Section 132

Search and seizure

Constitutional Validity

Provisions are constitutionally valid - The provisions relating to search and seizure in section 132 and rule 112 cannot be regarded as violative of article 19(1)(f) or 19(1)(g) of the Constitution - Pooran Mal v. Director of Inspection (Investigation) [1974] 93 ITR 505 (SC); Bhupendra Ratilal Thakkar v. CIT [1976] 102 ITR 531 (SC).

Scope of powers

Section 132 is a comprehensive code in itself - Section 132 is a comprehensive code in itself - Mamchand & Co. v. CIT [1968] 69 ITR 631 (Cal.).

Section is essentially procedural - Section 132 is essentially a procedural section. It is self-contained - Director of Inspection v. K.C. & Co. [1990] 185 ITR 475 (J&K).

Powers are not arbitrary - Section 132 does not confer any arbitrary authority upon the revenue officers. Since by the exercise of the power a serious invasion is made upon the rights, privacy and freedom of the taxpayer, the power must be exercised strictly in accordance with the law and only for the purposes for which the law authorises it to be exercised - ITO v. Seth Bros. [1969] 74 ITR 836 (SC).

Any person including NRI is covered - Under section 132, any person including a non-resident Indian, would be amenable to search and seizure - Ram Kumar Dhanuka v. Union of India [2001] 252 ITR 205 (Raj.).

Judicial principles for exercise of powers - The principles regarding the scope of powers under section 132 as emerging from various judgments are as follows :

  (a)   The authority must be in possession of the information and must form an opinion that there is reason to believe that the article or property has not been or would not be disclosed for the purposes of the Act.

  (b)   The information must be something more than mere rumour or gossip or hunch.

   (c)   The information must exist before the opinion is formed.

  (d)   The authorised person must actively apply his mind to the information in his possession and shall form opinion whether there is reason to believe or not. The opinion must be formed on the basis of the material available at that time.

  (e)   The opinion must be based on the material which is available and it should not be formed on the basis of extraneous or irrelevant material.

   (f)   The formation of opinion shall have rational connection and bearing to the reasons for such opinion. The formation of opinion should be based on active application of mind and be bona fide and not be accentuated by mala fide, bias or based on extraneous or irrelevant material. The belief must be bona fide and cogently supported. The Courts have further held that the existence or otherwise of the condition precedent is open to the judicial scrutiny.

  (g)   The Courts would examine whether the authorised person had material before it on which he could form the opinion whether there is rational connection between the information possessed and the opinion formed. However, the Court would not sit in appeal over the opinion formed by the authorised person if the authorised person had information in his possession and the opinion formed is on the basis of such material. The Court would not examine whether the material possessed was sufficient to form an opinion.

  (h)   The Court cannot go into the question of aptness or sufficiency of the grounds upon which the subjective satisfaction is based.

   (i)   If the belief is bona fide and is cogently supported, the Court will not interfere with or sit in appeal over it - Prabhubhai Vastabhai Patel v. R.P. Meena [1997] 226 ITR 781 (Guj.).

No prior notice is necessary - It is not necessary before effecting the search and seizure under section 132 that the officials of the department should have given to the person whose account books and documents are sought to be seized, a notice to produce whatever account books or other documents are needed and that the person should have failed to comply with such a notice - Lit Light & Co. v. CIT [1982] 136 ITR 513 (All.); V.K. Jain v. Union of India [1975] 98 ITR 469 (Delhi).

Officers have the right to use reasonable means to remove obstructions or resistance - If in the exercise of the power or the performance of the official duty improper or unlawful obstruction or resistance is encountered, there must be the right to use reasonable means to remove the obstruction or overcome the resistance. This accords with commonsense and does not seem contrary to any principle of law - Matajog Dobey/Nand Ram Agarwala v. H.C. Bhari [1955] 28 ITR 941 (SC).

Relevance/usefulness of documents need not be conclusively decided at initial stage - It is scarcely to be expected that at the stage of seizure there must be conclusive proof of the relevancy or usefulness of the material seized - Sri Venkateswara Lodge v. CIT [1969] 71 ITR 629 (AP).

An error of judgment in seizing a document or long duration of search are not relevant factors - When in the course of a search voluminous documents and books of account are to be examined with a view to judge whether they would be relevant, a certain amount of latitude must be permitted to the authorities. It is true that when particular documents are asked to be seized unnecessary examination of other documents may conceivably make the search excessive. But when the documents, pieces of paper, exercise books, account books small memos, etc., have all to be examined with a view to see how far they are relevant for the proceeding under the Act, an error of judgment is not unlikely. At the most this would be an irregularity, not an illegality. Nor can it be a valid objection to the search that it continued for about 16 hours - Pooran Mal v. Director of Inspection (Investigation) [1974] 93 ITR 505 (SC).

Powers are not suspended till VDIS comes to an end - The Voluntary Disclosure of Income Scheme (VDIS) is an enabling provision and it is in the nature of a concession given to the person to voluntarily disclose his income and take benefit of the scheme, so that he can avoid the consequences provided under the Act for suppression or non-disclosure of income. In that situation, it is not possible to take the view that till the last date fixed for the expiry of the Scheme, it must impliedly be held that the power to search and seizure conferred on the authorities under section 132 is taken away. Merely because the Scheme provides that the benefits of the Scheme are not available to such of the persons whose premises have been searched, the aforesaid view could not be taken - United Credit & Investments v. Director of Income-tax (Investigation) [1998] 231 ITR 660 (Kar.).

Pre-requisite conditions [Sub-section 1] - ‘Information’ must not be imaginary or invalid - The words ‘information in his possession’ should be construed as some valid, definite information in possession and not any imaginary or invalid information. The information should be credible and if there is some such information, the Court cannot go into the sufficiency of the information - Kusum Lata v.CIT [1989] 180 ITR 365 (Raj.).

‘Information’ must have rational connection with ‘belief’ about undisclosed income - The ‘information’ has not only to be authentic but also capable of giving rise to the inference that the person was in possession of undisclosed income, which has not been or would not be disclosed. In order that the formation of opinion must be in good faith and not mere pretence, it is necessary that information in consequence of which it is formed must be valid and linked with the ingredients mentioned in section 132, that is, there must be rational connection between the information or material and the belief about undisclosed income - Dr. Nand Lal Tahiliani v. CIT [1988] 170 ITR 592 (All.).

Estimate of informer cannot tantamount to information - A word of an informer should not be taken for granted. No action should be taken on information based on surmises or guess. Estimate being made by an informer cannot tantamount to ‘information’ within the meaning of section 132(1) - Dr. Nand Lal Tahiliani v. CIT [1988] 170 ITR 592 (All.).

Belief must be bona fide - The expression ‘has reason to believe’ in section 132(1) means the bona fide belief based on some reasonable or credible information and not on the information which may be imaginary - Kusum Lata v. CIT [1989] 180 ITR 365 (Raj.).

Standard of living cannot form the basis - Satisfaction of the authorities may be subjective but it must be arrived at objectively on material found on record. Living in a posh house or having a high standard of living alone cannot constitute a basis for ‘reasonable belief’ without anything on record to demonstrate that the standard of living was not proportionate to income so as to warrant the conclusion that the person was concealing his income - Dr. Nand Lal Tahiliani v. CIT [1988] 170 ITR 592 (All.).

Belief must not be based on anonymous information - The belief must be honest, based on cogent materials and not on anonymous calls or letters - Pawan Solvent & Chemicals v. CIT [1987] 166 ITR 67 (Pat.).

Anonymous information cannot always be ignored - It is impossible to lay down any principle that in no case powers can be exercised on the strength of information received through anonymous petitions. It is not unknown that anonymous petitions on several occasions disclose information which is crucial and the reason for the informant remaining anonymous are not difficult to appreciate - Narayan R. Bandekar v. Second ITO [1989] 177 ITR 207 (Bom.).

Justification must exist - The word ‘reason’ means cause or justification and the word ‘believe’ means to accept as true or to have faith in it. Before the officer has faith or accepts a fact to exist, there must be a justification for it - Ganga Prasad Maheshwari v. CIT [1983] 139 ITR 1043 (All.).

Belief must relate to non-disclosure of income - The words ‘reason to believe’ under section 132(1)(c) refer to a belief that money or other asset belongs to a particular individual and such money or other asset represented undisclosed income of that individual. What is important and relevant is the reason to believe that it is the undisclosed income of a person and not in whose physical possession the same is - Gulab & Co. v. Supdt. of Central Excise (Preventive) [1975] 98 ITR 581 (Mad.).

Mere doubt cannot be the basis - Merely because explanation regarding expenses incurred on marriage of son of an assessee created serious doubts, action could not be taken under section 132. Further, merely because and allegedly lavish marriage had taken place there could not be basis for forming an opinion under section 132(1) - L.R. Gupta v. Union of India [1991] 59 Taxman 305 (Delhi).

Bias - If the assessee is able to establish that the Assessing Officer was in fact biased in the sense that he was involved or interested in his personal capacity in the outcome of the assessment or the procedure for assessment, no doubt, it would be a good ground for setting aside the assessment order. But, to hold that bias is established only because the authorised officer under section 132 and the Assessing Officer are the same person is an incorrect approach - Union of India v. Vipan Kumar Jain [2003] 260 ITR 1/129 Taxman 59 (SC).

Mere intimation from CBI or Police will not suffice - An intimation simpliciter by the CBI that the money was found in the possession of the petitioner which, according to the CBI, was undisclosed, without something more, did not constitute information within the meaning of section 132 so as to induce a belief that the cash represented the petitioner’s income which has not been or would not be disclosed. A bare intimation by the police or for that matter by any person, without something more, cannot be considered sufficient for action under section 132, for it would be giving naked powers to the authorities to order search against any person, and prone to be abused. This cannot be permitted in a society governed by rule of law - Ajit Jain v. Union of India [2000] 242 ITR 302 (Delhi) affirmed by SC in Union of India v. Ajit Jain [2003] 260 ITR 80/129 Taxman 74 (SC).

In case of flourishing business - Flourishing of business under brand name cannot be the reason to believe evasion of tax law; even requirement of block assessment ipso facto cannot be the ‘reason to believe’ under section 132 - Mahesh Kumar Agarwal v. Dy. Director of Income-tax [2003] 260 ITR 67 (Cal.).

Search warrant [Sub-section (1)]

Issue of search warrant - The issue of a search warrant by the Commissioner under section 132 is not a judicial or quasi-judicial act - ITO v. Seth Bros. [1969] 74 ITR 836 (SC).

Section 132(1)(b)(iii) nowhere envisages that a search of the premises has to be from the very inception in pursuance of search and seizure warrants against the person in whose hands the discovered items are seized - Rudrachar v. Director of Income-tax (Inv.) [2002] 257 ITR 549 (Kar.).

General authorisation will suffice - The Act and the Rules do not require that the warrant of authorisation should specify the particulars of documents and books of account; a general authorisation to search for and seize documents and books of account relevant to or useful for any proceedings will comply with the statutory requirements - ITO v. Seth Bros. (supra).

Blank warrants are illegal - The most serious content of the warrant of authorisation is the name of the person whose premises, etc., are sought to be searched. There is abundant authority in support of the proposition that general warrants are no warrants at all because they know no one. Where the Commissioner signed blank warrants in which the IAC filled the particulars, the search would be illegal and the articles seized were liable to be returned - Jagmohan Mahajan v. CIT [1976] 103 ITR 579 (Punj. & Har.); Manmohan Krishan Mahajan v. CIT [1977] 107 ITR 420 (Punj. & Har.).

Irrelevant portions in the warrant must be struck out - Where in the authorisation irrelevant portions are not struck out, it would indicate non-application of mind and issue of stereotype authorisation of search should not be encouraged in the absence of material to show that the Director of Inspection has information as contemplated in section 132(1) which could lead to a reasonable belief as contemplated - Dwarka Prosad Agarwalla v. Director of Inspection [1982] 137 ITR 456 (Cal.).

Warrant can issue even after closure of any proceedings - A warrant for search or seizure can issue even in a case where any proceedings have been closed or may be commenced later - Balwant Singh v. R.D. Shah, Director of Inspection [1969] 71 ITR 550 (Delhi).

Prescribed form must be mandatorily used - Warrant of authorisation must be in the prescribed form. It cannot be issued in general terms without specifying the person in respect of whom it is being issued. Warrant cannot be said to suffer from vagueness or insufficiency of information when it mentions the names of all the persons concerned with money or other articles as well as of the premises to be searched. Law does not require a copy of the warrant of authorisation to be delivered or furnished to the persons against whom it is issued; it is sufficient if such a person is shown the warrant of authorisation - Southern Herbals Ltd. v. Director of Income-tax 1995 Tax LR 588 (Kar.).

Seizure of assets [Sub-section (1)]

Seizure must be physical - The seizure envisaged in section 132(1)(iii) is effected only when the authorised officer takes possession of the seized articles to enable the revenue to appropriate the same towards the payment of the amount that may be determined to be due under the Act. A mere order issued for taking possession of the keys to the bank locker will not constitute ‘seizure’ as contemplated by section 132(1) - Mrs. Kanwal Shamsher Singh v. Union of India [1974] 95 ITR 80 (Delhi).

Money in custody of other departments cannot be seized - Where money was in the custody of the excise authority or police authority and was held by the authority pursuant to a seizure made by it, the income-tax department could not issue a search warrant and seize the money from that authority - ITO v. Bafna Textiles [1987] 164 ITR 281 (SC).

The term ‘possession’ in the context of section 132, connotes physical possession and not legal possession. On a construction of the section and the context in which the words ‘search’, ‘possession’ and ‘seizure’ have been used in the said section and the rules, there cannot be any order in respect of goods or moneys or papers which are in the custody of another department under legal authority - CIT v. Tarsem Kumar [1986] 161 ITR 505 (SC).

Immovable property cannot be seized - Under the scheme of section 132, search and seizure go together, but where once the location of an immovable property is known there might not be any necessity to conduct a search and consequently no need to seize the property - CIT v. M.K. Gabrial Babu [1991] 188 ITR 464 (Ker.)/Bapurao v. Asstt. Director of Income-tax [2001] 247 ITR 98 (MP).

Assets/money known to the department as existing cannot be seized - Where the existence of the money or assets is known to the income-tax department and where the case of the assessee is that the said money or the valuable asset is not liable to be taxed, the provisions of section 132(1)(c) would not be attracted - L.R. Gupta v. Union of India [1991] 59 Taxman 305 (Delhi).

Seizure cannot be made after completion of assessment - There can be no question of making a seizure under section 132 once an assessment is completed. Seizure under section 132 relates to a pre-assessment stage - K. Choyi v. Syed Abdulla Bafakky Thangal [1980] 123 ITR 435 (SC).

Amounts claimed by assessee as intended for purchasing Special Bearer Bonds can be seized - Where the appellant claimed that the amounts had been intended for purchasing Special Bearer Bonds and that the department had seized the amounts before that intention could be put into effect, there was nothing in law which prohibited the department from seizing those amounts. The said Scheme is completely independent and does not affect the remedies and processes available to the department under the provisions of the Act - Afzalunnissa Begum v. Union of India [1992] 195 ITR 612 (SC).

Seized money can be removed by Assessing Officer for safe custody - The expression ‘seizure’ as occurring in section 132(1)(B)(iii) of the Act empowers the Revenue to remove the money from the place where it has been seized as a consequence of the search made in terms of section 132(1). In all such cases, the Assessing Officer is the best judge to decide whether to issue an order under section 132(3), or to physically remove the money from where it has been seized, be it a residence or a bank or a finance company. There can be instances and there can be cases where despite money being found in an account of an assessee maintained in a bank or in a private finance company, the Revenue or the Assessing Officer is of the opinion that it is not safe to keep the money there and therefore any order passed under section 132(3) may be an exercise in futility and therefore removal of the money alone will serve the interests of the Revenue - Sardar Santosh Singh v. CIT [2001] 248 ITR 532 (Jharkhand).

Assets cannot be realised and converted into cash - Section 132 does not confer any authority on the ITO or realise the assets and convert them into cash. That could be possible only when the demand is finally quantified and the assets have to be realised in discharge of the liability - Dheer Singh v. Asstt. Director of Income-tax [1997] 90 Taxman 392 (All.)/Smt. Bimla Singh v. Chief CIT 1997 Tax LR 873 (Pat.).

Officer effecting seizure is responsible for safe custody of books of account - Whenever a search is made and the books of account are seized by the authorised officer, he is responsible for the safe custody of those seized records. If the said records have been handed over to some other officer as custodian, then the other officer of custodian is responsible for it. The protection under section 293 is not available to an officer who has lost the books of account seized by him under section 132, because such an action could not be said to be done in good faith - Banke Bihari Lal Agarwal v. Union of India 1996 Tax LR 400 (Raj.).

Legality of search

General - For deciding whether the order for search under section 132 is valid, material which was before authority at time of making order is only relevant material which can be examined - Prabhubhai Vastabhai Patel v. R.P. Meena [1997] 226 ITR 781 (Guj.).

Illegality of search cannot vitiate evidence collected - It has been often held that the illegality in the method, manner or initiation of a search does not necessarily mean that anything seized during the search has to be returned. After all, in the course of a search, things or documents are required to be seized and such things and documents when seized may furnish evidence. Illegality of the search does not vitiate the evidence collected during such illegal search. The only requirement is that the Court or the authority before which such material or evidence seized during the search shown to be illegal is placed has to be cautious and circumspect in dealing with such evidence or material - Dr. Partap Singh v. Director of Enforcement [1985] 155 ITR 166 (SC).

Delayed issue of notice cannot invalidate search - A delay of two months in issuing a notice calling for explanation is not ground for holding that the action for search and seizure was taken for a collateral purpose - ITO v. Seth Bros. (supra).

Omission to place identification marks cannot make search mala fide - In the absence of anything to show that the documents were either replaced or tampered was omission to place identification marks on documents will not by itself supply a ground for holding that the search was mala fide - ITO v. Seth Bros. (supra).

Associating outsiders cannot render search mala fide - A search cannot be treated as mala fide merely because certain outsiders were associated at the time of search. Where some inspectors were taken along for doing clerical and ministerial work and some policemen were taken for ensuring the maintenance of peace and order and for preventing obstruction and illicit removal of documents, the search could not be held to be invalid - Hindustan Metal Works v. CIT [1968] 68 ITR 798 (All.).

Enormity of search party is not a valid objection - The enormity of the search party cannot be a ground for interference where because of the enormity of the building and of the premises, it is necessary for the purpose of search and seizure to ensure the presence of a large number of persons on behalf of the revenue - Subir Roy v. S.K. Chattopadhyay [1986] 158 ITR 472 (Cal.).

Search of documents of allied parties/transactions in the case of a firm, cannot make the search illegal - When a warrant is issued in relation to a firm, it is not correct to say that the books of account and other documents that could be taken possession of should only be those which directly related to the business carried on by the firm. The books of account and other documents in respect of other businesses carried on by the partners of the firm would certainly be relevant because they would tend to show inter-relation between the dealings and supply of materials having a bearing on the case of evasion of income-tax by the firm. Therefore, the fact that the ITO made a search for and seized the books of account and documents in relation to business carried on in the names of other firms and companies would not render the search and seizure illegal - ITO v. Seth Bros. [1969] 74 ITR 836 (SC).

Search cannot be resumed after a gap of 14 days - To keep the affected parties in a suspended animation about the probable continuation of the search would be agonising. Where, considering the nature of allegations and the materials seized there is no reason why it should not be closed on 27-10-1995, to close the search on that day and to resume it on 10-11-1995 for no valid reason would amount to unreasonable prolonging of the search without justification - Dr. C. Balakrishnan Nair v. CIT [1999] 237 ITR 70 (Ker.).

Others - A pledgee is entitled for possession and therefore seizure of ornaments pledged with petitioner-firm doing money-lending business could not be said to be illegal on ground that jewellery seized did not belong to petitioner-firm - Alleppey Financial Enterprises v. Asstt. Director of Income-tax (Investigation) [1998] 144 CTR (Ker.) 550.

Police assistance [Sub-section (2)]

Taking police assistance cannot be objected to - By the express terms of the Act and the Rules, the ITO may obtain the assistance of a police officer. It cannot therefore be said that in keeping police officers at the time of the search in the house of influential businessman to ensure protection to the officers and the records, excessive force was used - ITO v. Seth Bros. [1969] 74 ITR 836 (SC).

Restraint order [Sub-section (3)]

Order is not dependent on assessment order - The validity of an order under section 132(3) is not dependent upon passing of an order under section 132(5). The prohibitory order under section 132(3) is not within the sweep of section 132(5) - Abdul Sattar v. CIT [1987] 34 Taxman 18 (All.).

Cancellation of order - Restraint order cannot be cancelled or renewed from time to time - CIT v. Sandhya P. Naik [2002] 253 ITR 534/124 Taxman 384 (Bom.).

Fresh restraint order in relation to same action is barred - When section 132 itself provides that a restraint order in relation to one set of search and seizure action will lose its force upon the expiry of 60 days, the same cannot be brought back to life in any manner whatsoever. A fresh restraint order can be issued in relation to fresh and different action and in relation to the same action previously taken. The submission that, in the absence of a contrary provision, it is open for the Revenue officials to pass under section 132(3) afresh in relation to the same search and seizure action, is unacceptable - Windson Electronics (P.) Ltd. v. Union of India [2004] 269 ITR 481/141 Taxman 419 (Cal.).

Orders cannot be challenged in writ proceedings - Where the department issued three prohibitory orders under section 132(3) with respect to goods in three godowns belonging to the assessee, any action by the assessee to challenge the orders in writ proceedings and to obtain an interim injunction order from a High Court would amount to abusing the process of the court, and the assessee could not be allowed to retain that advantage - Dy. Director of Inspection (Intelligence) v. Vinod Kumar Didwania [1986] 160 ITR 969 (SC).

Order cannot be challenged as belated - Where the properties were not seized under section 132(1) but were attached under section 132(3), the ITO’s order could not be challenged on the ground that it was passed after the period laid down in section 132(5), nor has the High Court the power to order the ITO to return the properties seized - Director of Inspection (Investigation) v. Pooran Mall & Sons [1974] 96 ITR 390 (SC).

Reasons for not effecting seizure must be recorded - When an order under section 132(3) is issued, it must be recorded as to why it is not practicable to effect seizure - B.K. Nowlakha v. Union of India [1991] 192 ITR 436 (Delhi).

‘Practicable’ means ‘for some good and valid reason’ - The word ‘practicable’ in section 132(3) indicates that, for some good and valid reason, it is not possible to seize the valuable articles or the books of account. Section 132(3) would apply only in those cases where the second proviso to section 132(1) does not apply. Where it is not practicable to seize the account books and valuable articles for the reason stated in the second proviso to section 132(1), a restraint order would be regarded as a deemed seizure but where it is not practicable to do so for any other reason, a restraint order will be regarded as having been validly passed under section 132(3) and the restraint order will continue till a formal seizure is effected - B.K. Nowlakha v. Union of India (supra).

Mere doubt or uncertainty will not suffice - The word ‘practicable’ occurring in section 132(3) cannot be extended to a case where the authorised officer on finding ornaments, etc., on a search has doubts or is not certain that there are reasons to believe that the same were undisclosed property - Om Parkash Jindal v. Union of India [1976] 104 ITR 389 (Punj. & Har.); Sriram Jaiswal v. Union of India [1989] 176 ITR 261 (All.).

Passing of restraint order cannot be challenged as in bad faith or as mala fide - In case the officers of the department on the basis of the material before them have decided to pass order of restraint, the same cannot be said to be an act of bad faith, nor could the act be mala fide. Actions of the department at times may be erroneous, but all erroneous actions cannot be said to be mala fide - Bansal Exports (P.) Ltd. v. Union of India [1996] 84 Taxman 373/217 ITR 83 (Delhi).

Examination on oath [Sub-section (4)]

Purpose is limited to seeking explanation or information - The power to interrogate on oath conferred by section 132(4) is not for the purpose of general investigation of the assets, but for the limited purpose of seeking an explanation or information in respect of the documents, articles or things found during the search. Thus, the authorised officer has a limited power to make enquiries on oath in respect of his findings from the search and he is not authorised to put questions in general - R.R. Gavit v. Smt. Sherbanoo Hasan Daya [1986] 161 ITR 793 (Bom.).

Explanation to sub-section is merely clarificatory - Explanation to section 132(4) inserted with effect from 1-4-1989 merely seeks to clarify necessary import of main provision contained in section 132(4); it does not lay down a different method of using statement recorded under section 132(4) - V. Kunhambu & Sons v. CIT [1996] 131 CTR (Ker.) 396.

Person cannot be restrained from attending to his normal duties, after his statement is recorded - The Act does not give any power to the income-tax department to arrest an individual. Thus, once a statement is recorded during search, the department has no power to restrain such person from attending to his professional work - L.R. Gupta v. Union of India [1991] 59 Taxman 305 (Delhi).

Documents cannot be put in almirah and sealed - Rule 112(4C) empowers the authorised officer to serve an order on the owner that he shall not remove, part with or otherwise deal with except with the previous permission, only in cases where the authority finds it not practicable to seize the article or thing or any books of account or document. There is no provision under which the search party can collect the documents and various items from different parts of the premises and again put them in the almirah in the bed room and seal the almirah - Dr. C. Balakrishnan Nair v. CIT [1999] 237 ITR 70 (Ker.).

Presumption as to ownership [Sub-section (4A)]

Presumption is relevant only for summary adjudication - The presumption under section 132(4A) is available only in regard to the proceedings for search and seizure and for the purpose of retaining the assets under section 132(5) and their application under section 132B - Pushkar Narain Sarraf v. CIT [1990] 50 Taxman 213 (All.)/183 ITR 388 (All.).

Presumption is rebuttable - In accordance with section 132(4A), if any document is found in the course of a search, then by legal fiction a presumption has to be drawn that such document belongs to the person from whose possession or control it was found and the contents of such documents are true, but this presumption is rebuttable - CIT v. S.M.S. Investment Corporation (P.) Ltd. [1994] 207 ITR 364 (Raj.).

Presumption can arise only if it is established that the article/thing is in the control or possession of person - On a reading of section 132(4A), the presumption could be said to arise when it is established that the article or thing (in this case, cash) is found in the possession or control of any person in the course of a search - CIT v. K.K. Abdul Kareem [1996] 88 Taxman 323 (Ker.).

Section 132(4A) v. Sections 276C & 277 - By applying the presumption under section 132(4A) the ingredients of the offence under sections 276C and 277 cannot be held to have been established - Prem Dass v. ITO [1999] 103 Taxman 65/236 ITR 683 (SC).

Retention of books beyond 180 days [Sub-section (8)]

Reasons for retention must be communicated to aggrieved party - The scheme of sub-sections (8), (10) and (12) of section 132 makes it amply clear that there is a statutory obligation on the revenue to communicate to the person concerned not merely the factum of the Commissioner’s approval but the recorded reasons on which the same has been obtained and that such communication must be made as expeditiously as possible after the passing of the order of approval by the Commissioner. In default of such expeditious communication further retention of the seized books or documents would become invalid and unlawful. It is obvious that such obligation arises in regard to every approval of the Commissioner that might have been accorded from time to time - CIT v. Oriental Rubber Works/Bhikam Chand Sethi/C.K. Wadhwa/Chandra Nath Banik [1984] 145 ITR 477 (SC). Also see Rajendra Prasad Agarwalla v. IAC [1994] 209 ITR 784 (Cal.).

Approval must be obtained before expiry of time-limit - Provisions of section 132(8) are mandatory. The recording of reasons by the ITO for retention of books beyond the period of 180 days* and approval by the Commissioner of the same should take place before the expiry of 180 days* from the date of seizure - Metal Fittings (P.) Ltd. v. Union of India [1983] 141 ITR 758 (Delhi).

There cannot be a gap of a single day because section 132(8) only allows extention of time and not a fresh retention - Survir Enterprises v. CIT [1986] 157 ITR 206 (Delhi).

Commissioner cannot grant ex post facto approval - Section 132(8) does not in terms empower the Commissioner to give ex post facto approval. Once the retention has become invalid, it cannot be validated by a subsequent grant of approval by the Commissioner - Sampatlal & Sons v. CIT [1984] 150 ITR 191 (MP); Hanuman Pershad Ganeriwala v. Director of Inspection [1974] 93 ITR 419 (Delhi).

Books cannot be retained without prior approval - Without the Commissioner’s approval, retention of books of account or other documents seized under section 132(1) for a period exceeding 180 days* from date of seizure, cannot be justified - Nutan Sahkari Avas Samiti Ltd. v. Director of Income-tax (Investigation) [1994] 208 ITR 843 (All.).

Books can be returned pursuant to assessee’s undertaking - The object of retention of books is not to penalise the assessee or to confiscate the books for ever. Where an undertaking had been obtained from the assessee-petitioner to the effect that as and when the department required the records they would be made available to it, a Single Judge would be justified in ordering the return of the books to the petitioner - Director of Inspection v. K.C. & Co. [1990] 185 ITR 475 (J & K).

Permission should not be granted as a matter of course - Permission for retention of books of account beyond 180 days* should not be granted by the higher authorities as a matter of course. The power to grant such permission must be used with circumspection, and must be exercised reasonably, in good faith and on correct grounds. Unless there is a special reason, the higher authority should not extend the period of 180 days* by exercising its discretion under section 132(8) of the Act. Permitting the concerned officer to cause delay in performance of his duty without any justifiable reason will amount to abuse of discretion on the part of the higher authority - Madhupuri Corporation v. S.S. Khan [2001] 250 ITR 565 (Guj.).

Assistant Director cannot moot proposal for further retention - The Assistant Director of Inspection, who was the authorised officer for the purpose of carrying out search and seizure but was not the Income-tax Officer who could pass an order under section 132(5), could not retain the document, etc., beyond 15 days, and therefore he could not moot a proposal under section 132(8) for further retention of documents beyond 180 days - CIT v. K.V. Krishnaswamy Naidu & Co. [2001] 249 ITR 794 (SC).

Period fixed is directory and not mandatory - Sambhu Prasad Agarwal v. Director of Income-tax (Investigation) [2002] 254 ITR 660/125 Taxman 79 (Cal.).

Sub-section (8A) - Prior to insertion of sub-section (8A) to section 132 by Finance Act, 2002, there was provision for extension of period under restraint order beyond 60 days, but after insertion of said sub-section it would not be open for revenue officials to pass a fresh restraint order under section 132(3) in relation to same search and seizure action - Windson Electronics (P.) Ltd. v. Union of India [2004] 141 Taxman 419 (Cal.).

Inspection of records by assessee [Sub-section (9)]

Assessee should not be prevented from inspecting and making out copies - The authorised officer has no jurisdiction to refuse the inspection or the making out of copies or taking of extracts from the books of account or other documents to the person from whom they are seized - Ramesh Chander v. CIT [1974] 93 ITR 244 (Punj. & Har.).

Handing over of assets [Sub-section (9A)]

Assets can be handed over to Commissioner - The Commissioner, being an officer superior to the ITO who has jurisdiction, handing over of the assets to the Commissioner for custody would be more than sufficient compliance with the requirements of section 132(9A) - Narayan R. Bandekar v. Second ITO [1989] 177 ITR 207 (Bom.).

Applicability of Code of Civil Procedure [Sub-section (13)]

Limitations under CPC will not apply - By section 132(13), it is only intended that the officer concerned shall issue the necessary warrant, keep present respectable persons of the locality to witness the search, and generally carry out the search in the manner provided by the Code of Criminal Procedure. But this does not imply that the limitations prescribed by section 165 of that Code are also incorporated therein - ITO v. Seth Bros. [1969] 74 ITR 836 (SC).

Revenue authority cannot realize assets and convert them into cash - Section 132 does not confer any authority on ITO to realize assets and convert them into cash. Therefore, a revenue official cannot compel bank to encash fixed deposit and make over proceeds to him - Windson Electronics (P.) Ltd. v. Union of India [2004] 141 Taxman 419 (Cal.).