Search and Seizure under the Income-tax Act, 2025 – Legal Framework

Search and Seizure under the Income-tax Act, 2025 – Legal Framework

Introduction

Sections 247 to 259 of the Income-tax Act, 2025 contain the provisions relating to search, seizure, requisition, retention and application of seized assets. These provisions empower the Income-tax Department to detect undisclosed income, unaccounted assets, books of account, documents and digital evidence where there is reason to believe that such information may not be produced voluntarily or may be concealed, altered or destroyed. The Act also recognizes electronic records, cloud-based information, computer systems and digital assets as valid sources of evidence during search proceedings.

1. Authorization of Search (Section 247)

Search proceedings can be initiated only when the competent authority has "reason to believe" based on credible information that:

• A person has failed to comply with summons, notices or requisitions issued under the Act.
• A person is unlikely to produce books of account or documents when called upon.
• A person possesses undisclosed income, money, bullion, jewellery, valuable articles or property representing undisclosed income.

A valid warrant of authorization is mandatory before conducting a search.

2. Powers of the Authorised Officer

Upon issuance of a valid authorization, the authorised officer may:

Enter and Search Premises

The officer may enter and search:

• Residential premises
• Business premises
• Offices
• Warehouses
• Lockers
• Vehicles
• Aircraft and vessels

Inspect Books and Documents

The officer may examine:

• Books of account
• Financial records
• Agreements
• Contracts
• Invoices
• Vouchers
• Correspondence and other records

Search Persons

Any person present during the search may be searched if there is reason to suspect possession of undisclosed assets or relevant evidence.

Break Open Locks

The authorised officer may break open:

• Doors
• Lockers
• Safes
• Receptacles

where access is denied or keys are unavailable.

Prepare Inventories

The officer may:

• Count cash
• Verify jewellery
• Verify bullion
• Measure stock
• Prepare inventories of assets and records

Seize Assets and Records

The officer may seize:

• Books of account
• Documents
• Electronic devices
• Storage media
• Cash
• Bullion
• Jewellery
• Valuable articles

Stock-in-trade is ordinarily not seized but inventoried.

3. Digital Search and Electronic Evidence

The Act specifically recognizes digital evidence and permits examination of:

Electronic Records

• Emails
• Electronic communications
• Digital books of account
• Databases
• Information systems

Digital Devices

• Computers
• Laptops
• Servers
• Mobile phones
• Tablets
• External storage devices

Cloud-Based Information

• Cloud storage
• Remote servers
• Virtual databases
• Online backup systems

Access Credentials

The authorised officer may require:

• Passwords
• Access codes
• Encryption keys
• Authentication credentials

to access digital information.

4. Presumption Regarding Seized Material

The Act provides that unless rebutted:

• Books and documents belong to the person from whose possession they are found.
• Contents of documents are presumed to be true.
• Signatures and handwriting are presumed genuine.
• Electronic records are presumed authentic.

These presumptions create an evidentiary burden on the taxpayer to establish otherwise.

5. Examination on Oath

The authorised officer may examine any person on oath regarding:

• Ownership of assets
• Sources of income
• Financial transactions
• Investments
• Books of account
• Electronic records

Statements recorded during search proceedings constitute evidence and may be used in assessment, penalty and prosecution proceedings.

6. Deemed Seizure and Restraint Orders

Where physical seizure is impracticable, the authorised officer may issue a restraint order prohibiting:

• Removal of assets
• Transfer of assets
• Encumbrance of assets
• Any dealing with assets

Such restraint is treated as a deemed seizure.

7. Requisition of Assets and Documents

The Department may requisition books, documents and assets from:

• Police authorities
• Customs authorities
• Enforcement agencies
• Regulatory authorities
• Other Government departments

where such assets are already under their custody.

8. Provisional Attachment of Property

To protect the interests of revenue, the Department may provisionally attach property of the taxpayer.

The purpose is to prevent disposal or dissipation of assets which may ultimately be required for recovery of tax dues.

9. Valuation of Assets

The authorised officer may refer assets to a Valuation Officer for valuation of:

• Immovable properties
• Jewellery
• Bullion
• Precious stones
• Valuable assets

The valuation report may be used in assessment proceedings.

10. Application of Seized Assets

Seized assets may be adjusted against:

• Existing tax arrears
• Interest
• Penalties
• Liabilities determined pursuant to assessment

Any excess amount is required to be released in accordance with law.

11. Procedural Safeguards

The Act incorporates several safeguards, including:

• Valid authorization
• Presence of independent witnesses
• Preparation of Panchnama
• Preparation of inventory
• Judicial review of departmental actions

These safeguards are intended to balance revenue interests with taxpayer rights.

12. Block Assessment of Undisclosed Income

For searches initiated on or after 1 September 2024:

• Undisclosed income detected during search is assessed under a special block assessment regime.
• Such income is taxable at 60% plus applicable surcharge and cess.
• The assessment focuses on income evidenced by material found during search.

Precautions to be Taken by the Assessee and Tax Professionals During Search Proceedings

A. Precautions Before and During Search

For the Assessee

• Remain calm and cooperative.
• Verify identity cards of officers.
• Verify warrant of authorization.
• Do not obstruct proceedings.
• Do not destroy or conceal documents.
• Do not delete digital records.
• Do not remove cash or valuables.
• Maintain dignity and discipline throughout proceedings.

For Professionals

• Immediately reach the search location if permitted.
• Guide the assessee regarding legal rights and obligations.
• Ensure procedural compliance by the Department.
• Maintain detailed records of proceedings.

B. Precautions Regarding Statements

Assessee

• Listen carefully before answering.
• Give factual and truthful replies.
• Avoid assumptions and estimates.
• Avoid hurried admissions.
• Read statements before signing.

Professional

• Review statements after recording.
• Check consistency with books and records.
• Document any factual inaccuracies immediately.

C. Precautions Regarding Books and Documents

Assessee

• Verify inventories prepared.
• Identify ownership of documents.
• Obtain copies of inventories and Panchnama.

Professional

• Prepare index of seized documents.
• Reconcile seized records with books of account.
• Preserve evidence supporting transactions.

D. Precautions Regarding Digital Evidence

Assessee

• Maintain record of devices examined.
• Maintain details of cloud accounts accessed.
• Record data copied by the Department.

Professional

• Preserve backups.
• Review digital evidence.
• Verify completeness and authenticity of data.

E. Precautions Regarding Cash, Jewellery and Assets

Assessee

• Explain ownership of assets.
• Maintain invoices and supporting documents.
• Reconcile cash with books.
• Identify family-wise ownership of jewellery.

Professional

• Prepare reconciliation statements.
• Verify inventory quantities.
• Collect documentary evidence supporting ownership and source.

F. Precautions Regarding Restraint Orders and Attachment

Assessee

• Do not transfer attached assets.
• Do not encumber attached properties.
• Comply strictly with restraint orders.

Professional

• Review legality of attachment.
• Assess business impact.
• Evaluate available legal remedies.

G. Precautions During Block Assessment

Assessee

• Review all seized material carefully.
• Maintain supporting evidence.
• Provide explanations supported by records.

Professional

• Analyse each seized document.
• Reconcile seized material with books.
• Challenge unsupported additions.
• Prepare comprehensive submissions and litigation strategy.

Conclusion

Search and seizure proceedings under Sections 247 to 259 of the Income-tax Act, 2025 provide extensive powers to the Income-tax Department for investigation of undisclosed income and assets. However, these powers are accompanied by procedural safeguards and taxpayer rights. Proper documentation, cooperation, professional guidance and timely reconciliation of seized material are critical for protecting the interests of the assessee and ensuring fair and lawful completion of assessment proceedings.

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