Unaddressed Issues with respect to Search & Seizure under the Income Tax Act, 1961

Issue 1

Sec. 132(1) Clause (iii) :: “seize any such books of accounts, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such search.”

Emphasis is supplied on the phrase “found as a result of such search” and As a Corollary to this provision –

1. Whether money, bullion, jewellery or other valuable article or thing – which have been DISCLOSED – in returns (Income Tax or Wealth Tax) or submissions during Assessment Proceedings cannot be seized?

2. Whether restraint orders on Bank Accounts are not valid – where such bank accounts have been disclosed in returns / submissions during the Assessment Proceedings and / or PAN No. has been quoted while opening such bank accounts – unless there is evidence with the Department that such accounts have actually not been disclosed.

3. Where the department seized such articles – which have been disclosed – what are the remedies available to the assessee in such cases?

Issue 2

This issue arises with respect to Seizure of Jewellery u/s 132 read with CBDT Instruction No. 1916 dt. 11/5/1994 and section Section 14(2) of the Wealth Tax Act, 1957 which states as: “Notwithstanding anything contained in any other provision of this Act, a return of net wealth which shows the net wealth below maximum amount which is not chargeable to tax shall be deemed to have never been furnished:

Provided that this sub-section shall not apply to a return furnished in response to a notice under section 17.”

Effectively, a voluntary return of net wealth which shows the net wealth below the maximum amount which is not chargeable to tax shall be deemed to have never been furnished.

What are the implications of the above provisions with respect of seizure of gold ornaments and jewellery, etc u/s 132 of the I T Act, 1961 in the following cases:

A. Return of Wealth Tax filed upto AY 1992-93 disclosing Jewellery, etc and then discontinued on account Sec. 14(2) of the Wealth Tax Act, 1957. Assessment Orders also available where certain quantity of gold jewellery, etc has been accepted and assessed by the Assessing Officer. Whether such a jewellery, etc can be seized?

B. Return of Wealth Tax filed after AY 1992-93. However, the declared net wealth is below basic exemption limit and therefore hit by section 14(2) of the W T Act, 1957 as deemed to have never been filed.

Author’s comments : The above issues have to the best of my knowledge not been addressed by a High Court or the Supreme Court. I believe that the redressal of the above unaddressed issues with respect to Search & Seizure under the Income Tax, 1961 & Wealth Tax Act, 1957 will have wide & far-reaching implications for the Assessee’s who have been subjected to Search & Seizure operations u/s 132 of the I. T. Act, 1961.

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