Certain amendments to the Income Tax Act, which expand the powers of the officers, have revived concerns in some sections regarding the potential for misuse. The timing of the amendment is significant as it comes after the public utterances/announcements of the prime minister wanting to empower the department to execute large-scale scrutiny of accounts to catch the black sheep, who according to him are not paying taxes properly.  The public announcements post demonetisation were with the intention to coerce the people to disclose the cash-in-hand available with them which is deposited in his/her bank account as income for the year to pay tax thereon.

Section 132(1) confers power on the tax authorities to conduct search and seizure, if they have reason to believe that the person has not disclosed the information asked for, is not likely to furnish the required information, or is in possession of undisclosed income/valuables. Section 132(1)(A) empowers the authorities to extend the search and seizure to locations that are not included in the authorisation for search and seizure, where there are reasons to suspect that this would yield useful information.

The condition of recording “reasons to believe/reasons to suspect” provides a salutary check against arbitrary exercise of powers. The amendment provides that the “reasons to believe/reasons to suspect” need not be disclosed to anyone, including to any authority or to the Appellate Tribunal. This amendment has been inserted with retrospective effect from April 1, 1962 (w.e.f 01.10.1975 in the latter category). This section is also being sought to be amended to include an explanation that the “reasons to suspect” will not be disclosed to anyone, including any individual, authority or Appellate Tribunal.

With these amendments, now only the constitutional courts (high court and Supreme Court) have the powers to examine the relevance of the “reasons to believe” search action executed under Section 132 of the Act. The retrospective amendment will have a huge impact on the pending cases of the assessees who, so far able to take the benefit of the Section as it stood prior to the amendment, would lose that right.

Confidentiality and sensitivity have been cited as the reasons for bringing in the amendments which appears to have been prompted by certain instances where assessees have taken advantage of the information/material which formed the basis for “reasons to believe” and questioned the legal propriety of the search warrants on technicalities. There are also genuine concerns about protection of source of information and that disclosure of the reasons to believe compromises the identity of the source.
What was the need?

At first glance, the rationale behind the amendments does not appear to be entirely unfounded, particularly considering the fact that the enforcement arm of the department has the unenviable task of cultivating sources of information, promoting confidence among informers as well as marshalling evidence by discreet inquiries before issuing a warrant.

Therefore, if there is a requirement to disclose the “reasons to believe” at the stage of the execution of warrant or before the appellate authority, there is a likelihood of the taxpayer resorting to technicalities to frustrate the objectives of conducting a search. However, a little bit of reflection would show that there may be substance in the apprehensions voiced in certain quarters regarding potential of misuse of such unfettered powers in the hands of the taxmen.

With this amendment, the balance has tilted too far on the other side. As it is, the powers of search and seizure are rather blunt enforcement instrument as action taken under Section 132 involves serious intrusion into the privacy of a citizen.

The prospect of scrutiny by the appellate authorities into the relevance of material/ information/evidence forming the foundation for “reasons to believe” served as a check against indiscriminate use of these provisions since the competent authority, before authorising the search, is constrained to ensure adequacy and relevance of the information/material to the “reasons to believe”. This ensures that there is no arbitrary exercise of power of search and seizure. With this amendment, such a salutary check stands removed.

The provision nibbles at the liberal democratic ethos of the country. One actually wonders whether there was a need to bring in such a radical amendment in a context where extensive technological tools are available for intelligence gathering and profiling of potential tax evaders.

Section 132 has further been amended to insert sub-sections that give powers to the authorised officer conducting search and seizure to provisionally attach, for a period of up to six months, property that they find during the course of a search and seizure. The provision is meant to safeguard the recovery of tax demand. Under the existing provisions, the authorities conducting search did not have any power to provisionally attach such a property.

The preparation of an investigative report generally takes 3-4 months after which the assessment proceedings are initiated. Therefore, the taxpayer had the time to dispose of such property before a tax demand could be raised. Though the power can be exercised only with the prior approval of senior officers, there are valid concerns that the provision proceeds on the presumption of tax evasion by the assessee who has been subjected to search.

Section 133 empowers income tax authorities to call for information for the purpose of any inquiry or proceeding under the Income Tax Act. Under the existing provisions, if there is no proceeding pending against a person, this power can only be exercised by senior officers (director/director general). This section has been amended to empower officers at the junior level as well (assistant director, joint director).

The rationale given for the amendments is that the work profile of the officers at the Investigation Wing is such that there is a need for conferring powers for calling information without escalating the matter to the senior levels. However, conferring such powers on officers at the asst/joint director level without any pending inquiry/ proceeding in a case has given rise to fears of junior officers launching fishing and roving inquiries.

Section 133A empowers income tax authorities to conduct survey at a place where a business or profession is carried on or a place where documents or property relating to the business or profession are kept. This section has been amended to include places of charitable activities as well.

In view of increasing instances and reports of misuse of funds by so-called charitable trusts/institutions and use of such instruments for parking  undisclosed income, the amendment is unexceptionable in its scope and intent as it only fills a gap in the enforcement provisions in the Act.

(The writer is a former additional solicitor general and a senior advocate, Supreme Court)