Non-Disclosure of Reasons in Income Tax Search and Seizure : Clause 249 of the Income Tax Bill, 2025 Vs. explanations to sub-sections (1) and (1A) of section 132 of the Income-tax Act, 1961

Clause 249 Reasons not to be disclosed.

Income Tax Bill, 2025

Introduction

Clause 249 of the Income Tax Bill, 2025 introduces a statutory bar on the disclosure of "reasons to believe" or "reasons to suspect" recorded by income-tax authorities while authorising search and seizure actions u/ss 247 and 248 of the Bill. This provision explicitly states that such reasons shall not be disclosed to any person, authority, or even the Appellate Tribunal. The clause is a legislative affirmation of the principle that the subjective satisfaction of the tax authority, which forms the basis for intrusive search and seizure actions, is shielded from scrutiny outside the administrative framework.

This legislative approach is not new. It echoes the existing explanations to sub-sections (1) and (1A) of section 132 of the Income-tax Act, 1961, which similarly protect the reasons recorded by tax authorities from disclosure. Section 132, a cornerstone of the tax administration's enforcement powers, has been the subject of extensive judicial interpretation, balancing the State's interest in curbing tax evasion with the rights and liberties of taxpayers. The explicit non-disclosure provision in Clause 249, therefore, must be understood in the context of the legislative and judicial evolution of search and seizure powers in Indian tax law.

This commentary provides a detailed analysis of Clause 249, its legislative intent, its interplay with the established legal framework u/s 132 of the Income-tax Act, 1961, and the broader implications for taxpayers, tax authorities, and the administration of justice.

Objective and Purpose

The legislative intent behind Clause 249 is to reinforce the confidentiality and operational effectiveness of search and seizure actions by income-tax authorities. The rationale is rooted in the need to prevent tipping-off of potential subjects, protect ongoing investigations, and maintain the integrity of evidence collection. By barring disclosure of the reasons to believe or suspect, the provision seeks to ensure that the element of surprise, which is essential for the efficacy of search and seizure operations, is not compromised.

Historically, the power to conduct searches and seizures in tax matters has been justified by the prevalence of tax evasion and the need for the State to have robust tools to detect and deter such activities. However, these powers are inherently intrusive and impinge on the privacy and property rights of individuals and businesses. The legislative policy, therefore, has been to circumscribe these powers with procedural safeguards while also protecting the operational details from premature disclosure.

The non-disclosure provision is also a response to judicial pronouncements that have consistently held that the subjective satisfaction of the authorising officer, based on information in possession, is not open to challenge on merits before quasi-judicial or appellate forums. The provision codifies this principle and seeks to prevent fishing inquiries into the basis of search authorisations.

Detailed Analysis of Clause 249 of the Income Tax Bill, 2025

Text of Clause 249

"The reason to believe or reason to suspect, as referred to in section 247 or 248, recorded by the income-tax authority shall not be disclosed to any person or authority or the Appellate Tribunal."

Key Elements

• Scope of Non-Disclosure: The clause applies to both "reason to believe" and "reason to suspect" as recorded u/ss 247 and 248, which presumably correspond to the search and seizure provisions in the new Bill.
• Absolute Bar: The language is categorical-no person, authority, or even the Appellate Tribunal is entitled to disclosure of the reasons.
• Procedural Finality: The provision seeks to foreclose any inquiry into the sufficiency or adequacy of the reasons recorded by the authorising authority.

Interpretation and Legal Principles

The non-disclosure of reasons is premised on the doctrine of administrative efficiency and the need to protect the efficacy of investigative actions. However, it also raises concerns regarding transparency, accountability, and the right to a fair hearing.

1. Administrative Discretion and Subjective Satisfaction: The power to search and seize is exercised on the basis of the authority's "reason to believe" or "reason to suspect" that certain conditions are satisfied. The courts have repeatedly held that while the existence of such belief or suspicion is a condition precedent, the adequacy or sufficiency of the information is not justiciable. The non-disclosure clause cements this position by making the recorded reasons inaccessible to the affected party.

2. Judicial Review: Although the reasons are not to be disclosed, the courts have held that judicial review is not entirely ousted. In Income Tax Officer v. Seth Brothers 1969 (7) TMI 1 - Supreme Court and subsequent cases, the Supreme Court held that while the sufficiency of reasons is not open to scrutiny, the existence of "reason to believe" can be challenged as a jurisdictional fact. In such cases, the court may call upon the authority to produce the recorded reasons for in camera inspection, but not for disclosure to the assessee.

3. Procedural Safeguards: The provision does not abrogate other procedural safeguards, such as the requirement to record reasons in writing, obtain necessary approvals, and follow prescribed procedures for conducting searches and seizures. The non-disclosure clause operates only at the stage of communication to the affected party or appellate forums.

4. Impact on Appellate Remedies: By barring the Appellate Tribunal from accessing the reasons, the provision limits the scope of appellate review. This may be justified on the ground that the Tribunal's role is to adjudicate on the merits of assessments arising from search and seizure, not to review the administrative decision to authorise such actions.

Ambiguities and Potential Issues

• Constitutional Validity: The absolute bar on disclosure may be challenged as violative of the principles of natural justice and the right to a fair hearing under Article 14 and Article 21 of the Constitution. However, the courts have generally upheld such provisions in the context of tax searches, subject to the availability of judicial review.
• Scope of "Any Person or Authority": The clause is broad, but does not expressly refer to courts. This leaves open the possibility of judicial intervention in exceptional cases, such as malafide or arbitrary exercise of power.
• Balance Between State Interest and Individual Rights: The provision tilts the balance in favour of the State, potentially at the cost of individual rights. The absence of any mechanism for the affected party to test the existence of the requisite belief or suspicion may lead to allegations of arbitrariness.

Practical Implications

The non-disclosure of reasons has significant implications for taxpayers, tax authorities, and the administration of justice.

• For Taxpayers: The inability to access the reasons for search and seizure limits the taxpayer's ability to challenge the validity of the action at the threshold. Challenges must be confined to procedural irregularities or manifest arbitrariness, rather than the merits of the information in possession of the authority.
• For Tax Authorities: The provision enhances the operational autonomy of tax authorities, allowing them to act on confidential intelligence without fear of premature disclosure. It also reduces the risk of leaks and tipping-off of potential subjects.
• For Appellate Forums: The Appellate Tribunal is precluded from examining the reasons, focusing its adjudication on the consequences of the search (e.g., assessment of undisclosed income) rather than the validity of the search itself.
• For Judicial Review: The courts retain the power of judicial review, but the scope is limited to examining whether the authority had some material to form the requisite belief or suspicion. The actual reasons may be examined in camera, but not disclosed to the petitioner.

In practice, this means that the threshold for invalidating a search or seizure is high, and challenges on the ground of absence or insufficiency of reasons are rarely successful.

Comparative Analysis: Clause 249 and Section 132 Explanations

Section 132(1) and 132(1A) of the Income-tax Act, 1961

Section 132 of the Income-tax Act, 1961, empowers specified income-tax authorities to authorise search and seizure actions where there is "reason to believe" (sub-section 1) or "reason to suspect" (sub-section 1A) that specified conditions exist. The 2017 amendment inserted explicit Explanations to both sub-sections:

"Explanation.-For the removal of doubts, it is hereby declared that the reason to believe, as recorded by the income-tax authority under this sub-section, shall not be disclosed to any person or any authority or the Appellate Tribunal."

"Explanation.-For the removal of doubts, it is hereby declared that the reason to suspect, as recorded by the income-tax authority under this sub-section, shall not be disclosed to any person or any authority or the Appellate Tribunal."

Substantive Parity

Clause 249 of the 2025 Bill is substantively identical to the Explanations to section 132(1) and 132(1A) of the 1961 Act. Both provisions:

• Apply to the reasons recorded by income-tax authorities in authorising search and seizure.
• Impose an absolute bar on disclosure to any person, authority, or the Appellate Tribunal.
• Are designed to protect the confidentiality and operational integrity of enforcement actions.

Both Clause 249 and the explanations to Section 132(1) and (1A) establish a statutory bar on the disclosure of the reasons for authorizing search and seizure. The language is nearly identical in effect, though Clause 249 is a dedicated clause, whereas the 1961 Act embeds the rule as an explanation.

Differences in Legislative Technique

• 1961 Act: Uses explanations appended to the relevant sub-sections. The rule is declaratory, intended to remove doubts and clarify the law as it stands.
• Income Tax Bill, 2025: Elevates the rule to a standalone clause (Clause 249), giving it greater prominence and arguably making it more resistant to interpretive dilution.

Judicial Context and Legislative Response

The explanations to Section 132(1) and (1A) were inserted in response to a body of case law that grappled with the extent to which affected persons could seek disclosure of the "reason to believe/suspect." Earlier, courts had sometimes required the revenue to disclose the recorded reasons, at least to the court or, in some cases, even to the assessee, especially where allegations of mala fides or lack of jurisdiction were made. The 2017 amendments aimed to settle the law in favor of non-disclosure.

Clause 249 continues this legislative approach, perhaps in even starker terms, by making the bar on disclosure a central feature of the new law.

Scope of Non-Disclosure: Judicial Review

A critical point is that neither the existing nor the proposed provision ousts the jurisdiction of constitutional courts (High Courts under Article 226, Supreme Court under Article 32) to call for the reasons in appropriate cases, especially where there is a prima facie case of lack of jurisdiction or mala fides. Courts have, in some cases, examined the reasons in camera to satisfy themselves that the power was not exercised arbitrarily. The statutory bar is thus primarily directed at administrative and appellate tax authorities, not constitutional courts.

Policy Continuity and Rationale

Both the existing and proposed provisions reflect a policy consensus that the efficacy of search and seizure operations depends on confidentiality at the pre-search stage. The legislative history, including the 2017 amendments, demonstrates a clear intent to insulate the subjective satisfaction of the authorizing officer from routine challenge and disclosure.

Potential Areas of Divergence

• Structural Positioning: The proposed law's use of a standalone clause may affect interpretive approaches, making the rule less susceptible to being read down as merely clarificatory.
• Scope of Application: Clause 249 refers to the reasons under both Section 247 and 248 of the new Bill, which may have a broader or slightly different scope than Section 132(1) and (1A) of the Income Tax Act, 1961 depending on the drafting of those sections.

Conclusion

Clause 249 of the Income Tax Bill, 2025, by prohibiting the disclosure of reasons to believe or suspect, reinforces the confidentiality of search and seizure authorisations and aligns with the established legal framework under section 132 of the Income-tax Act, 1961. The provision is designed to protect the operational efficacy of tax enforcement actions, prevent tipping-off, and maintain the integrity of investigations. While it limits the ability of taxpayers and appellate forums to scrutinise the basis of search authorisations, it is consistent with judicial pronouncements and international practice.

The provision does not oust judicial review, but confines it to the existence of reasons rather than their sufficiency or adequacy. The balance between State interests and individual rights remains a subject of debate, and future reforms may consider additional safeguards to enhance accountability without undermining the objectives of tax enforcement.

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Full Text:

Clause 249 Reasons not to be disclosed.

 

Dated: 30-5-2025