Evolution of Tax Enforcement : Clause 247 of Income Tax Bill, 2025 Vs. Section 132, Income-tax Act, 1961

Clause 247 Search and seizure.

Income Tax Bill, 2025

Introduction

Clause 247 of the Income Tax Bill, 2025, represents a significant overhaul and modernization of the legal framework governing search and seizure under Indian income tax law. This provision is intended to supplant the long-standing Section 132 of the Income-tax Act, 1961. Both provisions, along with their associated rules-namely, Rules 13, 13A, 112A, and 112B of the Income-tax Rules, 1962 - form the procedural and substantive backbone for the exercise of the tax authorities' most intrusive powers: the power to search premises, seize assets, and collect evidence in the fight against tax evasion and black money. The need for such provisions arises from the inherent difficulties in detecting and proving concealed income and assets, especially in an era where financial information is increasingly digitized and globalized. The legislative intent is to balance two competing interests: the necessity for effective tax enforcement, and the protection of citizens' rights against arbitrary or excessive exercise of state power. This commentary provides a clause-by-clause analysis of Clause 247, situates it within its legal and policy context, and undertakes a comparative study with Section 132 of the 1961 Act and the relevant rules. It also explores the practical and procedural implications of the new regime, highlighting continuities, innovations, and areas of potential ambiguity or concern.

Objective and Purpose

The core objective of Clause 247 is to empower income tax authorities to uncover undisclosed income and property by authorizing searches and seizures when there is credible information suggesting non-compliance or concealment. The provision is designed to:

• Enable the collection of evidence that may otherwise be inaccessible due to non-cooperation or deliberate concealment by taxpayers.
• Address the challenges posed by digital records and electronic storage of information, reflecting the realities of modern business and financial practices.
• Provide a legal framework for the provisional attachment and valuation of assets to protect the interests of the revenue.
• Ensure procedural safeguards, including requirements for recording reasons, time limits, and approvals, to prevent abuse of power.
• Align the tax enforcement apparatus with other legal frameworks, such as the Bharatiya Nagarik Suraksha Sanhita, 2023, and the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

The legislative history of search and seizure provisions in Indian tax law reveals a continuous evolution, with each iteration aiming to address emerging challenges-be it the proliferation of black money, the use of technology for concealment, or the need for inter-agency cooperation.

Detailed Analysis of Clause 247 of the Income Tax Bill, 2025

1. Preconditions for Search and Seizure

Clause 247(1) largely mirrors the structure of Section 132(1), stipulating that the competent authority must have "reason to believe," based on information in possession, that:

• (a) A person has failed to produce, or is likely not to produce, books of account, documents, or electronic information in response to a summons or notice; or
• (b) A person is in possession of assets or information relating to assets representing undisclosed income or property, including under the Black Money Act, 2015.

Comparative Note: Section 132(1) is similar but references the Indian Income-tax Act, 1922, and does not explicitly mention the Black Money Act. Clause 247 thus expands the scope to undisclosed foreign assets and aligns with anti-black money policy.

The "reason to believe" standard is retained, with the caveat that the reasons are not to be disclosed (see Section 132 explanations). This standard has been judicially interpreted to require material, though not conclusive proof, and is subject to limited judicial review.

2. Authorisation and Execution of Search

Clause 247 vests the approving authority (Principal Chief Commissioner, Chief Commissioner, etc.) with the power to authorise a range of officers (Joint Director/Commissioner, Assistant Director/Commissioner, Income-tax Officer) to conduct searches and seizures. The authorisation chain is almost identical to that u/s 132.

Key Powers Conferred (Clause 247(1)(i)-(viii)):

• Entry and search of premises, vessels, vehicles, aircraft, where assets or documents are suspected to be kept.
• Requiring technical assistance for accessing electronic records, including access codes (a significant expansion to address digital data).
• Breaking open locks and overriding digital security if access is denied.
• Personal search of individuals suspected of concealing assets or documents.
• Marking, copying, and extracting from documents and computer systems.
• Inventorying assets and stock-in-trade (but only seizing non-stock assets).
• Seizure of books, documents, computer systems, or assets (excluding stock-in-trade);
• Deemed seizure: Order prohibiting removal or dealing with bulky, dangerous, or otherwise impracticable items.

Comparative Note: Section 132(1) confers similar powers but is less detailed regarding electronic records. Clause 247's explicit reference to "virtual digital space" and "electronic media" is a critical update, reflecting the realities of digital evidence.

The "deemed seizure" mechanism (Clause 247(1)(viii)) parallels the second proviso to Section 132(1), providing for situations where physical seizure is impracticable. The exclusion of stock-in-trade from seizure is also retained.

3. Jurisdictional Flexibility and Emergency Powers

Clause 247(2) allows a tax authority to conduct a search outside its normal jurisdiction if delay in obtaining authorisation from the proper jurisdictional authority would prejudice revenue interests. This is identical in intent to the first proviso to Section 132(1), reflecting the need for swift action in urgent cases.

Clause 247(3) provides for "extension" of search to other premises not originally included in the authorisation, based on fresh information. This mirrors Section 132(1A), with both provisions ensuring operational flexibility.

4. Deemed Seizure and Prohibitory Orders

Clause 247(4) empowers the authorised officer, where physical seizure is not practicable for reasons other than those in sub-section (1)(viii), to issue a prohibitory order for up to 60 days, prohibiting removal or dealing with the asset. The provision clarifies that such an order does not amount to "seizure."

Comparative Note: Section 132(3) and (8A) provide a similar mechanism, with a 60-day limit on the prohibitory order. The distinction between "deemed seizure" (where physical possession is impracticable) and a temporary prohibitory order is maintained in both regimes.

5. Requisitioning Assistance and Valuation

Clause 247(5) allows the authorised officer to requisition the services of police, central government officers, or other approved persons/entities (including technical experts), with a duty to comply with such requisition. This reflects an expansion to allow for specialist digital forensics and other expertise, as now required in complex cases.

Rule 13 of the Income-tax Rules, 1962, prescribes the procedure for approving such persons/entities, including application, approval, and the issuance of a Designated Approval Number. The rule also allows for ad hoc requisitioning in emergencies, subject to post-facto approval.

Clause 247(9) allows the authorised officer to refer valuation of property to a Valuation Officer, registered valuer, or other approved person/entity, with a report required within 60 days. Rule 13A prescribes the methodology for such valuation, referencing stamp duty values, Rule 11UA for securities and jewellery, and fair market value for other assets.

Comparative Note: Section 132(9D) (inserted in recent years) and Rules 13 and 13A provide an almost identical mechanism. The new Bill incorporates these mechanisms and generalizes their application.

6. Examination on Oath and Evidentiary Use

Clause 247(6) empowers the authorised officer to examine, on oath, any person found in possession or control of assets, documents, or computer systems, or present at the premises, and to use such statements as evidence in any proceedings. The examination may extend to all matters relevant to any investigation under the Act.

Comparative Note: Section 132(4) is almost identical, and the explanation appended to it has been judicially interpreted to allow examination on matters beyond the immediate search findings, provided they are relevant to tax proceedings.

7. Legal Presumptions

Clause 247(7) introduces statutory presumptions:

• That books of account, computer systems, digital space, documents, or assets found belong to the person in possession;
• That the contents of such books/documents/electronic records are true;
• That signatures and handwriting are genuine;
• That stamped/executed/attested documents and electronic communications are authentic and exchanged between the parties.

Comparative Note: Section 132(4A) provides for similar presumptions, but Clause 247 expands the language to cover electronic records and digital communications, reflecting the increasing importance of digital evidence.

These presumptions are rebuttable and have been the subject of much litigation regarding their scope and application, particularly in criminal and penalty proceedings.

8. Provisional Attachment

Clause 247(8) empowers the authorised officer to provisionally attach property during or within 60 days of the search, for up to six months, with prior approval and reasons recorded in writing. The rules u/s 413 are to apply mutatis mutandis.

Comparative Note: Section 132(9B) and (9C) provide for similar powers of provisional attachment, with identical timelines and procedural safeguards. This power is a significant addition to the search regime, allowing for revenue protection in complex or protracted cases.

9. Application of Criminal Procedure

Clause 247(10) stipulates that the provisions of the Bharatiya Nagarik Suraksha Sanhita, 2023 (the new Code of Criminal Procedure) relating to search and seizure shall apply, so far as may be, to actions under this section.

Comparative Note: Section 132(13) refers to the Code of Criminal Procedure, 1973. The update reflects the legislative shift to the new criminal code.

10. Rulemaking Powers

Clause 247(11) authorises the Board to make rules regarding procedures for ingress into premises and safe custody of seized items.

This is similar to Section 132(14), which forms the basis for Rules 13, 13A, 112A, and 112B.

11. Procedural Rules: 13, 13A, 112A, and 112B

Rules 13 and 13A: Modernizing the Procedural Framework

• Rule 13: Details the procedure for approving and requisitioning services of experts and valuers, including application, approval, and emergencies.
• Rule 13A: Lays down the methodology for valuation of assets seized, referencing stamp duty, Rule 11UA for securities/jewellery, and fair market value for other assets. The report is to be submitted in Form 6CA.

Rules 112A and 112B: Legacy Procedures

• Rule 112A: Governs the inquiry process post-seizure, including issuance of notice, examination on oath, and use of material gathered, with a requirement of fair notice before adverse use.
• Rule 112B: Provides for the release of assets ordered to be released, requiring delivery in the presence of two witnesses. 

These rules operationalize the statutory provisions and ensure procedural fairness and transparency.

Practical Implications

For Taxpayers and Businesses

• Expanded coverage of electronic records and digital assets increases the risk of scrutiny for businesses and individuals who maintain financial information in digital form.
• Greater inter-agency cooperation and the explicit inclusion of the Black Money Act heighten the exposure of those with undisclosed foreign assets.
• The presumptions regarding digital records place a heavier evidentiary burden on taxpayers to rebut findings arising from electronic evidence.
• Procedural safeguards (requirement to record reasons, time limits, approvals) offer some protection, but the non-disclosure of reasons to the affected party continues to limit transparency and challengeability.

For Tax Authorities

• Modernized powers facilitate more effective enforcement, especially in cases involving digital concealment or cross-border assets.
• Clearer procedures for valuation and attachment help preserve the revenue's interests pending assessment or litigation.
• The ability to requisition technical assistance and override digital security measures is crucial in an era of encrypted and cloud-based data.

For Legal and Tax Professionals

• Need for updated compliance advice, particularly regarding the handling, storage, and presentation of electronic records.
• Potential for increased litigation on the scope of digital searches, data privacy, and the application of presumptions to electronic evidence.

Comparative Analysis with Section 132 and Related Rules

Substantive Powers

Both Clause 247 and Section 132 confer broad powers of search and seizure, but Clause 247 modernizes the language to explicitly address electronic records, digital space, and technical assistance, which were previously covered only by implication or later amendments (see Section 132(1)(iib)).

The inclusion of the Black Money Act in Clause 247's scope is a policy expansion, reflecting the government's focus on undisclosed foreign assets.

Procedural Framework

The procedural rules-Rules 13, 13A, 112A, and 112B-remain relevant and are largely imported into the new regime, with minor modifications for digital evidence and valuation procedures.

The requirement for timely action (e.g., 60-day limits on prohibitory orders, 6-month limit on provisional attachment) is retained, ensuring that the intrusive powers are not exercised arbitrarily or indefinitely.

Evidentiary Presumptions

Both regimes create statutory presumptions regarding the ownership, truth, and authenticity of seized documents, but Clause 247's explicit inclusion of electronic records and digital communications is a significant update.

Safeguards and Due Process

The Bill maintains the core safeguards: requirement of "reason to believe," prior approval, reasoned orders, limited duration of orders, and the right to rebut presumptions and challenge actions through administrative and judicial channels.

The rules regarding inquiry (Rule 112A) and release of assets (Rule 112B) continue to ensure procedural fairness and transparency.

Ambiguities and Potential Issues

• The breadth of the presumptions regarding electronic records may raise concerns about privacy, data integrity, and the risk of abuse, especially given the technical complexity of digital evidence.
• The continued non-disclosure of "reasons to believe" to the affected party, while judicially upheld, may be challenged on grounds of natural justice.
• The interaction between Clause 247 and other laws (such as data protection legislation) may give rise to interpretive conflicts in the future.

Conclusion

Clause 247 of the Income Tax Bill, 2025, represents both continuity and change in the law of search and seizure. It retains the core structure and safeguards of Section 132, while modernizing the provision to address the challenges of a digitized, globalized, and increasingly sophisticated economic environment. The explicit focus on electronic records, the inclusion of the Black Money Act, and the alignment with the new criminal procedure code are all forward-looking measures. At the same time, the provision continues to rely on tested procedural safeguards, such as the requirement for "reason to believe," time limits, and approvals. The new rules (13 and 13A) provide much-needed clarity and structure for technical and valuation issues. Nonetheless, certain ambiguities-particularly regarding the scope of digital searches, the treatment of electronic evidence, and the balance between enforcement and privacy-may require further judicial clarification or legislative refinement as the new regime is implemented. Stakeholders should prepare for a more technologically sophisticated, but also more intrusive, enforcement environment.

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Full Text:

Clause 247 Search and seizure.

 

Dated: 30-5-2025