Income Tax Search and Seizure | Case Laws on Significant Issues

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Income Tax Search and Seizure Case Laws

Table of Contents

1. Search and Seizure – Nature of Provisions

2. Circumstances when Search can be Initiated

3. Authorization of Search

4. Validity of Search – Writ Jurisdiction

5. Actual Conduct of Search Operations

6. Seizure of Books of Account, Documents and Assets

7. Restraint Order- Section 132(3) and Section 132(8A)

8. Recording of Statement – Section 132(4)

9. Presumption under Section 132(4A)

10. Section 132(8)/132(10)/132(9)/132(9A)

11. Requisition under Section 132A

12. Assessment of search cases under section 153A/153C

13. Handling of Assessment in Search Cases

14. Penalties & Prosecution in Search Cases

15. Application to Settlement Commission in Search Cases

Check out Taxmann's Law Relating to Search & Seizure which provides an in-depth analysis of various provisions of law relating to Search & Seizure and assessment of search cases with the help of FAQs, checklists, and a reckoner of leading Case Laws. This book is amended by the Finance Act 2023 & Case Laws are updated until March 2023.

1. Search and Seizure – Nature of Provisions

1.1 Power of search to be exercised strictly in terms of law

1.2 No power of arrest in the case of income tax search

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2. Circumstances when Search can be Initiated

2.1 Provisions of section 132(1) to be construed strictly

2.2 Authorisation of search on the basis of assumption of non-compliance of notice/summon as given under section 132(1)(b)

2.3 Information in possession of the competent authority on the basis of which search is authorised not to be based upon rumours or suspicion or vague facts

2.4 Information in possession of the competent authority on the basis of which search is authorised not to be general in nature

2.5 Information in possession of the competent authority on the basis of which search is authorised not for fishing or roving enquiry

2.6 Information in possession of the competent authority on the basis of which search is authorised can be based upon reports from other authorities

2.7 Before authorizing search information should be verified

2.8 Before authorizing search there has to be reason to believe not reason to suspect

2.9 Formation of reason to believe separately for each person

2.10 There has to be nexus between information and reason to believe

2.11 Reasons recorded for authorizing search need not be communicated

2.12 Circumstances when survey can be converted into search

  • Asstt. CIT v. Panchuram Deshmukh (2010) 40 DTR 252 (Bilaspur) (Trib.)/(2010) 133 TTJ (Bilaspur) 53
  • Vinod Goel v. Union of India (2001) 252 ITR 29 (P&H)
  • Asstt. CIT v. Mangaram Chaudhary HUF (2008) 119 TTJ (Hyd.) 671/(2010) 123 ITD 359
  • Badri Ram Choudhary v. Asstt. CIT (2012) 67 DTR 107 (Jd.) (Trib.)/(2012) 145 TTJ (Jd) 7

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3. Authorization of Search

3.1 Search warrant can be issued in joint name

3.2 Issue of blank search warrant is illegal and may vitiate the whole process of search

3.3 Search warrant is not required to be served to the person under search

4. Validity of Search – Writ Jurisdiction

4.1 Satisfaction note recorded by competent authority not to be shown to the person searched. Validity of satisfaction note cannot be subject matter to be decided by ITAT. Illegality of search can be decided by High Court/Supreme Court in writ jurisdiction

4.2 Validity of search

4.3 Irregularity during search does not make the search illegal

4.4 Evidences collected during illegal search can be made use of by the department

4.5 High Court cannot examine sufficiency of reasons recorded by competent authority

4.6 Scope of writ petition under article 226

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5. Actual Conduct of Search Operations

5.1 Search should be completed expeditiously – No undue delay permitted

5.2 Services of police officers permitted during search

6. Seizure of Books of Account, Documents and Assets

6.1 Seizure of assets belonging to other persons

6.2 Opportunity to assessee before seizure is made

6.3 Power to seal whole premises

6.4 Seizure of title deed of immovable property

6.5 Immovable property cannot be seized

6.6 No seizure of assets when source of acquisition is explained

7. Restraint Order- Section 132(3) and Section 132(8A)

7.1 Restraint order u/s 132(3) can be passed only for books of account, other document or assets which are liable to be seized

7.2 Restraint order u/s 132(3) not to be used to keep the search operation pending

7.3 Restraint order to be addressed to the assessee

  • ITO v. M. Shajahan (1976) 104 ITR 347 (Ker.)
  • Jain & Jain v. Union of India (1981) 134 ITR 655 (Bom.)

7.4 Restraint order to expire after 60 days

7.5 Restraint order cannot be renewed from time to time

7.6 Restraint order to be lifted expeditiously

7.7 Whether restraint order can be passed with respect to bank accounts, fixed deposits, etc.

7.8 Restraint order cannot be put on whole premises

7.7 Restraint order does not amount to seizure

7.8 Prosecution for contravention of restraint order passed under section 132(3)

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8. Recording of Statement – Section 132(4)

8.1 Statement u/s 132(4) recorded on oath can be used as evidence in any proceedings under the Act

8.2 Evidentiary value of statement recorded u/s 132(4)

8.3 Issue of summon under section 131(1A) after the conduct of search

8.4 Retraction of statement given under section 132(4)

  • Nagubai Armul v. B. Sharma Rao AIR 1956 SC 100
  • Sarwan Singh Rattan Singh v. State of Punjab AIR 1957 SC 637
  • Avadh Kishore Das v. Ram Gopal AIR 1979 SC 861
  • Asstt. CIT v. Rameshchandra R. Patel (2005) 94 TTJ (Ahd.) (TM) 361/89 ITD 203 (Ahd.) (TM)
  • Asstt. CIT v. Jorawar Singh M. Rathod (2005) 94 TTJ (Ahd.) 867
  • Dhunjibhoy Stud & Agricultural Farm v. Dy. CIT (2002) 82 ITD 18 (Pune) (TM)
  • Hiralal Maganlal & Co. v. Dy. CIT (2005) 96 ITD 113 (Mum.)

8.5 Consequences of retraction

8.6 In case of retraction burden of proof on assessee

8.7 Undisclosed income can be assessed having regard to nature of evidences

  • ITO v. Ashok Kumar Aggarwal (1990) 38 TTJ (Del.) 189
  • Pullangode Rubber Produce Co. Ltd. v. State of Kerala (1973) 91 ITR 18 (SC)
  • Dy. CIT v. M.L. Jain (2005) 96 TTJ (Jodh.) 362
  • Asstt. CIT v. Anoop Kumar (2005) 94 TTJ (Asr.) 288
  • S.R.M.T. Ltd. v. Dy. CIT (2005) 97 TTJ (Visakha.) 580

9. Presumption under Section 132(4A)

9.1 Legal presumption is against the person having possession or control

9.2 Possession or control may be different from ownership

9.3 Presumption is a rebuttable presumption

9.4 Presumption is not binding on assessing officer

9.5 Presumption is available under regular assessment proceedings

9.6 Onus to establish income of the assessee remains on assessing officer

9.7 No presumption against third party

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10. Section 132(8)/132(10)/132(9)/132(9A)

10.1 Approval for extension for retention of books of account, documents, etc. to be granted before expiry of the period

10.2 Application and  release of disclosed assets seized

10.3 Commissioner’s approval for retention to be communicated

  • Arti Gases v. DIT (Inv.) (2001) 248 ITR 55 (Guj.)
  • State Bank of Patiala v. S.K. Sharma AIR 1996 SC 1669
  • Managing Director, ECIL v. B. Karunakar AIR 1994 SC 1074

10.4 Extension for retention can be granted repeatedly as may be required

  • Smt. Vidya Devi v. ITO 1972 Tax LR 572
  • Mohan Magotra v. DIT (2002) 177 CTR 352 (J&K)

10.5 Release of books of account or documents illegally seized

10.6 Release of books of account or documents relating to other persons seized

  • Wakil Kumar v. CIT (2003) 259 ITR 698 (Pat.)
  • Raj Kumar Sharma v. Secretary, Government of India (2002) 175 CTR (P&H) 49

10.7 Illegal retention of books of account, other documents

10.8 Right to obtain photocopies of books of account, other documents seized

10.9 Immediate release of deposits seized from disclosed bank accounts

10.10 Conversion of assets in kind into money

10.11 No retention of seized assets during pendency of appeal by the department

10.12 Release of assets against deposit of cash, furnishing of bank guarantee

10.13 No application of seized assets for liability of subsequent years

  • Vinod Poddar v. CIT (1994) 208 ITR 722 (Pat.)
  • J.R. Malhotra v. Additional Session’s Judge AIR 1976 SC 219

10.14 No application of seized assets against tax liability of third persons

10.15 Mandatory for AO to adjust seized amount against demand under section 140A

10.16 Seized amount to be treated as tax paid by the assessee, if requested

10.17 Release of seized assets to whom?

10.18 Payment of interest on release of seized amount

10.19 Damages in case of delay or irregularity in release of assets

11. Requisition under Section 132A

11.1 Requisition to be made after recording satisfaction in consequence of information in possession of the competent authority

11.2 Requisition can be made to which authority

11.3 Provision of section 153C may be applicable for requisitioned assets

11.4 Applicability of provision of section 153A when requisition is made but actual delivery of seized material is not received

12. Assessment of search cases under section 153A/153C

12.1 Assessment for the preceding seventh year prior to the year of search can be reopened under section 148

12.2 Pending assessment or reassessment to abate

12.3 Fresh assessments to be framed for all the preceding six years whether assessment proceedings are abated or not

  • Meghmani Organics Ltd. v. Dy. CIT (2010) 129 TTJ (Ahd.) 255
  • LMJ International Ltd. v. Dy. CIT (2008) 119 TTJ (Kol.) 214
  • Anil Kumar Bhatia v. Asstt. CIT (2010) 1 ITR (Trib.) 484 (Del.)
  • Anil P. Khemani v. Dy. CIT in ITA 2855 to 2860/Mum/2008 dated 23.2.2010.
  • CIT v. Raj Kumar Arora (2014) 120 DTR (All) 417 (HC)

12.4 Issues regarding filing of return under section 153A

12.5 No other assessment or reassessment proceedings during pendency of proceedings under section 153A

12.6 Revision of returns filed in pursuance to notice under section 153A

12.7 Seizure of cash during search – Whether adjustable as advance tax

12.8 Whether assessment in pursuance to notice under section 153A is in the nature of de novo assessment

12.9 Notice under section 143(2) within time limit as prescribed is mandatory in case of proceedings under section 153A

12.10 Recording of satisfaction before invoking provision of section 153C

12.11 Analysis of provision of section 153C

12.12 Issues regarding assessment under section 153C

12.13 Jurisdiction under section 153C can be assumed when seized material belong or belongs to other person

12.14 Opportunity of hearing not required to be given by additional commissioner before granting approval to assessment orders under section 153A/153C

12.15 Time limit for completing assessment in search cases

12.16 Nature and scope of provisions of section 153A

  • Bansilal B. Raisoni & Sons v. Asstt. CIT 173 DTR 68 (Bom).

12.17 Fresh Assessment pursuant to order u/s 263 – Whether fresh approval u/s 153D required – Debatable

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13. Handling of Assessment in Search Cases

13.1 Obtaining photocopies of seized material

13.2 Telescoping of additions against general declaration of undisclosed income

13.3 Principal of peak balance

13.4 Adjustment against intangible additions

13.5 Reference to departmental valuation officers in search cases

  • Hanemp Properties (P.) Ltd. v. Asstt. CIT (2006) 285 ITR 26 (Del.) (AT)
  • ITO v. Hotel Hilltop (1995) 52 TTJ (Jp.) 539

13.6 Reference for special audit under section 142(2A)

13.7 Reliance on statement recorded by authorised officer during search

13.8 No addition for investment in jewellery upto specified limit not required to be seized

13.9 Assessment in the case of retraction of surrender of undisclosed income

13.10 No addition on the basis of dumb documents

13.11 On the basis of evidence of specific period, extrapolation of income for the entire search years not sustainable

13.12 No addition on estimated/ad hoc basis

13.13 Whether deduction can be claimed for unrecorded business expenditure

13.14 No addition on the basis of newspapers, diaries unless corroborated or suggesting undisclosed income of the assessee

13.15 Burden of proof

13.16 Defect in issue of notice for filing returns

13.17 Addition on account of inadequate household expenditure

13.18 Addition for difference in stock

13.19 Addition in the year to which incriminating material belongs

13.20 Addition under section 68 during search cases

13.21 Addition under section 69 during search cases

13.22 Delay in supplying copies of seized material – Levy of interest not justified

  • Bachchubhai S. Antrolia v. Asstt. CIT (2007) 288 ITR 57 (Rajkot)(AT)

14. Penalties & Prosecution in Search Cases

14.1 Levy of penalty in case of agreed addition during assessment

14.2 Declaration of undisclosed income during search – Requirement regarding specifying and substantiating the manner

14.3 Payment of tax and interest relating to undisclosed income

14.4 Declaration of undisclosed income for earlier years

14.5 Declaration of undisclosed income for earlier years made subject to no penalty

14.6 Penalty in case of revision of return after search having taken place

  • CIT v. Shyam Lal M. Soni (2005) 144 Taxman 666 (MP)/(2005) 276 ITR 156 (MP)
  • Dy. CIT v. S. Kumar (2008) 15 DTR 34 (Bang.)/(2009) 120 ITD 201 (Bang.)
  • CIT v. Suresh Chand Bansal (2009) 22 DTR 1 (Cal.)/(2010)  329 ITR 1 (Cal.)
  • Dy. CIT v. K. Natarajan (2010) 34 DTR 414 (Bang.)/(2010) 128 TTJ (Bang.) 558
  • Asstt. CIT v. Rupesh Bholidas Patel (2008) 16 DTR 369 (Ahd.)
  • Dy. CIT v. Omkareshwar R. Kalantri (2010) 42 DTR 489 (Pune)
  • CIT v. A. Sreenivasa Pai (2000) 242 ITR 29 (Ker.)

14.7 Penalty under section 271AAA not applicable in case of requisition under section 132A

14.8 Attraction of penalty for concealment in cases covered u/s 153C

15. Application to Settlement Commission in Search Cases

15.1 No power with the settlement commission to grant waiver from levy of interest

15.2 Order of settlement commission not appealable

Disclaimer: The content/information published on the website is only for general information of the user and shall not be construed as legal advice. While the Taxmann has exercised reasonable efforts to ensure the veracity of information/content published, Taxmann shall be under no liability in any manner whatsoever for incorrect information, if any.

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