were two parallel assessments envisaged under the erstwhile regime, i.e., (i) block assessment under section 158BA to assess the ‘undisclosed income’ and (ii) regular assessment in accordance with the provisions of the Act to make assessment qua income other than undisclosed income. Secondly, that the ‘undisclosed income’ was chargeable to tax at a special rate of 60 per cent under section 113 whereas income other than ‘undisclosed income’ was required to be assessed under regular assessment procedure and was taxable at normal rate. Therefore, section 153A came to be inserted and brought on the statute. Under section 153A regime, the intention of the legislation was to do away with the scheme of two parallel assessments and tax the ‘undisclosed’ income too at the normal rate of tax as against any special rate. Thus, after introduction of section 153A and in case of search, there shall be block assessment for six years. Search assessments/block assessments under section 153A are triggered by conducting of a valid search under section 132. The very purpose of search, which is a prerequisite/ trigger for invoking the provisions of section 153A/153C is detection of undisclosed income by undertaking extraordinary power of search and seizure, i.e., the income which cannot be detected in ordinary course of regular assessment. Thus, the foundation for making search assessments under section 153A/153C can be said to be the existence of incriminating material showing undisclosed income detected as a result of search. [Para 9.1]

Whether object of section 153A is to bring under tax undisclosed income which is found during course of search or pursuant to search or requisition; therefore, only in a case where undisclosed income is found on basis of incriminating material, Assessing Officer would assume the jurisdiction to assess or reassess total income for entire six years block assessment period even in case of completed/unabated assessment- Held, yes – Whether in case of search under section 132 or requisition under section 132A, Assessing Officer assumes jurisdiction for block assessment under section 153A and that all pending assessments/reassessments shall stand abated – Held, yes – Whether in respect of completed assessments/unabated assessments no addition can be made by Assessing Officer in absence of any incriminating material found during course of search under section 132 or requisition under section 132A – Held, yes – Whether, however, completed/ unabated assessments can be reopened by Assessing Officer in exercise of powers under section 147/148 subject to fulfilment of conditions as envisaged/mentioned under section 147/148 and those powers are saved – Held, yes [Paras 8, 12 to 14]

CBDT Instruction No. 1 of 2023 dated 23/08/203 states in para 4, Hon’ble Supreme Court in the cases of Abhisar Buildwell Pvt. Ltd. (Civil Appeal No. 6580 of 2021) and UK Paints (Overseas) Ltd. provided power to the AO to reopen the completed / unabated assessments u/s 147/148 of the Act, subject to fulfilment of the conditions as envisaged / mentioned u/s 147/148 of the Act, in cases where no incriminating material is found during the search. The CBDT has prescribed various guidelines for assessments in case of pending / abated assessments and completed/ unabated assessments in the said Instruction No.1 of 2023. Para 8 of the said Instruction elaborates the procedure required to be followed by the field formations to comply with the Supreme Court judgement.

On a careful reading of the said Instruction No. 1 dated 23rd August 2023 it appears that the Supreme Court decision has not been properly appreciated in full. And the decision of Delhi High Court in the case of Kabul Chawla has also not been followed.