Survey, Search & Seizure: Legal Framework under the Income Tax Act, 1961

The Income Tax Act, 1961 (hereinafter “the Act”), empowers the Income Tax Department with several tools to ensure tax compliance and prevent tax evasion. Among the most critical mechanisms are the powers of survey (Section 133A), search and seizure (Section 132), and related provisions. These provisions provide authorities the legal basis to enter premises, collect information, seize unaccounted assets, and detect undisclosed income. 

Survey under Section 133A

Purpose and Scope

A survey is a fact-finding mission with limited intrusion, intended to collect information and verify compliance. Under Section 133A, the income tax authority may enter any place of business or profession to:

• Inspect books of account and documents.
• Verify cash, stock, or other valuable articles.
• Record statements of employees or proprietors.

Surveys can be conducted during business hours only.

Types of Surveys

Business premises survey – most common, relates to verifying records and operations.

• TDS Survey [Section 133A(2A)] – focuses on TDS/TCS defaults.
• Verification Surveys – conducted for collecting information based on risk profiling.

Limitations and Safeguards

• Entry is allowed only during the hours the place is open.
• Officers cannot seize valuables unless found during the course of survey and specifically allowed by amendment.
• A survey should not be converted into a search without proper authorisation.

Commissioner of Income Tax, Chennai v. S. Ajit Kumar (2018)

In this case, the Supreme Court held that material found during a survey at a third party’s premises can be used in a block assessment if it is connected to evidence found in a search. The Court upheld the addition of ₹95.16 lakhs as undisclosed income and restored the Assessing Officer’s order, setting aside the High Court and Tribunal rulings.

Search and Seizure under Section 132

Meaning and Legal Authority

Section 132 empowers the Income Tax Department to conduct search and seizure operations—commonly referred to as "IT raids." This is more invasive than a survey and aims to unearth undisclosed income and assets.

Preconditions for Search

A search under Section 132 can be authorised when:

• A person is suspected to be in possession of undisclosed income/assets.
• There is reason to believe that books of accounts or assets may be hidden or not produced.
• A person has failed to comply with a notice under Section 142(1) or 143(2).

Authorisation must come from the Director General, Director, Chief Commissioner, or Commissioner of Income Tax.

Procedure for Conducting a Search

• A warrant of authorisation must be issued.
• Entry and search of buildings, vessels, aircraft, or vehicles.
• Seizure of books, documents, money, bullion, or other assets.
• Recording of statement under oath.
• Panchnama preparation in the presence of witnesses.

Post-search, a notice under Section 153A (for six preceding assessment years) is usually issued.

Powers During Search and Seizure under Section 132 of the Income Tax Act, 1961

The authorised officer conducting a search and seizure operation under the Income Tax Act is empowered to:

1. Enter and Search: Enter and search any building, place, vessel, vehicle, or aircraft where undisclosed assets, books, or documents are suspected to be kept.
2. Break Open Locks: Break open locks of doors, lockers, boxes, safes, or other receptacles if keys are not available.
3. Search Individuals: Search any person present at or entering/leaving the premises if suspected of concealing relevant material.
4. Inspect Electronic Records: Require access to and inspect books of account or documents maintained in electronic form.
5. Seize Items: Seize books of account, documents, money, bullion, jewellery, or other valuable articles found during the search (except stock-in-trade, which shall only be inventoried).
6. Issue Restraint Orders: If physical seizure is impractical, issue an order prohibiting removal or dealing with such items—this is deemed a legal seizure.
7. Mark and Copy Documents: Place identification marks on documents and make copies or extracts.
8. Prepare Inventory: Make a note or inventory of the assets found.
9. Examine on Oath: Examine on oath any person in possession or control of relevant material, and use their statement as evidence.
10. Presumptions: Presume ownership, accuracy of contents, and authenticity of seized documents unless rebutted.
11. Seek Assistance: Requisition help from police or other Central Government officers to aid in the search and seizure.
12. Retention: Retain seized materials only with proper approval and not beyond specified time limits post-assessment.
13. Allow Copies: Permit the person searched to make copies or take extracts from seized materials in the officer’s presence.
14. Transfer to Jurisdictional Officer: Handover seized assets to the jurisdictional Assessing Officer within 60 days if the authorised officer lacks jurisdiction.
15. Follow CrPC (currently BNSS) Provisions: Comply with the applicable provisions of the Code of Criminal Procedure, 1973 (currently Bharatiya Nagarik Suraksha Sanhita, 2023) during search and seizure.
    
16. CBDT Rulemaking: Follow rules issued by the CBDT regarding entry procedures and custody of seized assets.

Requisition under Section 132A

When the tax authority has credible information that another agency (e.g., police, customs) has seized assets belonging to a person suspected of tax evasion, they may requisition the assets under Section 132A, often called a “search without search.”

Application of Seized or Requisitioned Assets under the Income Tax Act

Under Section 132B of the Income Tax Act, 1961, assets seized during a search (u/s 132) or requisitioned (u/s 132A) can be applied toward discharging liabilities of the person searched. These liabilities include existing and assessed dues under the Income Tax Act and other allied Acts like Wealth-tax, Gift-tax, etc.

Key Provisions:

1. Use of Assets:

Seized/requisitioned assets can be used to settle tax liabilities (including penalties and interest) determined in assessments (u/s 153A or Chapter XIV-B).

If the person explains the nature and source of the asset within 30 days of the seizure, the Assessing Officer, with prior approval, may release the remaining assets after recovering the dues.

If assets include money, it can directly be applied to settle the dues. If not, other assets can be deemed under distraint and sold accordingly.

2. Timeline for Release:

Assets must be released within 120 days from the date of the last executed search/requisition authorisation, subject to satisfaction of conditions.

3. Interest Provision:

The Central Government shall pay simple interest at 0.5% per month on any excess seized money after dues are settled. This interest accrues after 120 days from the last search/requisition execution until assessment completion.

4. Return of Balance:

Any remaining assets or sale proceeds post-recovery of tax liabilities must be returned to the person from whom they were seized.

5. Supplementary Recovery:

The Act also allows other recovery modes in addition to using seized assets.

This section ensures fair treatment of taxpayers' seized assets while allowing the tax authorities an effective recovery mechanism, balanced by timelines and interest payments.

Penalty and Prosecution

1. Penalty for Undisclosed Income (Section 271AAB)

If undisclosed income is found during a search initiated under Section 132, penalty ranging from 10% to 60% of the undisclosed income may be levied depending on circumstances and disclosure made.

2. Prosecution under Section 276C

Willful attempt to evade tax uncovered during search may lead to prosecution with imprisonment ranging from 3 months to 7 years, along with a fine.

Finance Act, 2017

Finance Act 2017 inserted an Explanation to Section 132, stating that the “reason to believe” for search need not be disclosed to any person or authority or appellate tribunal—effectively shielding the basis of authorization from scrutiny.

Amendments Introduced by the Finance Act, 2025

1. Amendment to Section 132 – Search and Seizure

(a) In sub-section (8) of Section 132, the phrase:

“thirty days from the date of the order of assessment or reassessment or recomputation”

has been substituted with:

“one month from the end of the quarter in which the order of assessment or reassessment or recomputation is made”.

(b) In Explanation 1 to Section 132, in the opening line, the word:

“authorisation”

has been substituted with:

“authorisations”.

2. Amendment to Section 132B – Application of Seized or Requisitioned Assets

In Explanation 1, clause (ii) of Section 132B, the reference to:

“Explanation 2 to section 158BE”

has been replaced with:

“Explanation to section 158B”.

Provision in the Income-tax Bill, 2025:

"To gain access to any such computer system or virtual digital space by overriding the access code, in cases where such access code is not otherwise available." [Section 274 (1) (b) (iii)]

This provision appears to expand the scope of permissible actions—likely for tax authorities—enabling access to encrypted or protected digital environments where passwords or access credentials are unavailable, possibly during search, seizure, or investigation.

Conclusion

The powers of survey, search, and seizure under the Income Tax Act, 1961 are essential for enforcing tax compliance. However, these powers come with corresponding duties and judicial oversight. Both taxpayers and authorities must act within the bounds of law to maintain fairness and efficiency in the tax administration process.

References

[1] Income Tax Act, 1961

[2] Commissioner of Income Tax, Chennai v. S. Ajit Kumar, Civil Appeal No. 10164 of 2010

[3] Finance Act 2017

[4] Finance Act 2025

[5] Income Tax Bill 2025