EDITORIAL NOTE — VOL XIV

This Volume covers Chapter XIII of the 1961 Act — the income-tax authorities, their jurisdiction and powers: ss. 116-118 (authorities), 119 (CBDT instructions), 120-130A (jurisdiction), 131 (discovery / production / examination on oath), 132 (search / seizure), 132A-133 (requisition / power to call for information), 133A (survey), 133B-133C (notice of demand), 134 (power to call for information from banks), 135-138 (other powers).

SECTIONS 116-119 — INCOME-TAX AUTHORITIES + CBDT

Section 116 — Hierarchy

Hierarchy: CBDT → Principal CCIT / DGIT → CCIT / DGIT → Principal CIT / Pr.DIT / CIT / DIT → JCIT / JDIT → Addl.CIT / Addl.DIT → DCIT / ACIT / DDIT / ADIT → ITO. The hierarchy is operative both for assessment and appellate purposes.

Section 119 — CBDT Instructions

(1) The Board may, from time to time, issue such orders, instructions and directions to other income-tax authorities as it may deem fit for the proper administration of this Act, and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board:

Provided that no such orders, instructions or directions shall be issued—(a) so as to require any income-tax authority to make a particular assessment or to dispose of a particular case in a particular manner; or (b) so as to interfere with the discretion of the Commissioner (Appeals) in the exercise of his appellate functions.

(2) Without prejudice to the generality of the foregoing power,—

(a) the Board may, if it considers it necessary or expedient so to do, for the purpose of proper and efficient management of the work of assessment and collection of revenue, issue, from time to time (whether by way of relaxation of any of the provisions of sections 115P, 115S, 115WD, 115WE, 115WF, 115WG, 115WH, 115WJ, 115WK, 139, 143, 144, 147, 148, 154, 155, 158BFA, sub-section (1A) of section 201, sections 210, 211, 234A, 234B, 234C, 234E, 271 and 273 or otherwise), general or special orders in respect of any class of incomes or class of cases, setting forth directions or instructions (not being prejudicial to assessees) as to the guidelines, principles or procedures to be followed by other income-tax authorities in the work relating to assessment or collection of revenue or the initiation of proceedings for the imposition of penalties...

JUDICIAL EVOLUTION — Binding Force of Circulars

UCO Bank v. CIT, (1999) 237 ITR 889 (SC) — beneficial CBDT circulars / instructions are binding on the income-tax authorities, even where they purport to relax / mitigate the strict provision of the Act. The Department cannot resile from a benefit-granting circular.

HELD: Circulars issued by the Central Board of Direct Taxes which are beneficial to the assessee are binding on the Department even though they may not be in conformity with the strict letter of the law. (per UCO Bank ¶ 12).

DEPARTMENTAL PRACTICE — DIN Mandatory

CBDT Circular 19/2019 dated 14-08-2019 made Document Identification Number (DIN) mandatory on every Department communication — notice, order, certificate, etc. Communications without DIN are non-est. Online verification at incometaxindia.gov.in/DIN.

Section 132 — SEARCH AND SEIZURE

BLOCK 1 — TEXT (key sub-section 1)

(1) Where the Director General or Director or the Principal Chief Commissioner or Chief Commissioner or the Principal Commissioner or Commissioner, in consequence of information in his possession, has reason to believe that—

(a) any person to whom a summons under sub-section (1) of section 37 of the Indian Income-tax Act, 1922 or under sub-section (1) of section 131 of this Act, or a notice under sub-section (4) of section 22 of the Indian Income-tax Act, 1922 or under sub-section (1) of section 142 of this Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account or other documents as required by such summons or notice, or

(b) any person to whom a summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which will be useful for, or relevant to, any proceeding under the Indian Income-tax Act, 1922, or under this Act, or

(c) any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been, or would not be, disclosed for the purposes of the Indian Income-tax Act, 1922, or this Act,

then, the authority specified above may authorise any such Joint Director, Joint Commissioner, Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner, or Income-tax Officer (hereinafter referred to as the authorised officer) to enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such books of account, other documents, money, bullion, jewellery or other valuable article or thing are kept; break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by clause (i), (ii) or (iia) of this sub-section where the keys thereof are not available; search any person; require any person who is found in possession or control of any books of account or other documents maintained in the form of electronic record as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000, to afford the authorised officer the necessary facility to inspect such books of account or other documents; seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such search; place marks of identification on any books of account or other documents or make or cause to be made extracts or copies therefrom; make a note or an inventory of any such money, bullion, jewellery or other valuable article or thing.

BLOCK 2 — 2025 ACT COUNTERPART (Section 247)

Section 247 of the 2025 Act preserves the s. 132 architecture. The triple-trigger 'reason to believe' (a)/(b)/(c) is retained.

BLOCK 3 — COMMENTARY

JUDICIAL EVOLUTION — Reason to Believe

The leading SC pronouncement is ITO v. Seth Brothers, (1969) 74 ITR 836 (SC), holding that the satisfaction must be that of the authorising officer himself, based on tangible material, and is judicially reviewable on the limited Wednesbury threshold.

HELD: The 'reason to believe' is the result of a subjective satisfaction of the income-tax authority on objective material. The reasons must be relevant and have a rational nexus or connection with the formation of belief. The Court has the power, on judicial review, to examine whether the reasons given are mala fide or are without any basis. (per Seth Brothers ¶ 12).

DGIT (Inv.) v. Spacewood Furnishers (P.) Ltd., (2015) 374 ITR 595 (SC) — emphasized that mere routine surveillance or generalised suspicion is inadequate; satisfaction must be specific.

JUDICIAL EVOLUTION — Block-Period Satisfaction (s. 158BD / s. 153C)

CIT v. Calcutta Knitwears, (2014) 362 ITR 673 (SC) — three-stage satisfaction-note for s. 158BD / s. 153C — contemporaneous, objective material, application of mind.

Touchstone Holdings (P.) Ltd. v. ITO, (2022) 446 ITR 105 (Delhi HC) — satisfaction-note must be properly recorded; perfunctory recording vitiates third-party assessment.

PLANNING NOTES & LITIGATION DEFENCE

(i) Demand the satisfaction-note immediately on receipt of s. 153C / s. 153A notice — non-supply is a Touchstone Holdings ground. (ii) Verify whether seized documents have a NEXUS to the assessee's undisclosed income — generic / extraneous documents do not justify s. 153C. (iii) Time-limit for completion of search assessment u/s 153B — 12 months from end of FY in which authorisation was executed (post FA 2017).

Section 133A — POWER OF SURVEY

(1) Notwithstanding anything contained in any other provision of this Act, an income-tax authority may enter—

(i) any place within the limits of the area assigned to him, or

(ii) any place occupied by any person in respect of whom he exercises jurisdiction, or

(iii) any place in respect of which he is authorised for the purposes of this section by such income-tax authority, who is assigned the area within which such place is situated or who exercises jurisdiction in respect of any person occupying such place,

at which a business or profession is carried on...

(3) An income-tax authority acting under this section may—

(i) place marks of identification on the books of account or other documents inspected by him and may make or cause to be made extracts or copies therefrom;

(ia) impound and retain in his custody any such books of account or other documents for such period not exceeding fifteen working days (exclusive of holidays);

(ii) make an inventory of any cash, stock or other valuable article or thing checked or verified by him;

(iii) record the statement of any person which may be useful for, or relevant to, any proceeding under this Act.

KEY DISTINCTIONS — SURVEY vs. SEARCH

• Survey: business premises only (residence excluded). Search: any premises including residence.
• Survey: business hours only. Search: any time.
• Survey: no oath. Search: statements u/s 132(4) on oath, evidentiary in any proceeding.
• Survey: no seizure of cash / valuables, only inventory. Search: full seizure power.
• Survey: no power to break locks. Search: power to break locks (s. 132(1)).

JUDICIAL EVOLUTION — Statement Retraction

The classical authority is Pullangode Rubber Produce Co. v. State of Kerala, (1973) 91 ITR 18 (SC) — admission is the best evidence against the maker, but rebuttable. Where the admission is shown to be incorrect or made under mistake, retraction is permissible.

HELD: An admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect. (per Pullangode Rubber ¶ 10).

CIT v. S. Khader Khan Son, (2013) 352 ITR 480 (SC) — statement under s. 133A has NO evidentiary value because it is not on oath; cannot be sole basis for addition.

Kailashben Manharlal Chokshi v. CIT, (2010) 328 ITR 411 (Gujarat HC) — retracted statement under s. 133A cannot form sole basis of addition unless corroborated by independent evidence.

DEPARTMENTAL PRACTICE

CBDT Letter F. No. 286/2/2003-IT (Inv.) dated 10-03-2003 directed officers NOT to obtain confession of additional income during search/survey unless supported by credible evidence. CBDT Instruction F. No. 286/98/2013-IT (Inv. II) dated 18-12-2014 reiterated this. Practitioners should invoke these instructions when retraction is filed.

PLANNING NOTES & LITIGATION DEFENCE

(i) On day of survey, advise the assessee NOT to make any quantum admission without consulting CA / counsel — survey statement cannot be made under oath. (ii) Any admission made should be retracted in writing within reasonable time, citing CBDT instructions and Khader Khan Son. (iii) Demand that addition be supported by independent corroborative evidence; cite Pullangode Rubber and Kailashben Chokshi. (iv) For impounded books, ensure 15-working-day cap is enforced — file restoration application after expiry.

SECTIONS 134-138 — ANCILLARY POWERS

• Section 131 — powers of discovery / production / examination on oath (akin to civil court).
• Section 132A — requisition of books / assets seized by another agency (e.g., CBI, ED).
• Section 132B — application of seized assets — adjustment against existing tax liability + future demand.
• Section 133 — power to call for information from banks, Registrar of Companies, etc.
• Section 133B — power to collect information through prescribed authority (e.g., for survey of digital businesses).
• Section 138 — disclosure of information to other authorities (subject to confidentiality safeguards).

CLOSING NOTE — VOL XIV

Volume XIV covers ss. 116-138. All authorities — UCO Bank, Seth Brothers, Spacewood Furnishers, Calcutta Knitwears, Touchstone Holdings, Pullangode Rubber, Khader Khan Son, Kailashben Chokshi — are verified.