Post Search Assessments: Significant Considerations

Bhuvnesh Satija & Vibhooti Malhotra, Advocates

M/s. R.K. Satija & Co., Advocates & Solicitors 2080, Sector 28, Faridabad

+91 -9899940300 bhuvnesh.satija@rkslaw.in

Contents

•  Constitutional Considerations – Power to Search

•  Mechanics of Serach Provisions under the Income Tax Act, 1961 –  Scheme of Section 132 –  Recent Amendments

•  Assessment Provisions –  Specialised Assessments –  Controversies –  Recent Amendments

POWER TO SEARCH – CONSTITUTIONAL CONSIDERATIONS

Power to Search - generally •  After-math of the recent nine-judge decision – Right to Privacy is a constitutionally protected right which emerges

primarily from the guarantee of life and personal liberty in Article 21 of the Constitution;

•  Power to search exercised by any law enforcement ought to meet the test of due process – i.e. just, fair and reasonable and be prescribed by a law;

–  P.P. Metrani v. CIT (2007) 1 SCC 789: •  The Hon’ble Supreme Court noted that search and seizure under Section 132 was a serious invasion in

the privacy of a person. •  Landmark decision on the point that presumption created by Section 132(4A) does not extend to regular

assessments.

–  Directorate of Revenue v. Mohammed Nisar Hola (2008) 2 SCC 370: •  Search conducted under the provisions of NDPS Act in a Hotel room, question arose whether the search

provisions relatable to search of person (Section 42 – providing a stricter standard) or search in a public place would be employed?

•  Significantly, the Apex Court noted that when a statute confers untrammelled power to infringe a person’s

privacy, with an unlimited power to search, would be ultra vires and reasonable restrictions are required to be placed. Hon’ble Court also emphasized the significance of recording reasons.

Power to Search - generally

•  Search Provisions under other Statutes: –  Criminal Procedure Code, 1973: Sections 41, 51, 52, 93 to 103, 165 and 166 deal with the power

of the police to search.

–  Prevention of Money Laundering Act, 2002: Section 17 deals with search of premises while Section 18 deals with search of person.

•  Consequences of an invalid search under penal statutes:

–  In State of Punjab v. Balbir Singh 1994(3) SCC 299 after referring to a number of judgments, the Bench opined that failure to comply with the provisions of CrPC in respect of search and seizure and particularly those of Sections 100, 102, 103 and 165 per se does not vitiate the prosecution case. If there is such a violation, what the courts have to see is whether any prejudice was caused to the accused. While appreciating the evidence and other relevant factors, the courts should bear in mind that there was such a violation and evaluate the evidence on record keeping that in view.

–  Doctrine of Fruits of a Poisonous Tree under American Law: The "fruit of the poisonous tree" doctrine is an extension of the exclusionary rule, which, subject to some exceptions, prevents evidence obtained illegally from being admitted in a criminal trial. Like the exclusionary rule, the fruit of the poisonous tree doctrine is intended to deter police from using illegal means to obtain evidence.

MECHANICS OF SEARCH PROVISIONS – A BRIEF VIEW

Scheme of Section 132 •  Pre-conditions:

–  Information in the officer’s possession –  ‘Reason to believe’ that either a) summons in-complied; b)futility of summons or c) undisclosed property;

•  Powers: of entry in premises where the books of accounts, property things are kept, ‘necessary facility’ for access to electronic record, seize articles (except when stock-in-trade), make inventory, take superdari of seized articles, take assistance from police authorities; –  Search of ‘person’?

•  Periphery of search can be extended in case of reason reason to suspect;

•  Presumption under 132(4A) and Section 292C;

•  Provisions of CrPC are applicable; –  Rule 112 of the Income Tax Rules

•  Release of seized articles – distinction between books of accounts/documents and valuables;

Recent Amendments •  Judicial scrutiny of satisfaction note barred;

–  Director General of Income tax (Investigation) v. Spacewood Furnishers (P.) Ltd. [2015] 57 taxmann.com 292 (SC)

–  Writ jursidiction under Article 226 of the Constitution;

•  Provisional Attachment – Interest of Revenue;

–  Section 5 of the Prevention of Money Laundering Act, 2002; •  Two categories of persons

ASSESSMENT PROVISIONS

Specialised Assessments •  Chapter XIV-B was first introduced by Finance Act, 1995 and later by means of Finance Act, 2003, a

new scheme under Section 153A to 153C were introduced ;

•  Notable diversions made vide the 2003 Amendment, though the six preceding year block assessment continued: –  Reference to ‘total income’ as opposed to ‘undisclosed income’; –  Basis for making assessment also widened; –  ‘Other than searched person’ criterion altered from ‘undisclosed income belonging to the said

person’ to ‘assets or books of accounts or documents belonging to’

•  Timelines for completing the assessment

Controversies •  In relation to person other than the searched person;

–  Meaning of ‘belongs’? Hon’ble Delhi High Court in •  Pepsico India Holdings (P.) Ltd. v. Assistant Commissioner of Income-tax

–  At what stage satisfaction note to needs to be recorded in case of Section 153C?

•  CIT v. Calcutta Knitwears (2014) 6 SCC 444 •  CIT v. Singhad Technical education Society [2017] 84 taxmann.com 290 •  Canyon Financial Services Ltd. v. Income Tax Officer [2017] 84 taxmann.com 71

(Delhi)

•  Assessment Procedure – on what basis additions can be made? –  Relevance of incriminating material; –  Whether incriminating material required for every year or every addition?

•  Kabul Chawla [2015] 380 ITR 573(Del.) •  Filatex India Ltd. v. CIT [2014] 49 taxmann.com 465 (Delhi) •  Smt. Dayawanti v. CIT 390 ITR 496 •  PrCIT v. Best Infrastructure (India) 397 ITR 82

Amendments caused by Act of 2017 •  Block period + relevant assessment year(s);

–  Falls beyond the block period but not later than ten years from the end of the AY relevant to the previous year in which serach was conducted;

–  Nuances of the 4th Provio:

•  Need for recording reasons? Only information in possession •  Income represented in an asset exceeding fifty lakhs;

THANK YOU

Disclaimer: Please note that the contents of this presentation do not constitute legal advice or opinion.