Section 132 — Search and Seizure

Section 132 of the Income-tax Act, 1961, empowers income tax authorities to conduct search and seizure operations when they have reason to believe that a person is in possession of undisclosed income or property. This section is significant as it allows authorities to enter and search any building, place, vessel, vehicle, or aircraft where they suspect such undisclosed assets are hidden. The statutory test requires 'reason to believe' based on credible information, which must be recorded in writing. The burden of proof lies with the tax authorities to justify the search and seizure. In practice, this section is crucial for tackling tax evasion and ensuring compliance, but it also requires a careful balance to protect taxpayers' rights. The section is often invoked in cases involving large-scale tax evasion, black money, and other financial irregularities.

Common Litigation Flashpoints

1. Validity of the 'reason to believe' for conducting a search
2. Excessive or unauthorized seizure of assets
3. Non-compliance with procedural safeguards during search operations
4. Challenges to the assessment of undisclosed income post-search

Judgments on Section 132 — Search and Seizure

• DCIT, CC-1(2), Kolkata vs M/s Chaman Metallics Ltd — ITAT,
  Once the assessee has submitted documents relating to identity, genuineness of the transaction, and credit-worthiness, the AO must conduct an inquiry before invoking Section 68.
• DCIT (Central Circle-1) vs Shree Ganesh Edibles Pvt. Ltd. — ITAT,
  Once the assessee furnishes identity, creditworthiness, and genuineness of the lender, the onus shifts to the AO to prove otherwise.
• Principal Commissioner of Income Tax, Central-3 vs Abhisar Buildwell P. Ltd. — SC,
  In the absence of incriminating material, the AO cannot assess or reassess completed/unabated assessments under Section 153A.
• Union of India & Anr. vs M/s. Ganpati Dealcom Pvt. Ltd. — SC,
  The 2016 Amendment Act cannot be applied retrospectively as it creates new offences and substantive changes, which cannot be applied to past transactions.
• Commissioner of Income Tax (Central)-III vs Kabul Chawla — HC,
  Additions to income under Section 153A can only be made based on incriminating material found during the search.
• ACIT vs M/s Majestic Properties (P) Ltd. — ITAT,
  Mere jottings on loose papers without corroborative evidence cannot form the basis for assessing undisclosed income.
• PR. COMMISSIONER OF INCOME TAX CENTRAL-2 NEW DELHI vs MEETA GUTGUTIA PROP. M/S FERNS 'N' PETALS — HC,
  Completed assessments can be interfered with by the AO under Section 153A only on the basis of some incriminating material unearthed during the course of search.
• C.I.T., Kolkata vs SMIFS Securities Ltd. — SC,
  Goodwill is an asset under Explanation 3(b) to Section 32(1) of the Income Tax Act, 1961.