This article is written by Ronika Tater, from the University of Petroleum and Energy Studies, School of Law. In this article, she discusses the provision of search and seizure in relation to the Constitution of India with various case laws. Further, how search and seizure by tax officials build up the parallel economy, and the steps to overcome by upholding democracy.


In a democratic society governed by the Constitution, there is a strong sense of constitutionalism of politics which lies in the actions of the elected government and sometimes it conflicts with the Constitution. In such a circumstance, the Indian judiciary acts as the protector of the constitution and democracy and through the harmonious interpretation of the Statute, it resolves the conflict between two statutes thereby, upholding the values, faith, and belief of the Constitution. 

Right to privacy as a fundamental right

In the case of District Registrar Collector v. Canara Bank, 2005, the apex court held that the right to privacy is a personal right and any intrusion by the legislature is to be tested based on reasonableness as the right to privacy is a part of the life enshrined in Article 21 of the Constitution of India

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In Smt Maneka Gandhi v. Union of India, 1978, the court held that illegitimate intrusion into the privacy of a citizen is violative of the right to life and liberty enshrined in Article 21 of the Constitution of India and in the landmark case of K.S Puttaswamy v. Union of India, the Supreme Court held the right to privacy as a fundamental right and an intrinsic part of the Right to life and personal liberty under Article 21 of the Constitution of India.

In the case of Binoy Viswam v. Union of India, 2017, petitions were filed by the petitioner as to the constitutional validity of Section 139AA of the Income Tax Act as violative of Article 14 and 19(1)(g) and Article 21 of the Constitution of India. In the instant case, the court held that the new Section was valid and is not violative of Article 14 and 19(1)(g) of the Constitution due to the following reason:

  • In the case of Article 21 of the Constitution of India, a more stringent test is yet to be qualified.
  • A harmonious reading of the two enactments of the taxing statute and the Aadhaar Act where enrollment of Aadhaar is voluntary to avail the benefits of various welfare schemes. Although Section 7 of the Aadhaar Act states that to avail the benefit of various schemes and services provided by the Government, it depends on the person to avail it or not, there is no compulsion.
  • The main purpose behind the enactment of the new section is to check on black money as well as money laundering.
  • To widen the scope of the Income Tax Act by linking it with the Aadhaar number as it covers those persons who are evading the payment of tax.

Powers of the tax official as per Section 132

The power of searching is mentioned under Section 132 of the Income Tax Act, 1961 (hereinafter referred to as the Act). Search means an inspection of the building, place, vehicle, aircraft, and person. A seizure means taking possession under legal authority. The Income Tax Act vastly powers an authorized officer to conduct search and seizure of documents and unsanctioned assets. The following are the powers of the authorized officers:

  1. If the authorized officer has reasons to believe that books of account, other documents, money, bullions, jewellery or any other valuable article or thing have not been disclosed as per provision he may enter and search such a building, place, etc.
  2. In case if the keys are not found for the said articles or things, he can break upon the locks.
  3. Carry out the personal search, where he has reason to suspect to have hidden items as mentioned above.
  4. Seize the above-mentioned items.
  5. Place identification marks on the articles or things and take a photocopy of the books of record, accounts, and documents.
  6. Make a personal note or inventory or list of items of the value found during the search process.
  7. The authorized officer may allow passing orders for placing a prohibition on the person in possession, control of the article or thing from removing, parting away without the prior permission of the authorized officer.
  8. The authorized officer may also demand the services of law enforcement with the search process.

However, the authorized officer is not entitled to seize the stock-in-trade of a business, he can only make a list of notes for such articles or things. Moreover, there is a restriction on seizing even if the officer explains the reason for the acquisition of the stock whether disclosed or undisclosed it is immaterial. It applies only to the valuables and not to the cash. Unsanctioned cash in the form of stock-in-trade for the value of an assessee can be seized if certain conditions as set by the courts are satisfied. 

For example: Money lending business. 

In the case of Commissioner of Income Tax v. Vindhya Meal Corporation, 1997, the Supreme Court, while discussing the power of the officers under the said Section, held that mere unexplained possession of the Article or thing would constitute information and will be treated as a sufficient cause by the authorities to issue a warrant of search and seizure as it was income not disclosed by the person in possession as per the purpose of the Act.

ITO v. Seth Brother and Ors, 1969

In the case of ITO v. Seth Brothers and Ors, 1969, it was held that the search and seizure as mentioned under Section 132 of the Income Tax Act can violate and have serious invasion upon the rights of privacy and freedom of the tax-payer as the power must be exercised in the strictly and for the furtherance of the purpose as per the provision of the act. The court observed the following points in the case:

  • In case of any challenge against the action of the officer for issuing the authorization of the designated officer, the officer must satisfy the court concerning the regularity of his action.
  • If the action by the officer is taken with a bad intention or male fide or exercising power for a collateral purpose, then it is liable to be struck down by the court to preserve justice.
  • If the officer authorized fails to justify the conditions for the exercise of the power, the proceeding is liable to be struck down by the court.
  • However, if the exercise of the power was done in bona fide and furtherance for the statutory duties of the tax officers, any failure or error of judgment by the officer will not lead to striking down the exercise of the power.
  • In the case where the commissioner believes reason and allows a designated officer to enter and search premises for books of accounts, records, and documents relevant to or useful in the investigating process under the Income Tax Act, the court should not authorize its own opinion.
  • Any irregularity in the entry, search and seizure committed by the officer while exercising his power in pursuance of the authorization will not vitiate the act if the action of the officer were bona fide.
  • An error or failure by the officer in seizing the documents, records, and relevant paper if found not to be useful or relevant to the proceedings under the Act will neither vitiate the search nor will it lead the aggrieved person to order for releasing all documents seized.

The above-mentioned case, observes the rights of the taxpayers by keeping in mind the strict provisions concerning the official authorities. In the similar case of Babu Lal and Ors. v. Director of Income Tax (Investigation) and Ors, 2005, a question arises as to whether the petitioner firm is in existence and if the said firm is entitled as a juristic person to maintain the petition in this instant case. 

The petitioner-firm in the said case filed a petition to recover the amount under the possession of the authorities as per Section 132 of the Act and on the grounds of the right to privacy as the authorities have acted on the bare intimation of the police and have no reason to believe. The court dismissed the petition after observing the following interest:

  • The petitioner-firm has never been into existence. Hence, the authorities were right in exercising the power.
  • The alleged partners of the firm have not been assessed under the Act.
  • Neither the firm nor any of its alleged partners revert to the notices.

While observing the above-mentioned case, the court relied on the case of Champalal Binani v. Income Tax Commissioner, 1970, where the court held that the writ jurisdiction is a discretionary power of the court and it should be exercised not only against the violation of a person’s fundamental right, but also to extend justice and not stop it. 

The power of the court is to keep balance with the competing interest, however, justice and public interest may at times divert in certain circumstances. The courts must take preventive measures to stop money laundering and fraud and promote good faith and equity in society.

Role of the socialist democracy

Socialism means the welfare of the state and socialism has been a part of India since the Indian Independence Movement against the British Raj in the early 20th Century. The movement started with the rights of the farmers against the zamindar and over time socialism shaped the economic and social structure of the Indian government by moving towards a market-based economy. 

Socialist democracy is based on the economic education of the citizen thereby deepening the growth and development of the economy. It means that it will base the socialist economic construction on the socialized means of production of central government planning schemes. To achieve the objective of socialist democracy, other forms of ownership and state control must coexist harmoniously. In a country like India where black money is deeply rooted and it is hard to trace the origin, the government should form a disciplined tax system and regain its corporate power, thereby upholding its democratic value.

What is the parallel economy and why does it exist

To understand what is the parallel economy, it is essential to know the term, “black money”. In other words, any money which comes under the category of below-mentioned is black:

  1. Money earned through any activity by illegal means or in contrary with law.
  2. Generation of income by legal means as per the provision of law, but that is not reported to the tax authorities leading to invasion of one or more taxes.

Black money is received in the form of cash from parallel economic activity and is not taxed as per the provision of tax laws. Recipients of black money usually through money laundering hide, recover, spend it in the parallel economy to evade tax liability. Various terms used for black money such as dirty money, unaccounted money, black wealth, parallel economy, unofficial economy. The black money is not transacted in the normal economy to avoid the eyes of law enforcement. 

Hence, it is transacted in the parallel economy. Parallel economy means the functioning of an unsanctioned sector in the economy to attain the opposite of the official, sanctioned, or legal sector. The following are the reason behind the growth of the parallel economy:

  • Higher rates of taxes – To promote trade and commerce without the inducement of an outside resource, the export and import taxes were increased. Tax evasion is common in sales tax, income tax, corporate tax, etc.
  • Loopholes in the enforcement of tax law – Lack of enforcement of the tax law in India is the reason behind the parallel economy and the weak structuring of the Income Tax Act, 1961 has led to the rise of many cases against the act.

Initiative taken by the government to curb the rise of parallel economy

Effective enforcement, policy-level initiative, and the administrative framework should be the main actions against black money. Moreover, to curb the parallel economy government and control money laundering has taken the following step:

  1. The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 was established to deal with black money stashed abroad.
  2. Demonetization – One of the biggest moves by the BJP government leader, Narendra Modi, in the year 2016, was announced to curb blank money and blood money from India by stripping the 500 and 1000 rupees note from the legal tender.
  3. The Benami Transactions (Prohibition) Amendment Act, 2016 – The main aim behind this amendment was to strike the benami transactions in the name of a third party and confiscate the Benami property and benamidar and the beneficial owner.
  4. The Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 – Covers the various penalties of illegal possession from smugglers and foreign exchange manipulators.
  5. Establishment of Special Investigation Team (SIT).
  6. Establishment of multi-agency group.
  7. Restriction on cash transaction and bringing incentive to introduce digital currency.
  8. National Housing Bank Scheme.
  9. Income Tax Act, 1961
  10. The Special Bearer Bond Act, 1981– It was established to target the people who transact in the parallel economy by providing an immunity blanket to all the holders of the bearer bonds in the public.
  11. Finance Act, 2020


In a multi-faced democratic society, the tension between two statutes should be by a way of harmonious balancing of the competing principles. The best way is to search for peaceful coexistence between the conflicting statute. The government through various schemes, amendments, or policies is taking measures to curb the growing black money and money laundering. 

However, this balancing should be done keeping in mind the Constitutional values of each competitive aspect while creating a disciplined tax system to protect public faith in the system.   


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