Income Tax officials, Taxpayers and the Power of Search and Seizure

The income tax officials conduct search and seizures wherein most of the times it results in the unearthing of huge amounts of wealth concealed from the authorities but on the other hand abuse of this power has also been seen.

Introduction

“It must always be remembered that what the Constitution forbids is not all searches and seizures, but unreasonable searches and seizures.”- Potter Stewart

The term ‘search’ means any operation of the government or its officials which involves checking or carefully inspecting an area, person, vehicles, his properties, object, and any other location, etc. to find something hidden which may be illegal and reveal evidence related to crime or offense.

The term ‘seizure’ is a hard activity that is sudden and unexpected which confiscates, removes, or captures any illegal objects which are found in the ‘search’ for further investigation. Section 91 to 100 of Chapter VII of the Code of Criminal Procedure 1973 deals with such procedures, warrants and summon, search, and seizures. But here we will talk about the procedure of search and seizure under the Income Tax Act 1961, which under Section 132.

The origin of this provision will mark its golden jubilee real soon as this section was substituted by the Finance Act of 1964. Section 132 got through many hauls over the years and different committees have made different suggestions & recommendations on search and seizure procedures, but these suggestions have not being given any serious considerations.

For the first time, search and seizure provisions were included in section 37 of the Income-tax act of 1922 and which was held to be constitutionally valid in the case of Pooran Mal v. Director of Inspection[1] wherein the income tax act of 1961 was challenged and held violative of Article 14[2] of the petitioner. Though such provisions are enacted there are certain safeguards to ensure that right of privacy and freedom of the citizens are not infringed because it is a valuable right of civilized society under Articles 21 and 19 of the Indian Constitution, which was confirmed in the matter of Janak Raj Sharma v. Director of Inspection[3]

Why search and seizures are required?

Under the Income-Tax Act, searches and seizures are done through raids. The Income Tax Officials monitor the incomes of government officials, politicians, and other civilians and tax that they pay. If they suspect any inconsistencies in the patent of the taxes they try to find certain evidence to produce a warrant for raid. This raid is actually an investigation of different sources of income and immovable and movable properties of the offender, who has tried to evade taxes or is deemed to be in possession of another’s property that has not been disclosed.

In Bapurao v. Additional Director of Inspection[4], followed by Sardar Parduman Singh v. Union of India[5] any immovable property cannot be seized. Though it is a drastic step, it has been upheld with constitutional validity and is deemed absolutely necessary in cases where extreme action against the offender is needed by the income tax department.

The objective of this provision is merely to ensure that any threat to social security is not present which should be dealt with immediately if present. It directly gives proof and provides quick action against a long-term hidden income or wealth, tax evasion practices, and the exchange of black money in the economy by the offender. With this provision, the laws laid down by the constitution of India can be upheld and such offenses can be identified easily.

It is necessary to open taxpayers’ true financial state and find any corrupt practices in the case of government servants. Thus, such a provision is a very powerful tool and weapon in the armoury of the income tax department but it should be ensured that this proviso is not used arbitrarily just to cause trouble to taxpayers.

Who can issue the order for search and seizure?

The authorized officer to issue such an order for search and seizure can be the Director-General or Director, Chief Commissioner or Commissioner, any Joint Director or Joint Commissioner (empowered by the board) of the Income-tax department. All these officials can even authorize any competent subordinate officer to carry out the order/warrant to conduct raid-search-seizure. The authorized officer & authorization is issued by Form no 45 for a warrant. In N. K. Mohnot v. CIT[6] it was stated that any officer who authorizes the survey is fully empowered under section 133A to remain present at the spot of the survey for supervising

What are the Conditions for search and seizure?

• Section 132(1) says that any authorized officer who is empowered by the board if he has reason to believe that any action is required against the offender then he can do so under the below-given sections which are :
• Under Section 132(1)(a) & Section 132(1)(b) a person can be summoned or be served by the notice under section 142(1) to produce and disclose all the records and books of the accounts and other useful documents to the department for the relevant procedures under the act, on failure or omission to do so, the person can be penalized.
• Section 132(1)(c) says that if any person who is in possession of money, jewellery, immovable property, or other valuable belongings, presents and discloses only a part of the income or property to the department.

Powers exercised during a search by the authorities

Under sub-section 3 of 133A the authorized officer of the income tax department has the power to ender into building, vehicle, aircraft, place vessel and search and to search suspected disclosed or secret account books and other documents, jewellery, money, any electronic or digital records, and other valuable items, he also has the power to seize and to make any note or inventory such items if necessary. The officer should apply his brain in seizing certain assets and should not just arbitrarily do so just to trouble the taxpayer and should not be an unauthorized officer.

In the case of Amardeep Singh v. DIT[7] a police officer seized cash and later the IT authorities requisitioned the case under section 132A of the Act, save as otherwise provided in section 153A, 153B, 153C AND 153D. And for it, he is authorized to break open any safe, almirah, door, box, etc, or ask the key for the same. He can place specific marks for the identification of the items and copies.

Under proviso 2nd of section 132(1) if any item is not possible to carry or take its physical possession due to its size or weight or other physical characters then any such valuable Article or evidence can be served with an order of not removing or parting or dealing with, such order shall be considered and deemed as seizure as stated under the case of CIT v. Sandhya P. Naik[8] wherein prohibitory order could be issued for business stock.

The authorized officer has a right to demand the assistance of the police or any other officer of the central government and medical partitioner if necessary. The authorized officer is also empowered to pass an order prohibiting the person in possession or control of any books, documents, money. Bullion, jewellery or other valuable Article or things without prior permission, other than deemed seizure mentioned above under Section 132(3).

This order is valid only for 60 days from the date of the order under Section 132 (8A). He has the power to examine on oath any person who is found to be in possession or control of any books, documents, money, bullion, jewellery, or other valuable article or thing and record any statement made by such person during such examination. And under Section 132(4)] this statement may be used in evidence in any proceeding under the Act.

Under section 134 the authority may inspect copies of the company’s registered members, debenture-holders or any other document. Section 135 any authorized officer is competent to make an inquiry under this act.

Who can be searched?

Any person who fails to comply with the above-stated section under the Income Tax act 1961 can be compelled to be searched and their property raided and investigated. Though the raiding officer should have a solid reason to carry out such an action against the offender. The case of Marchand & Co. v. CIT[9] said that the authorized officer will have the burden of proof to prove the basis of search and seizure in a case where the offender has suppressed the account books and another important document relevant to investigation proceedings.

The same was reiterated in Kusum Lata v. CIT[10]. In the case of CIT v. Ramesh Chander[11], the court said that the authorizing officer should have information regarding two matters:- firstly, that the person being searched is in possession of excess money or undisclosed accounts, and secondly, such money represents partly or wholly undisclosed income or property.

Rights of the person being searched

To ask and see an authorization warrant validly signed and sealed by the issuing authority and to identify each member of the search party and make a personal search before and after the party of all search members. To allow only personal search of a lady by a female search officer only with strict decency and dignity. To have proper local and independent resident witnesses of the search procedure.

If a search party arrives at a residence where a lady is reading, she has a right to withdraw before the search party enters if she does not come out in public. To have immediate medical attention in case of an emergency and allow children to go to school after certain checking. To have meals at proper times and to inspect placing and opening of seals on certain objects which were taken for investigation.

Under section 132(4) any person being searched have a right to record his statement correctly and have a copy of the statement and of the panchanama with all the annexures which are issued against him by the income tax department. In the matter of Dr. Pratap Singh v. Director of Enforcement[12], the court said that only the Apex court and other high courts have the jurisdiction to call and look for the reasons recorded to decide whether the issue of the search warrant was called for. To have an inspection of all confiscated records, account books, etc, and to extract them in the presence of competent authorized officers.

Under section 153A The person being searched has a right to make an appeal or application of objection against approval given by the income tax commissioner for retention of documents and books which are 30 days after the date of order or assessment. In Pooranmal v. Director of inspection income tax[13] the court said the materials found and confiscated during a search and seizure illegally or irregular can nevertheless be used for the purpose of an ordinary assessment. In Ram Kumar Dhanuka v. Union of India[14], the court said that any non­resident is not immune from being within the reach of powers of search and seizure.

Duties of the person being searched

To permit hindrance-free entrance into the premises and to see and sign the warrant of the search party. To co-operate in handing and identifying all the keys of every box which keeps the accounts, assets, or other documents to the officer and help explain the ownerships of different properties. To identify and explain the relationship of every person present on the premise and if tries to cheat or personate or pretend any person then he will be held liable for misleading the procedure under section 416[15].

To discourage entry of any unauthorized person into the premises and to not to remove, destroy any object or Article from its place without notifying the authorized officers, so as to avert it being used as incriminating evidence in the court, which is punishable under section 204[16].

To answer all the questions truthfully and with the best of his knowledge and not perjure himself, if he refuses to do so he can be held liable under section 179[17]. If he lies under oath or affirmation to state or produces fake evidence then he will be liable for punishment under sections 181 & 191[18]. He must attest his signatures on his recorded statements, panchanama, and investors and maintain peace, co-operation throughout the process of search and even after when it over to enable the authorized officer to finish required follow-up investigations.

Procedures of those being searched who feels they have been wrongly raided

If an assessee feels that they have been under unfair suspicion and arbitrarily searched and raided by the income tax department, then they can rightfully challenge this raid by filing an appeal before the Commissioner of Income Tax or file a writ petition under the High court of their state. After the Income Tax Department has conducted seizure of all documentation or undisclosed property under suspicion, it can re-conduct assessment for the six years prior to the conclusion of the raid for any reason it deems fit.”

Clashes between the Income-tax authority and taxpayer

The preamble of India declares it a socialist, secular, democratic republic that upholds justice, equality, and fraternity in social, economical, political, and religious spheres. The constitutional structure next to the imperative of democratic responsibility has shepherded new forms & steps to formulate to improve Social Security fulfilled towards the unorganized sector of the nation.

According to the Hon’ble Supreme Court of India, the main objective of socialism is to rule out the difference in status, income, quality of life, and provide a dignified life to ensure economic, political, and social justice to any or all of its voters. The principles of the Constitution guarantees Article 19 to the right of freedom, Article 21 to ensure the elementary right to life of being treated right with basic dignity for all Article 14 guarantees the right to quality to every citizen- The three golden Triangle[19].

But government under the spirit of the Constitution has enormous duties and responsibilities to fulfil which gets funding from taxpayers as revenue, but the latter is always trying to evade taxes and hence the Direct Taxes Enquiry Committee has stated that the increasing problem of black money and tax evasion has become acute, which gives rise to hardships to common people. The question, therefore, comes not to escalate how far one’s right to privacy should yield to the interests of the society but has to be an equitable balance between the rights of individual and welfare society.

The tax authorities conduct search and seizures wherein most of the times it results in the unearthing of huge amounts of wealth concealed from the authorities but on the other hand abuse of this power has also been seen. Recently prime minister Modi issued a statement that if any officer is seeing abusing this power against honest taxpayers then strict actions will be taken against the officers. But it is not enough, more intensification and increased integrity of the process of search and seizure is required to improve this situation because the concept of privacy is a fundamental right and measures should be taken to uphold it.

A different perspective of search and seizure

This concept becomes known to the legal system in begin got the 18th century as common law considered every person’s house as his castle wherein the state has entrusted social security, order, and protection of privacy for its residents, but later a limited power of search and seizure was granted to authorities and were recognized by the court of law. In India, search and seizure were incorporated in CrPC 1898 and the Supreme Court said that recognition and check of this power is an overriding power of every state’s jurisprudential system for the protection of social security and that power is regulated by law.

Eventually, conflicts between social interest and individual interest are due to economic activities and hence search and security were introduced in many other legislations. During the world war’s crisis, this power was used for the first time by Indian officers but this was held to be ultra vires by the court in the case of Suraj Mall Mohta & Co. v. A.V. vishwanatha[20], thereafter the central government on the recommendation of the Taxation Enquiry Commission re-issued the power of search and seizure

Judicial stand on the issue of Right to Privacy

The power of search and seizure was challenged as being violative of Article 19 i.e, right to freedom, and 20[21] i.e, protection against self-incrimination of the constitution of India, and courts unanimously held that “search was not a restriction on the right to hold and enjoy the property and is only for the limited purpose of investigation”.

The apex court in the State of Rajasthan v. Rehman[22] states that “As search is a process exceedingly arbitrary in character, stringent statuary conditions are imposed on the exercise of the power” and in another case of Kharak Singh v. State of U.P.[23] the court “equated the right of property and personal liberty with the rights transcending from the Fourth Amendment of the U.S. Constitution ”.

Article 14 of the Indian constitution ensures the '1right to equality and equal protection of law throughout the territory of India which does not prohibit class legislation given that the classification is absolutely reasonable. and Article 12 ensures rule of law i.e, no one is above law.

The apex court in establishing the applicability of Article 14 into the taxation laws stated that in “applicability of the principles of classification the courts with a view of the inherent complexity of fiscal adjustments of diverse elements allows a large discretion to the legislature in matters of classification as long as it adheres to the fundamental principle of the said doctrine”. The duty of legislation is to classify wide range and flexibility so that it can adjust in the taxation system properly.

In the matter of Bhupendra Ratilal Thakkar v. C.I.T. Gujarat[24] the court said that section 112B & 112C[25] provides for the release of Articles and seized objects and assets are considered beneficial rules and hence there is no satisfactory reason for challenging their constitutional validity under Article 14. Article 19[26] provides freedom with reasonable restrictions, imposed within the interest of the general public and when there is a conflict between a fundamental right of a citizen and social interest, at what level the extent of the former is to be yielded as to the latter is to be decided from every case’s factors.

As a socialist welfare democratic state, it is important to establish effective enforcement of the law to balance the rights of individuals and the welfare of society. When an individual relinquishes a part of his personal prerogative through the legislative procedure in order to be free from criminal activities of others for him and his fellow citizens.

And through this process, the officer is allowed to invade the privacy rights and liberties to disclose information but if an officer has unlimited authority where he deliberately ignores personal liberties then the product is a police state and if he is barred from any interference with private rights the result is criminal anarchy and hence in light of this it is the duty of the judges to provide society with maximum protection from criminals who interfere with individual liberties.

The court in Pooran Mal case[27] repelled the challenge of search and seizure’s constitutional validity as being violative of Article 19(1)(f) & (g)[28] and similarity challenge against search and concept on the grounds of infringing the Article 20[29] is also been struck down.

The court stated that “it was not unaware of existing set up of magistracy in this country, it was not infrequently that the exercise of the judicial function was liable to serious error. But according to it the existence stop for such occasional error was no ground to assume circumvention of the constitutional guarantees.”

Article 21 and 31(1)[30] provides a fundamental guarantee of the right to life with dignity and right to property and he can’t be deprived of such rights except procedure established by authority of law. And in Kesavananda Bharti vs UOI[31] the government can not deprive a person of any right under Article 21 and hence the authority of law means that, that particular law should be valid and not violative of any fundamental rights.

With special reference to taxation law in the compulsory acquisition of property, they are placed beyond the scope of Article 31(2), because clause (5) of the section states that nothing in Article 31(1) can affect any law for the purpose of imposing or levying any tax or penalty. But the rule that a person can be deprived of his property only by authority of law is applicable to taxation law equally because authorities should have sufficient powers to prevent tax evasions and thus is not violative of Part 3 of the constitution and section 132 is constitutionally valid.

Any action of search and seizure by authorities under section 132 if deemed arbitrary, then under violation the action may be struck down. To avoid this situation, safeguards against arbitrary actions and bad behaviour of officers are provided which are to be strictly followed under section 132 and Rule 112.In the matter of Rajendran Chingaravlelu (Mr) v. R. K. Mishra, Addl. CIT[32] “the court shunned the practices of various officers of informing the media before an investigation is completed. Thus, a trial by media has to be strictly avoided in case of raids as well”.

Right to Privacy: The supreme court has warned “that by the exercise of the power of search and seizure a serious invasion is made upon the right of privacy and freedom of the taxpayer under Article 21 but being alive to the fact that there are sufficient safeguards and various limitation on the exercise of this power it has observed that the power must be exercised strictly in accordance with the law and only for purposes for which the law authorizes it to be exercised, if the action is maliciously taken or the power under the Act is exercised for a collateral purpose, it is liable to be struck down by the court.

The officers searching must have a reason to believe that the offender is liable and that belief should in good faith and the reason should be that of a prudent man. If the conditions for the exercise of the power are not satisfied the proceeding is liable to be quashed.

But where power is exercised bona fide, and in furtherance of the statutory duties of the tax officers, any error of judgment on the part of the officers will not vitiate the exercise of the power. In H.L. Sibal v. C.I.T[33], the court quashed the proceedings taken under section 132(5) against an advocate because no information was found and the power having been exercised for collateral purposes the High Court of Punjab and Haryana went to the extent of directing the issuance of notice to the high-income tax authorities and Assistant Director of Intelligence to show cause why complaint under section 193[34] for the fabrication of false evidence which should not be filed against them.

It is also established that if procuring evidence falsely under illegal search, then that evidence even if it itself is illegal it still becomes inadmissible in court as this violates the use of evidence under Article 20(3). However, in certain USA cases, the supreme court accepted relevant evidence even if the search was illegal. Under section 293[35] an assessee is prevented from bringing suits in civil courts to set aside or modify any assessment order made under the Act. This is in harmony with the principle that the Income-tax Act exhaustively defines the remedies of the taxpayer. The assessee has to find his remedies within the four corners of the Act.

This was the position of law as laid down by the Supreme Court in CIT v. The Tribune Trust’s[36], followed and reaffirmed by it up to the case of State of Kerala v. Ramaswami Iyer[37]. However, the Supreme Court being conscious of part III of the Constitution, guaranteeing fundamental rights, the distribution of powers between the state and the center, and overall limitations placed on the authorities has pronounced that a suit challenging the validity of the provisions under which the assessment is made and praying for the refund of tax paid under a mistake of law or otherwise is maintainable.

Accordingly, the income-tax authorities and the tribunal cannot decide upon the validity or vires of those sections under which they are appointed or constituted, or of the sections from which their powers and functions are derived. But they are not debarred from considering the validity or vires of the other provisions of the Act. In view of this position, the authorities under the Act and the High Courts and the Supreme Court in reference proceedings have jurisdiction to decide questions of vires of the provisions of the Income-tax Act or the rules made thereunder. Limits under section 293 on maintainability of a suit do not effects high or supreme courts writs jurisdiction.

Writs: Apart from civil courts an assessee can also reach to High court under Article 226[38] and the Supreme Court under Article 32[39] to issue the writs, directions, and orders to enforce the fundamental rights which have been infringed. A writ that can be issued are:

• Of prohibition to prohibit the authorities from transgressing the limits of their jurisdiction
• Of Mandamus to compel the tax authorities to perform certain duties or to pay damages
• Of certiorari to quash quasi-juridical proceedings taken by authorities with an excess of jurisdiction or due to natural justice or to quash summon or order passed by such authorities

Conclusion

Search and seizure is an important power give to the taxation authorities to identify the wrongdoer. But this power and the rights of individuals have a very thin line between them and hence proper checks and balances should be upheld to ensure natural justice and guarantee fundamental rights under the constitution. The state has a duty to protect its citizens’ freedoms and privileges but it is also responsible to punish wrongdoers and the same can be achieved only when the power is delegated because a single part of government can spread its umbrella in every law and order situation. Social security and order should be maintained in a sustainable manner to avert such clashes between the authorities and taxpayers.

By harmonizing the opposite factors i.e, interests of society and interests of individual clashes can be avoided. The power given to such officers should always be checked and be kept under the scope of scrutinized to ensure they do not abuse this power in excess nor do corrupt practices because such legislative machinery is installed for the welfare of society and not to exploit, harass or cause inconvenience to them whereas any privilege or freedom is no absolute and hence they can be exercised with reasonable restriction and hence if the taxpayer is seen misusing it then it is constitutionally wrong and the offender is bound to be punished.

As the saying is “desperate situations demand desperate measures”— proper procedures and steps such as search and seizure are necessary to bring out the bad apple among the group as one rotten apple can infect the others too.

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Bibliography

• Matta, A.M. “Search and Seizure under Income Tax Law” Journal of the Indian Law Institute, vol. 21, no. 4, 1979, pp. 575–591. JSTOR, . Available Here
• C.A Chetan Karia, Survey, Search, Seizure, Available Here
• Income Tax Raid, Search and Seizure – What, When, How, Available Here
• Uzair Ahmad Khan, Powers and Procedure for Income Tax Raids (Search and Investigation), Available Here
• Vivek Malhotra, Search and Seizure & Survey under Income Tax Act 1961, Clear Tax, Available Here
• Jain, M. P. “POWER OF SEARCH AND SEIZURE.” Journal of the Indian Law Institute, vol. 11, no. 4, 1969, pp. 535–543. JSTOR, Available here
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• Right To Privacy Under Article 21 and the Related Conflicts, Legal Services India, Available Here
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• Sudhir Naib, The Right To Information Act,2005: A Handbook
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• H.N Motiwala, Practical Issues in Search & Survey Under Income Tax Act, 1961, Available Here
• Search/Survey – Rights and Duties, Available Here

[1] 93 ITR 505 (SC)

[2] The Constitution of India, 1950

[3] 215 ITR 234 (P & H)

[4] 247 ITR 98

[5] 166 ITR 115

[6] 240 ITR 562(Mad)

[7] 252 ITR 139 (P & H)

[8] 253 ITR 534 (Bom)

[9] (1970) 76 ITR 217 (CAL)

[10] (1989) 180 ITR365 (RAJ)

[11] (1974) 93 ITR 450 (PUN)

[12] 1985 AIR 989, 1985 SCR (3) 969

[13] (1974) 97 ITR 505 (SC)

[14] 252 ITR 205

[15] The Indian Penal Code, 1860

[16] ibid

[17] ibid

[18] ibid

[19] The Constitution of India, 1950′

[20] 1954 AIR 545, 1955 SCR 448

[21] The Constitution of India, 1950

[22] AIR 1960 SC 210, 1960 CriLJ 286, 1978 (2) ELT 294 SC, 1960 1 SCR 991

[23] 1963 AIR 1295, 1964 SCR (1) 332

[24] [1976] 102 ITR 531 (SC)

[25] Income tax act 1962

[26] The Constitution of India, 1950

[27] 1974 AIR 348, 1974 SCR (2) 704

[28] The Constitution of India, 1950

[29] ibid

[30] ibid

[31] (1983) 4 SCC 225; AIR 1973 SC 1461

[32] (2010) 320 ITR 1 (SC) (10)

[33] 1975 101 ITR 112 (P & H)

[34] The Indian Penal Code , 1860

[35] The Income-tax Act, 1961

[36] (1948) 50 BOMLR 566

[37] 1966 AIR 1738, 1966 SCR (3) 582

[38] The Constitution of India, 1950

[39] ibid

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