Lend a few minutes please to read this in full. It is useful. A demonstration by an illustration as to how to deal with a search case,. Useful to ALL

We often talk about the case laws. There is a case law on the particular aspect. Many a times, we keep busy on finding the case laws in this article, intention is to demonstrate as how to apply the case laws.

Case law is not a law. It is the finding observed over the given facts which has been interpreted as per law. For a proper application of a case law the timing and placement of all the facts are important for its application. It keeps the consistency in judgment and appreciation of facts in the application of laws on the given circumstances.

What are the salient futures in application of law?

·        That the courts will never disturb the process of investigation. There are citations in favor, but how those citations will be used is a question.

·        That the officers in investigation always trespasses the use of their powers, but the courts never stop it. Question is how to use the same?

·        The officers, in their notices always ask the irrelevant questions, but then how the assessee should use the same in his favor.

·        Many a times, the department has grudge, that the courts favor the assessee, Is that so?

When do case law become effective, and how to use the same is an important question. For this, the question of Burden of proof becomes very relevant.  

The law is there. The case laws are the laws laid down over a case with facts. The decisions are binding to the subordinates unless and until distinguished by the facts. The facts of each case are different and can be distinguished by distinguishing the facts. The court of fact is that of the assessing officer. During the appellate stage no fresh evidence can be given. So the case has to be made out before the court of fact. The Government Officers are indemnified from prosecutions or any step that he takes in course of discharge of his duty.

These are very important for the representation of a case. It can only be well demonstrated by a hypothetical situation. Let us all work it out.

Illustration of a case: Hypothetical.

There was a search conducted by the Income tax department at the residential and business premises of a person, along with his chartered accountant. The Income Tax persons, totaling 30 in numbers, entered the residential house of the assessee. They showed the assessee the warrant for conducting the search, which contained the name of the assseee. He added the names of all the persons at home, and thereafter made all the persons present at home, sit at the corridor. The team took away all the mobiles from all the family members of the family members and the servants working. Told them that none of them should leave the premises or enter the premises. All the rooms were locked and the keys were kept by the Authorized Officer. One by one, each room was opened. From the rooms, laptops, valuables, loose papers & diaries, money, bullion, jewellery etc were taken up and kept in the room. There after the search continued, on checking each place. All the papers were assembled in one room. Computers and Laptops and pen Drives also left in that room. One person along with a computer expert kept on checking those computers. Same thing happened at the business premises also. And also at the office of the CA. The cash inventoried at the business premises was brought by the team conducing search there. A punchnama was drawn. The statement recorded there of the person incharge, was also there with the authorized Person. The team conducting the search at the Premises of CA also came back. A few pen drives were found and there were multiple Balance sheets for the same year, which was found with him. The statement was taken and the Team came to the residential place of the assessee. The assessee did not know as to what was the reason for the conduct of the search. A valuer was called and all the jewellery so found, was inventoried and valued. Statements were recorded of each person. All the documents so found were then sorted out, and the ones, which they felt irrelevant, were just kept aside. Loose papers which were found, were tagged, sealed and numbered. Diaries were Numbered with identification. The search continued for more than thirty hours. And then, the concerned person’s statement started. The seniors also came in. The reason for the search was not identified. It was stated as to what has been found. There were a few companies of the family of the assessee and some firms too. Punchanama were made for each one there and then. The warrants were filled up. The seniors started threats that they would refer the matter with ED, although there was no criminal case against the assessee. They further threatened to refer all the documents to be referred to GST. The case so found was also inventoried. The ladies looked sad as they thought all the jewelleries are gone. The assessee wanted his CA or lawyer to be with him. This was denied earlier. When he agreed to make a disclosure, they allowed his CA to come in. After a lot of threatening, a preliminary disclosure of 2 crores was made by the assessee on which he agreed to pay taxes. Rs 50 Lakhs out of Rs 55 Lakhs found was seized. Jewellery so inventoried was released. The search team left giving summons under section 131 (1A) to the assessee and a few persons asking them to appear before him three days later. 

This is the how, the search was conducted.  How do the assessee move? What should have been done by the department? And what is the case law? When to apply the case laws? These entire questions emerge here, which we shall be discussing.

If this illustration is looked at, then we should go to the operative part of the sections covered under the Income Tax Act, 1961. This is section 132. The section reads as under:

Search and seizure. 132. (1) Where the Principal Director General or Director General or Principal Director or Director or the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or Additional Director or Additional Commissioner or Joint Director or Joint Commissioner in consequence of information in his possession, has reason to believe that—

 “(a) any person to whom a summons under sub-section (1) of section 37 of the Indian Income-tax Act, 1922 (11 of 1922), or under sub-section (1) of section 131 of this Act, or a notice under sub-section (4) of section 22 of the Indian Income-tax Act, 1922, or under sub-section (1) of section 142 of this Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account or other documents as required by such summons or notice, or

 (b) any person to whom a summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which will be useful for, or relevant to, any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act, or

 (c) any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been, or would not be, disclosed for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act (hereinafter in this section referred to as the undisclosed income or property),

 then,— (A) the Principal Director General or Director General or Principal Director or Director or the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be, may authorise any Additional Director or Additional Commissioner or Joint Director, Joint Commissioner, Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income-tax Officer, or (B) such Additional Director or Additional Commissioner or Joint Director, or Joint Commissioner, as the case may be, may authorise any Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income-tax Officer, (the officer so authorised in all cases being hereinafter referred to as the authorised officer) to—

(i)                enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such books of account, other documents, money, bullion, jewellery or other valuable article or thing are kept; (ii) break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by clause (i) where the keys thereof are not available;

(ii)               (iia) search any person who has got out of, or is about to get into, or is in, the building, place, vessel, vehicle or aircraft, if the authorised officer has reason to suspect that such person has secreted about his person any such books of account, other documents, money, bullion, jewellery or other valuable article or thing; (iib) require any person who is found to be in possession or control of any books of account or other documents maintained in the form of electronic record as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000), to afford the authorised officer the necessary facility to inspect such books of account or other documents; (iii) seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such search:5/14/2021 Income Tax Department

(iii)            Provided that bullion, jewellery or other valuable article or thing, being stock-in-trade of the business, found as a result of such search shall not be seized but the authorized officer shall make a note or inventory of such stock-in-trade of the business;

(iv)             (iv) place marks of identification on any books of account or other documents or make or cause to be made extracts or copies there from;

(v)               (v) make a note or an inventory of any such money, bullion, jewellery or other valuable article or thing : Provided that where any building, place, vessel, vehicle or aircraft referred to in clause (i) is within the area of jurisdiction of any Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, but such Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner has no jurisdiction over the person referred to in clause (a) or clause (b) or clause (c), then, notwithstanding anything contained in section 120, it shall be competent for him to exercise the powers under this sub-section in all cases where he has reason to believe that any delay in getting the authorisation from the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner having jurisdiction over such person may be prejudicial to the interests of the revenue : Provided further that where it is not possible or practicable to take physical possession of any valuable article or thing and remove it to a safe place due to its volume, weight or other physical characteristics or due to its being of a dangerous nature, the authorised officer may serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it, except with the previous permission of such authorised officer and such action of the authorised officer shall be deemed to be seizure of such valuable article or thing under clause (iii): Provided also that nothing contained in the second proviso shall apply in case of any valuable article or thing, being stock-in-trade of the business

(vi)             : Provided also that no authorisation shall be issued by the Additional Director or Additional Commissioner or Joint Director or Joint Commissioner on or after the 1st day of October, 2009 unless he has been empowered by the Board to do so.

(vii)            Explanation.—For the removal of doubts, it is hereby declared that the reason to believe, as recorded by the income-tax authority under this sub-section, shall not be disclosed to any person or any authority or the Appellate Tribunal.

(viii)         (1A) Where any Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, in consequence of information in his possession, has reason to suspect that any books of account, other documents, money, bullion, jewellery or other valuable article or thing in respect of which an officer has been authorised by the Principal Director General or Director General or Principal Director or Director or any other Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or Additional Director or Additional Commissioner or Joint Director or Joint Commissioner to take action under clauses (i) to (v) of sub-section (1) are or is kept in any building, place, vessel, vehicle or aircraft not mentioned in the authorisation under sub-section (1), such Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may, notwithstanding anything contained in section 120, authorise the said officer to take action under any of the clauses aforesaid in respect of such building, place, vessel, vehicle or aircraft

(ix)             . Explanation.—For the removal of doubts, it is hereby declared that the reason to suspect, as recorded by the income-tax authority under this sub-section, shall not be disclosed to any person or any authority or the Appellate Tribunal.

(x)                (2) The authorised officer may requisition the services of any police officer or of any officer of the Central Government, or of both, to assist him for all or any of the purposes specified in sub-section (1) or sub-section (1A) and it shall be the duty of every such officer to comply with such requisition.

(xi)             (3) The authorised officer may, where it is not practicable to seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing, for reasons other than those mentioned in the second proviso to sub-section (1), serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it except with the previous permission of such officer and such officer may take such steps as may be necessary for ensuring compliance with this sub-section. Explanation - For the removal of doubts, it is hereby declared that serving of an order as aforesaid under this sub-section shall not be deemed to be seizure of such books of account, other documents, money, bullion, jewellery or other valuable article or thing under clause (iii) of sub-section (1).5/14/2021 Income Tax Department https://incometaxindia.gov.in/_layouts/15/dit/Pages/viewer.aspx?grp=Act&cname=CMSID&cval=102120000000075226&searchFilter=%5b%7b"Cr… ?

(xii)            (4) The authorized officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act. Explanation - For the removal of doubts, it is hereby declared that the examination of any person under this sub-section may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act.

(xiii)          (4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed— (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of account and other documents are true; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the 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.”

This is the statute which provides the powers to the authorities to conduct the searches on the assessee.

Briefly stated, the gist of this section is that, a search can be conducted by an officer, not below the rank of the Deputy Director, who gets an authorization in form of a warrant to conduct the search, by the Director of Income Tax Investigation, on the reason to believe, of the matters so stated in sub section 1 of 132, mentioned as a, b, and c.

Apart from this there is a charter published by the CBDT, where the CBDT has provided for the rights given to the persons on whom the search is conducted and there has been duties assigned to the persons conducting search.

Now we go to the standards laid down by the Various courts which cover the following issues: Just giving one ruling on the issues. There are many.

a.     Authorization containing search, given by the DIT or The DG needs the reason to believe.: Union of India Vs Vipan Kr Jain & others. 2003 (260) ITR 1 (SC)

b.     Regarding the Prohibitory orders so passed by the Authorized Officer, decision in favor of assessee are Windson Electronics (P) Ltd Vs. Union of India (2004) 269 ITR 516 (ALL)

c.      Anything seized by another authority of Govt. under other law cannot be seized by the Income Tax Authorities from the other authority by a warrant of Authorization. CIT Vs Tarseem Kumar (1986) 101 ITR 505 (SC)

d.     Validity of search can be challenged only by way of Writ Petition under Article 226, is misconceived thought. A K Bansal Vs ACIT (2000) 67TTJ (ALL(TM)

e.     Authorities in Income Tax not concerned whether Activities are legal or illegal. (1999) 157 ITR (SC) 1 State of Punjab Vs Baldev Singh.

f.       Mere unexplained possession of an amount would not constitute information which could lead as sufficient by a reasonable Person. Vindaya Metal Corporation Vs CIT (1997) 224 ITR 614 (SC)

g.     Reason to believe recorded after directions of High Court, means that at the time of raid no reason existed. 2005 (95) TTJ Agra 117 Udit Kumar Kishan Kumar Agarwal Vs DCIT

h.     When assessee makes a prima facie case against the validity of search, Revenue is obliged to share information relating to reason to believe. May be in the sealed cover to the court. M D Overseas Vs Director General of Income Tax & others 2011 TIOL-123-HC_ALL

i.       Material in form of Incriminating Document needed to Constitute an addition under section 153A

j.       Statement of a third Party cannot constitute to be reliable document. CIT Vs Ananad Kumar Jain 2021 TIOL 527-HC DEL-IT

k.     Statement Recorded under section 132(4) does not constitute Incriminating Material for assessment. PCIT Vs Anand Kumar Jain 2021 TIOL 527-HC-DEL-IT

Following points should be very clear for both the department as well as the assessee.

1.     That all the documents so seized are deemed to be true, signed and correct and written by the assessee, and belonging to him. The onus of proof is upon the assessee to prove, as to why they should not be considered not to his or wrong.  Normally, due to the over enthusiasm, the officers of the department make a blunder by calling the assessee, and asking for the explanations. Once those explanations are given, then the department makes its case week.

2.     During the course of search many other documents are found apart from the reason against which the authorization is issued, in the over enthusiasm, the other documents, are made an emphasis, losing the basic reason for the survey.

3.     Why the summons are issued under section 131(1A) by the ADIT, after the search. It is a wrong practice, because, when a search has been conducted, then what is purpose of further harassment to the assessee. On this, the assessee cannot be searched again. By doing so, more harassment and wrong commitments also come.

4.     The Investigation has no authority to release anything after that has been seized. The release can only be made after the assessments are over under. While taking the documents or the valuables, normally it is projected that that the things would be released, but it will be not.

5.     In no ways, the search team, which has reasons, can spoil their search by manipulations. The assessee should understand that the persons conducting searches cannot be their advisors, as the interest of both are quite different.

6.     The assessee should also understand as to when the actions should be taken. Inaction is also an action.

7.     Investigation Wing today cannot hold information in the day of Artificial Intelligence. The words of the officer need to be perfectly understood before the action is taken.

8.     Investigation Wing has to prepare the appraisal report, which he has to give within a span of 60 days from the conclusion of search. This is an information to the Assessment wing stating the reasons and what was found and how the investigations have been made.

9.     The assessment Wing has the same Director General, but the wing is Quasi Judicial, who have to make the assessments on the basis of Material found in course of search. While responding to the notice, extra care needs to be given as to what is to be stated.

10. The reason for the statement of the assessee not be reliable is because of two reasons. One cannot be forced to depose against himself. Contained in Article 20(3) of Constitution of India. The statement is recorded to verify the cause of further investigation, to locate the corroborative evidence.

11. On the search matters there are more than 1000 current case laws, but each has a different relevance.

Now coming to the illustrated matter. How to proceed with the same.

1.     The illegalities have happened in the conduct of search. They are against the guidelines too. But what is the remedy? If a writ is filed, then by the time it comes for the hearing, the search is concluded. In spite of the everything, no relief is possible. There are case laws, but the applicability of those laws will not tender a relief there. After the search is over, the assessee should write of all the illegalities done, most humbly, and submit the same to the Directorate. If this is not done, then everything would constitute to be an afterthought.

2.     Regarding the issuance of Summon, under section 131(1A), it should be avoided stating the correct reasons. I do not know, why these summon are issued, but then it is a regular way. By this the department loses the sanctity of section 132(4A) which is presumptive that all the documents are written by the assessee, and they are true and correct. If the assessee is called, then it can lead to different inferences too. But the notice so received should be complied and replied.

3.     Whatever is seized, will be not returned to the assessee, till the assessments are completed. In sixty day time, the DDIT (Inv) has to prepare the appraisal report, and in the meantime, the assessee, should get the removal to prohibitory orders under section 132 (3) so imposed upon him. The officers in investigation are not assessing the assessee group.

4.     The preparation should be made for the returns to be filed by the assessee as a result of search.

5.     The affairs of the assessee are unique. That uniqueness should be appreciated by the assessee, and he should be prepared, to start the business anew, rectifying the errors leading to the search.

6.     The immediate copies of the seized documents should not be asked for. From the side of department, it should be provided to the assessee, so that the assesee does not take the resort that the incriminating documents were not submitted.

7.     All replies and submissions should be in writing. Statements of the assessee lead to contradictions.

8.     At this time, the case laws should not be relied upon. Caution should be from both ends, that the results come.

Now, the reason for non reliance over the case laws at this juncture is because normally the courts do not interfere in the process of investigation. The reason to believe becomes very important.

Relevance of case laws, and the idea of the rulings by the courts, leads to the correct process to be followed, where the strategy to defend the case becomes. Case laws help in framing the strategy over the facts given so that proper adjudication of the matters is done. They should not even be applied before the assessing officer. Because, during that time, the cases being open, have chances, that the investigations may change the directions leading to the distinction of the rulings over the facts. This should be the strategy. The cases in investigations cannot be over at the time of assessing officer.  Proper appreciation can help a professional evaluate the position of the assessee and his case.

Caution should be taken as to where the income should be disclosed. If the income is disclosed in the hands of the companies, its impact over GST, Ministry of Corporate affairs and others should also be seen.  In such cases, the chances of rejection of books of accounts become certain. This leads to the opening of assessments over the materials found in course of search.

The case laws are important as they lead to the strategy, both for the execution, as well as the defense. They help draw the reasonable conclusions, when the stage of final adjudication comes, when new evidences cannot be taken by both ends.

Case laws help binding the facts logically to help a judicious end to a case. In the times, when everything is going virtual and online, this note becomes important for the Revenue as well as the assessee.

Hope this note shall be useful for my colleagues in the profession, as well to the Revenue Officers, and the assessees, of course.