Additional Taxes if no Incriminating Evidence during Search

The provisions of the Income Tax Act, 1961 deem it mandatory for individuals to declare the details of their income and pay relevant taxes for the same. While there are provisions that help conduct examination of the income and undisclosed taxable earnings of individuals in some cases, they are not enough to detect and establish potential tax evasion. As such, tax authorities have been granted the right to conduct search and seizure of evidence and/or assets pertaining to hidden or undisclosed income or assets that have not been aptly declared by the individual in their submissions to the Ministry.

• These rights that grant tax authorities such authority are quite strict and provide severe repercussions for defaulting individuals.
• However, built-in safeguards are provided along with provisions to authorize and execute such search and seizure operations.

When can ‘Search’ be Authorized?

Section 132 of the Act comprises the provisions pertaining to search and seizure. Tax authorities are permitted to enter any residential or business premises and exercise their power of ‘search and seizure.’ It must be noted that these powers can ONLY be exercised if the authorities have ‘a reason to believe’ due to some information in their possession related to the concerned individual pertaining to some aspects that the individual did not disclose or consider when declaring income/assets.

The authorities are only authorized to perform the ‘search’ in the following situations:

• In case an individual has failed to comply with the necessary requirements, such as omitting or failing to produce the account books or other relevant information/documents when summon or notice for the same has been issued.
• If it seems that an individual, to whom a notice or summon has been issued or will be issued, is not likely to or will not produce the relevant information/documents.
• In case an individual is in possession of any money, bullion, jewelry, or any other valuable article and such assets, partly or wholly, represent any income/property that has not been or will not be declared by the individual to the authorities.

Note: The ‘reason to believe’ recorded by the Income Tax Authority shall not be revealed to any individual, authority or the Appellate Tribunal.

Powers of Authorized Officers during Search & Seizure Proceedings

Authorized officers, on the basis of the search warrant, have the authority to do the following:

• Enter and search any building, place, vessel, vehicle, or aircraft (all referred to as ‘premises’) where they suspect that the undisclosed account books, documents or assets are stored.

If entry in the concerned vehicle, vessel or aircraft is not possible because it is moving or for any other reason, the authorized officer with the help of police officers or officers of the Central Government can force the vehicle, vessel or aircraft to stop or land for the purpose of conducting the search.

• Utilize the services of any police officer and/or Central Government officer to help with the search operation. All such officers must comply with such requests as it is one of their duties to do so.
• Open the lock of any door, drawer, cabinet, safe, poorhouse, or other receptacle, unless the keys for the same are available at hand.
• Search all individuals who are present, have exited or are about to enter the premises if the authorized officer has reason to suspect that they might be concealing something.
• Direct any individual, who may be found in possession of any account books or information in the electronic format, to provide them with the access to inspect the same.
• Seize books, documents or assets found during the search process.
• Make identification marks in the account books or other documents. They are also permitted to make copies or extracts of the same if necessary.
• Register or record the details of all such assets.
• Examine on oath any individual found in possession or control of any books of account, documents or assets. Thereafter, statements made by such individuals can be used as evidence in any legal proceedings under the Act.

What can be Presumed in the case of Search?

In case any account book, document or asset is found in the possession or control of an individual during the search proceedings, it may be presumed that:

• The items found belong to the individual being searched.
• The contents of the items found are true.
• The signature and handwriting on the items found belong or can be reasonably assumed to belong to the individual being searched. In case of a document stamped, executed or attested – that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.

Conclusion of Search Operation

When the search is about to end, a document referred to as ‘Panchnama’ is prepared for each location that was searched. This document comprises details pertaining to the events that took place during the search proceedings. The Panchnama also contains details of any account books or documents found and seized during the search proceedings. It further includes information on possible bans, as well as statements from key personnel at all locations that are registered on Oath.

The Panchnama must be duly signed by:

• The authorized officer,
• The individual for whom the search was conducted, and
• Two independent witnesses.

Note: A copy of the Panchnama & its appendices must be provided to the searched individual.

Assessment in Search & Seizure Matters

Initially, laws pertaining to assessment or reassessment in case of a search were different from other assessments. However, after 1 April 2021, any assessment, reassessment or in any re-computation cases, where the search was initiated or ordered under Section 132A shall be made as per the new process defined under Section 147 read with section 148, 148A, 149, and 151 of the Act. Post amendment, the time limit to issue notice under Section 148 is as follows:

Assessment Years	Monetary Limit
Assessment Years falling up to 3 years from the end of the relevant assessment year	No Limit
Assessment Years beyond 3 years but not later than 10 years from the end of the relevant assessment year, if the Authorized Officer has in its possession documents which reveals that income represented in the form of: An asset. An Expenditure in receipt of transaction or in relation to an event or occasion. An entry or entries in the books of accounts.	Income escaped amounts to INR 50,00,000 or more

Deeming Provisions Related to Search, Survey or Requisition Cases

The amended Section 148 states that no notice shall be issued:

• If there is some information with the assessing officer that suggests that some taxable income has not been accounted for in the assessment for the relevant assessment year, or
• An approval to issue such a notice has been obtained beforehand by the assessing officer.
• However, the explanation for Section 148 provides an exception to the department:
• If the search was initiated under Section 132 or the requisition was made under Section 132A or a survey was conducted under Section 13A post 1 April 2021, or
• The officer conducting the search is satisfied that the account books, documents and/or assets seized or requisitioned belong to the individual being searched.

The assessing officer shall be considered to hold some information that suggests that some chargeable income has escaped assessment for a certain assessment year.

Note: The process to conduct inquiry and provide opportunity and passing order to the assessee prior to issuing notice under Section 148 as introduced by the Finance Act, 2021 shall not be applicable in case of search or requisition cases.

Can Addition in Search Assessments be made in the absence of Incriminating Material?

The issue here is that the tax department would fail to unearth any significant evidence during the search, which would make the entire search and seizure proceeding a useless exercise for them. In such instances, the tax department imposes taxes depending upon the information it has already collected from other sources.

Several Courts have held that in case of assessments that have already been concluded, as on the date of search, no fresh additions can be made on the same if no incriminating evidence was found during the search and seizure proceedings. Some judgments pertaining to this are:

• PCIT vs. Abhisar Buildwell Pvt. Ltd.
• Pr. CIT vs. Meeta Gutgutia
• CIT vs. Continental Warehousing Corporation (Nhava Sheva) Ltd.
• CIT vs. Continental Warehousing Corpn. (Nhava Sheva) Ltd.
• CIT vs. All Cargo Global Logistics Ltd.
• CIT vs. Kabul Chawla

Latest Case Law: PCIT vs. Abhisar Buildwell Pvt. Ltd.

In this matter, the Supreme Court held that the Authorized Officer shall have the jurisdiction to assess or reassess the individual’s ‘total income’ in relation to each assessment year that falls within six assessment years. However, it must be noted that the assessment or reassessment of any assessment year that falls within the period of six assessment years and which is due on the date of initiation of the search or requisition shall abate.

The apex Court further noted that if any proceeding initiated or any order of assessment or reassessment that has been annulled in appeal or any other legal proceeding, the assessment or reassessment of any year that has been abated would stand revived from the date of receiving the annulment order by the Commissioner.

As such, it seems that the legislation only deems to abate pending assessments/reassessments in case of search and recognizes the Authorized Officer as the individual who has the jurisdiction to assess/reassess the total income of the concerned individual for the entire six year period. It does not aim to reopen any completed/unbated assessments unless some incriminating evidence is found in relation to the concerned assessment year within the last six years prior to the search.

Conclusion

After going through the various judgments of different courts, it can be deemed that while Courts do not allow assessment/reassessment of any completed assessments, it may permit to do so in case some incriminating material is found during the search proceedings. It further grants the Authorized Officer the authority to assess/reassess the assessment for any year that falls within six years prior to the date of search.


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