Introduction
The Hon'ble Union Finance Minister Nirmala Sitharaman has presented the last full-fledged Union Budget of the Modi government before the 2024 Lok Sabha elections on 1 February, 2023. While presenting the Budget, Sitharaman said: "This Budget hopes to build on the foundation laid in the previous Budget, and the blueprint drawn for India@100". The Budget adopted "seven priorities" - inclusive development, reaching the last mile, infrastructure and investment, unleashing the potential, green growth, youth power and financial sector.
In the Union Budget 2023-24 through Finance Bill 2023, among other tax measures, the Hon'ble Finance Minister recommended significant though few changes relating to Income Tax Search and Seizure provisions, as under :-
Proposed changes relating to Income Tax Search and Seizure Provisions
(i) Amendment in Section 132 of the Income Tax Act '1961:- Assistance to authorised officer during search and seizure
Section 132 of the Act makes provisions related to search and seizure. The section makes detailed provisions for powers of income-tax authority during the search and seizure proceedings, procedure to be followed, requisition of services of other officers for assistance, examination of books of account or other documents, procedure for custody of evidence, provisional attachment etc. The section also provides the timelines to be followed by the income-tax authority during and post search proceedings.
The section provides that during the course of search, the authorised officer may requisition the services of any police officer or any officer of the Central Government, to assist him for any of the actions required to be performed during the course of such search, and it shall be the duty of such officer to comply. Similarly, there is also a provision that the authorised officer may make a reference to a valuation officer for estimating the fair market value of the property and such reference can be made during the search or within 60 days from the date of executing the last authorisation for search.
In the recent past, due to the increased use of technology and digitisation in every aspect including management and maintenance of accounts, digitisation of data, cloud storage etc., the procedure for search & seizure has become complex, requiring the use of data forensics, advanced technologies for decoding data etc., for complete and proper analysis of accounts. Similarly, there is an increasing trend of undisclosed income being held in a vast variety of forms of assets or investments in addition to immovable property. Valuation of such assets and decryption of information often require specific domain experts like digital forensic professionals, valuers, archive experts etc. In addition to this, services of other professionals like locksmiths, carpenters etc. are also required in most of the cases, due to typical nature of the operations.
The Finance Bill 2023 proposed to amend Section 132 of the act to provide that during the course of search the authorised officer, may requisition the services of any other person or entity, as approved by the Principal Chief Commissioner or the Chief Commissioner, the Principal Director General or the Director General, in accordance with the procedure prescribed by the Board in this regard, to assist him for the purposes of the search. The Finance Bill 2023 proposed that this amendment will take effectfrom the 1stday of April, 2023.
Proposed Amendment in Section 132 of the Act
(a) for sub-section132 (2), the following sub-section shall be substituted,namely:–
"(2) The authorised officer may requisition the services of––
(i) any police officer or of any officer of the Central Government, or of both; or
(ii) any person or entity as may be approved by the Principal Chief Commissioner or the Chief Commissioner or the Principal Director General or the Director General, in accordance with the procedure, as may be prescribed, in this regard,
to assist him for all or any of the purposes specified in sub-section (1) or sub-section (1A) and it shall be the duty of every such officer or person or entity to comply with such requisition."
(b) for sub-section (9D), the following sub-section shall be substituted, namely:–
"(9D) The authorised officer may, during the course of the search or seizure or within a period of sixty days from the date on which the last of the authorisations for search was executed, make a reference to,––
(i) a Valuation Officer referred to in section 142A; or
(ii) any other person or entity or any valuer registered by or under any law for the time being in force, as may be approved by the Principal Chief Commissioner or the Chief Commissioner or the Principal Director General or the Director General, in accordance with the procedure, as may be prescribed, in this regard,
who shall estimate the fair market value of the property in the manner as may be prescribed, and submit a report of the estimate to the authorised officer or the Assessing Officer, as the case may be, within a period of sixty days from the date of receipt of such reference.";
(ii) Amendment in Section 132 of the Income Tax Act '1961:- Proposed to provide the meaning of execution of last authorisation under section 132 itself
Prior to the enactment of the Finance Act, 2021, the procedure for conducting such assessment in search cases was laid out in section 153A and the time limit for their completion was laid out in section 153B. Consequent to the changes in 2021, the assessment or reassessment in consequence to search is now performed under section 147 of the Act and provisions of sections 153A and 153B are no longer applicable.
The timelines for completing assessment or reassessment in search cases is linked to the execution of the last of the authorisations during such procedure, in order to establish the day of conclusion of search proceedings, and what constitutes as last authorisation is provided in section 153B. As the provisions of section 153B are no longer applicable, it is proposed to provide the meaning of execution of last authorisation under section 132 itself.
This amendment will take effect retrospectively from the 1stday of April, 2022.
Proposed Amendment in Section 132 of the Act
For Explanation 1, the following Explanation shall be substituted and shall be deemed to have been substituted with effect from the 1st day of April, 2022, namely:––
'Explanation 1.––For the purposes of sub-sections (9A), (9B) and (9D), the last of authorisation for search shall be deemed to have been executed,––
(a) in the case of search, on the conclusion of search as recorded in the last panchnama drawn in relation to any person in whose case the warrant of authorisation has been issued; or
(b) in the case of requisition under section 132A, on the actual receipt of the books of account or other documents or assets by the authorised officer.''
(iii) Amendment in Section 149 of the Income Tax Act '1961:- Time Exclusion in case of Search/Requisition/Survey Action conducted after 15th March of a financial year
The Finance Act, 2021 amended the procedure for assessment or reassessment of income in the Act with effect from the 1st April, 2021. The said amendment modified, inter alia, sections 147, section 148, section 149 and also introduced a new section 148A in the Act. In cases where search is initiated under section 132 of the Act or books of account, other documents or any assets are requisitioned under section 132A of the Act, assessment or reassessment is now made under section 147 of the Act for all the relevant years prior to the year in which the search was conducted or requisition was made after the Finance Act, 2021. Further, the provisions of re-assessment proceedings were rationalized by amendments made vide Finance Act, 2022.
Further, section 149 of the Act provides the period of limitation for issuance of notice under section 148 of the Act for commencement of proceedings under section 147 of the Act. It is imperative to note here that in case of a search action under section 132 of the Act, requisition under section 132A of the Act and cases for which information emanates from the above proceedings are deemed to be information under section 149 of the Act and there is no requirement for proceedings under section 148A of the Act to be conducted prior to re-opening the cases in these cases.
In cases where survey under section 133A of the Act is conducted, the Assessing Officer is deemed to have information for the purposes of section 148 of the Act but proceedings under section 148A of the Act need to be conducted prior to issuance of notice under section 148 of the Act. The memorandum explaining the provisions of Finance Bill'2023 states that it has been seen that in the cases where the aforementioned search, requisition or survey proceedings are conducted after 15th March of a financial year, there is extremely little time to collate this information and issue a notice under section 148 or show cause notice under section 148A(b) of the Act. Moreover, the search is conducted by the Investigation Wing and the notice is required to be issued by the Assessing Officers.
However, evidence of tax evasion may be reflected in the statements recorded or documents seized or impounded etc. during such action before31stMarch, but issuance of notice related to such information or search may go beyond the time limitation provided due to the procedure involved. Therefore, important information related to revenue leakage cannot be proceeded on due to the paucity of time for searched conducted and information obtained as a consequence of these searches in the last few days of any financial year. Accordingly, it has been proposed to insert a proviso in the said section to provide that in cases where a search under section 132 is initiated or a search for which the last of the authorization is executed or requisition is made under section 132A, after the 15thMarch of any financial year a period of fifteen days shall be excluded for the purpose of computing the period of limitation for issuance of notice under section 148 and the notice so issued shall be deemed to have been issued on the 31st day of March of such financial year.
It is also proposed to insert another proviso in the section 149 of the Act to provide that in cases where the information deemed to be with the Assessing Officer emanates from a statement recorded or documents impounded under summons or survey, as the case may be, on or before the 31st day of March of a financial year, in consequence of, a search initiated or last of the authorization executed under section 132 or a requisition made under section 132A, after the 15th day of March of such financial year, a period of fifteen days shall be excluded for the purpose of computing the period of limitation for issuance of notice under section 148 and the show cause notice issued under clause (b) of section 148A in such case shall be deemed to have been issued on the 31st day of March of such financial year. It has also been provided that the impounding or the recording of the statement in consequence of the search or the search itself should be before the 31stMarch only. Only extension has been provided for the time consumed in the procedure for issuance of notice under section 148 or 148A, as the case may be.
Proposed Amendment in Section 149 of the Act
In section 149 of the Income-tax Act, in sub-section (1),–
(I) after the second proviso, the following provisos shall be inserted, namely:––
"Provided also that for cases referred to in clauses (i), (iii) and (iv) of Explanation 2 to section 148, where,––
(a) a search is initiated under section 132; or
(b) a search under section 132 for which the last of authorisations is executed; or
(c) requisition is made under section 132A,
after the 15th day of March of any financial year and the period for issue of notice under section 148 expires on the 31st day of March of such financial year, a period of fifteen days shall be excluded for the purpose of computing the period of limitation as per this section and the notice issued under section 148 in such case shall be deemed to have been issued on the 31st day of March of such financial year:
Provided also that where the information as referred to in Explanation 1 to section 148 emanates from a statement recorded or documents impounded under section 131 or section 133A, as the case may be, on or before the 31st day of March of a financial year, in consequence of,––
(a) a search under section 132 which is initiated; or
(b) a search under section 132 for which the last of authorisations is executed; or
(c) a requisition made under section 132A,
after the 15th day of March of such financial year, a period of fifteen days shall be excluded for the purpose of computing the period of limitation as per this section and the notice issued under clause (b) of section 148A in such case shall be deemed to have been issued on the 31st day of March of such financial year:";
(II) in the sixth proviso, for the words "less than seven days", the words "does not exceed seven days" shall be substituted.
(iv) Insertion of Sub-Section (3A) in Section 153 of the Income Tax Act '1961: Extension of limitation period in case of pending assessments on the date of initiation of search
Prior to the Finance Act, 2021 in cases where search is initiated under section 132 of the Act or books of account, other documents or any assets are requisitioned under section 132A of the Act, assessment was made in the case of the assessee, or any other person, in accordance with the special provisions of sections 153A, 153B and 153C of the Act that deal specifically with such cases. The section 153A of the Act provided that an assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years, as given in section 153A of the Act, and for the relevant assessment year or years pending on the date of initiation of the search under section 132 of the Act or making of requisition under section 132A of the Act, as the case may be, shall abate. The scrutiny proceedings would later on be re-opened under the provisions of section 153A of the Act, so that correct assessment of income subsequent to a search operation can logically be concluded based on the information available as a result of the search.
Vide Finance Act, 2021 the provisions of sections 147 of the Act and others relating to re-assessment proceedings were amended providing that search assessments were to be carried out under the provisions of section 147 of the Act. However, the current provisions of the Act relating to reassessment do not provide for abatement or revival of any assessment or reassessment proceedings pending on the date of search under section 132 of the Act or requisition under section 132A of the Act. As a result, the information available in a search, which has a bearing on the pending scrutiny proceedings may not be effectively used due to the limitation of such proceedings.
Further, even if the last of the authorizations have been executed in the relevant search case, the seized material etc. are transferred to the Assessing Officer only after some time owing to the pre-assessment processing of such material and data. Further, the Assessing Officer also needs to carry out investigation and gather evidence to compute the income of the assessee as a result of the search or requisition proceedings.
Therefore, there was a need to amend the provisions of the Act so as to allow the Assessing Officer to conduct proper scrutiny of the case on the basis of seized material and investigation made and align the dates of limitation for completion reassessment proceedings for all the assessment years under scrutiny consequent to a search under section 132 or requisition under section 132A of the Act.
In view of the above, the Finance Bill'2023 proposed that a new sub-section (3A) may be inserted in section 153 of the Act to provide that where an assessment or reassessment is pending on the date of initiation of search under section 132 or making of requisition under section 132A, the period available for completion of assessment or reassessment, as the case may be, under the said sub-sections (1), (1A), (2) and (3) of the said section shall be extended by twelve months in a case of an assessee where such search is initiated under section 132 or such requisition is made under section 132A or in the case of an assessee to whom any money, bullion, jewellery or other valuable article or thing seized or requisitioned belongs to or in the case of an assessee to whom any books of account or documents seized or requisitioned pertains or pertain to, or any information contained therein, relates to.
Furthermore, consequent to the introduction of sub-section (1A) of section 153 of the Act vide Finance Act, 2022, it is proposed to insert the reference to sub-section (1A) in sub-sections (3), (4), (6) as well as in the first proviso to Explanation 1 of section 153.
As proposed, these amendments will take effect from the 1st day of April, 2023.
Proposed Amendment in Section 153 of the Act
after sub-section (3), the following sub-section shall be inserted, namely:–
"(3A) Notwithstanding anything contained in sub- sections (1), (1A), (2) and (3), where an assessment or reassessment is pending on the date of initiation of search under section 132 or making of requisition under section 132A, the period available for completion of assessment or reassessment, as the case may be, under the said sub-sections shall,––
(a) in a case where such search is initiated under section 132 or such requisition is made under section 132A;
(b) in the case of an assessee, to whom any money, bullion, jewellery or other valuable article or thing seized or requisitioned belongs to;
(c) in the case of an assessee, to whom any books of account or documents seized or requisitioned pertains or pertain to, or any information contained therein, relates to, be extended by twelve months."
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