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Critical analysis of the amendment relating to section 132 of IT Act

Divyanshu Dubey , Last updated: 17 August 2017  


Finance Act 2017 had inculcated within it many promises for the welfare of public, but certainly amendment to section 132 of the Income Tax Act, 1961 negates that assertion. It had been proposed by the Finance Act 2017 that the requirement in relation to 'reason to believe' or 'reason to Suspect' recorded by Income-tax Authorities for conducting search or seizure under section 132 or 132A of Income- Tax Act shall not be disclosed to any person or authority or appellate Tribunal. It was done in furtherance to negate some of the judicial pronouncements which had created ambiguity in respect of disclosure of 'reason to believe' and 'reason to suspect' under section 132 of the Income Tax Act. The development under section 132 though was done under good intention on behalf of government to bring black money holders under the realm of Income Tax Authorities but at the same time, many courts have held that such search and seizures conducted under section 132 of the Income Tax Act are violation of privacy, thus elucidating two sides of a coin. According to Kanga & Palkhiwala, section 132 confers wide powers of search & seizures on the authorities without any external check and adequate safeguards for the citizen; in such case intention of amendments is real dubious.

Further many Courts had held that such reason shall not be just based on pretence but on the information which is with the income tax authority. Intention of government in these amendments is clear in the sense that they intend to curb the rights of the Assessee to challenge such search or seizures. Amendments seeks to give unfettered power to the Income Tax Authority, to which many scholars fear and had named it rise of tax terrorism. Such unfettered power to Income Tax Authorities could be disastrous as they need not disclose the reasons to conduct such search or raid and could conduct raid on mere intuition itself without any conclusive information which in turn could disrupt daily day to day activities of businessman and even such attempts could lead to victimization of people as well. Thus in this assignment, researcher seeks to identify the real intention of government in bringing these amendments and to compare situation prior to amendment and possible situation after the amendment with the help of judicial pronouncements.

Analysis of Section 132

Interpretation of section 132 by Judiciary

The clash between stand of authorities to render scope of search and seizures very wide and the stand of judiciary to provide safeguards to assessee had made it a very controversial section. Earlier Supreme Court in UOI v Ajit Jain, examined Information as something more than a gossip or hunch, according to them it should be the material which can be regarded as information which exists on the file to which authorizing officer have a reason to believe under section 132.

There should be a rational connection between the information or source or material about undisclosed income. Even the intimation by police or possession of more cash cannot bring it under the warranted action under section 132 as it would not lead the inference that certain income had not been disclosed by the assessee. Further, this section only applies to pre assessment stage and cannot be utilized if an assessment is made to recover tax dues. Even material relied upon for must exist before search.

Section 132 had been analyzed by P& H High Court, it specifically held that power for search & seizure shall be exercised for collateral purpose, and further held that if action taken under this section mala fide or arbitrary or if betrays the application of mind or natural justice or without jurisdiction or is patently erroneous, then it shall be illegal and court shall have power to interfere under section 132. Further, power of courts is only confined to examine whether such search was based on 'relevant information'.

Interpretation of 'Reason to Believe' under section 132

It is the most controversial part under section 132 and was considered as the 'most salutary safeguard' to the asessee. 'Reason to believe' is a mandatory requirement for search & seizure, further 'reason to suspect' provided under subsection (1A) and (4A) of section 132 shall be subjected to it. The most controversial part of this section as interpreted by court is in absence of 'requisite information' a search cannot be authorized under section 132. Further if 'Reason to believe' and requirement of 'requisite information' is not fulfilled then powers under this section cannot be used to conduct search & seizures. Further it shall be expressly provided that such belief shall be subjected to clauses(a), (b) or (c) of section 132 (1). Further such 'Reason to believe' test is to be seen coupled with power of examination of court which would consider that whether such search was based on 'relevant information'.

On point of information of belief, courts have also explained that such belief shall be through application of mind and shall be bona fide and not activated by mala fide bias or irrelevant materials. Thus this part of section 132 had been the most controversial and interpreted under the Income Tax Act. It became necessary for Income Tax Authorities to get Act amended as they were restrained from exercising their right to search & seizures from irrelevant or unreliable or rumours. Such sources were subject to powers of court to examine the relevant information and further to which authorities shall act on their belief of such relevant information.

According to me, these were some judicial pronouncements which legislature wanted to curb, as they were examining the sources of information or examining the relevancy of information itself which was restraining the authorities from exercising their powers under section 132 to which finally legislature had sorted for entirely non-disclosure of such information.

Power of provisional attachment

Finance Amendment Act, 2002 had amended sub-section (9A) to provide that the authorized officer shall hand over seized books of account, documents and assets to the AO having the jurisdictions over the person searched, within a period of 60 days from the date on which last authorizations for search was executed. Before this amendment the situation was that if the Authorized Officer who has seized documents or assets is not AO, then subsection (9A) of section 132 and which requires it to hand over such assets to AO who had power to retain the documents beyond 180 days.

Now, it had been proposed by Finance Act 2017 that if authorized officer who had conducted search and seizures may attach provisionally any property belonging to the assessee with the permission of Principal Director General or Director General or Director which shall cease to have effect after the expiry of six months of such attachment. Further it provides that for estimation of fair value of property, authorizing officer may make a reference to valuation officer which may furnish the report within 60 days. Finance Act, 2017 thus seeks to expand the powers of authorizing officer under section 132.


Judicial pronouncements had made clear and elucidated the underlying intention under Section 132 very carefully. Our Hon'ble Supreme Court was clearly in the favour of balancing rights and powers of search & seizure between Assessee & Authorizing Officer in ITO v Seth Bros and also in UOI v Ajit Jain and plethora of judgments wherein it clearly indicated that such rights shall be balanced with relevant information and their reason to believe in such information to which right to suspect shall be subject to reason to believe which clearly provides an adequate safeguard from unwarranted Search and Seizures. Now what troubles most is the intention of legislature to bring in such amendments in Financial Act 2017 that clearly provides for non-disclosure of such information which in turn could lead to tax terrorism and unwarranted violation of Right to Privacy of Citizens to which our Hon'ble Supreme Court was of view that due to existence of such rights of Asessee such as right to privacy due to which powers under section 132 shall be exercised clearly. Though the legislature had sorted to relieve the Asessee from ambiguity regarding the provisions but due to such amendments it sure will escalate the misuse of this section.

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