Balancing Tax Enforcement and Procedural Fairness in the Search and Seizure : Clause 249 of the Income Tax Bill, 2025 Vs. Explanation to sub-section (1) of section 132A 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 disclosure of the "reason to believe" or "reason to suspect" recorded by income-tax authorities as referred to in sections 247 and 248 of the Bill. The provision states that such reasons shall not be disclosed to any person, authority, or the Appellate Tribunal. This clause is a direct legislative pronouncement on the confidentiality of the subjective satisfaction that forms the basis for coercive actions such as search and seizure.

This commentary undertakes a detailed analysis of Clause 249, examining its structure, objective, and implications, followed by a comparative study with the Explanation to sub-section (1) of section 132A of the Income-tax Act, 1961, which similarly provides for non-disclosure of "reason to believe" recorded by the income-tax authority. The analysis will also consider the legislative and judicial context, policy considerations, and practical effects on stakeholders.

Objective and Purpose

Legislative Intent and Policy Considerations

The primary objective of Clause 249 is to insulate the subjective satisfaction of the income-tax authority-which is the foundation for search, seizure, or requisition proceedings-from scrutiny by assessees or appellate forums. The rationale is to prevent the disclosure of sensitive information that could compromise ongoing investigations, alert potential offenders, or impede the effectiveness of tax enforcement actions.

Historically, the "reason to believe" or "reason to suspect" has been a threshold requirement for the exercise of extraordinary powers such as search and seizure under the Income-tax Act. Judicial pronouncements have repeatedly emphasized the need for recording such reasons to prevent arbitrary exercise of power. However, the legislature, through Clause 249 (and earlier, via the Explanation to section 132A(1)), seeks to strike a balance between the rights of the taxpayer and the efficacy of tax administration by keeping such reasons confidential.

The policy consideration underlying this non-disclosure is twofold:

• To maintain the element of surprise and secrecy essential for the success of search and seizure operations.
• To protect the integrity of investigations and the safety of informants or sources of information.

Detailed Analysis Clause 249 of the Income Tax Bill, 2025

Text and Scope of Clause 249

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.

Clause 249 is concise and categorical. It applies to both "reason to believe" and "reason to suspect" as referred to in sections 247 and 248, which presumably relate to powers of search, seizure, or requisition in the Income Tax Bill, 2025. The clause prohibits disclosure of such reasons to:

• Any person (including the assessee or taxpayer concerned)
• Any authority (which would include other government agencies or courts, save for constitutional courts exercising writ jurisdiction)
• The Appellate Tribunal (the highest fact-finding authority under the Act)

The language is unequivocal and admits of no exceptions within the statutory framework of the Income Tax Bill, 2025. The provision thus ousts even the Appellate Tribunal from accessing the recorded reasons, which is a significant departure from the general principles of natural justice and transparency in administrative action.

Interpretation and Legal Principles

The phrase "reason to believe" or "reason to suspect" has been the subject of extensive judicial scrutiny. Courts have held that these are not mere subjective opinions, but must be based on tangible material and objective satisfaction. However, Clause 249, by insulating these reasons from disclosure, seeks to prevent their examination or challenge at any stage before the authorities or the Tribunal.

From a legal interpretative standpoint, such a provision raises questions about the balance between administrative convenience and the taxpayer's right to challenge arbitrary action. Nevertheless, the Supreme Court has upheld similar provisions in the past, recognizing the need for confidentiality in investigations, provided that the satisfaction is indeed recorded and is not illusory.

Ambiguities and Issues in Interpretation

While Clause 249 is clear in its prohibition, certain ambiguities or issues may arise:

• Scope of Non-disclosure: Whether the prohibition extends to constitutional courts (High Courts or Supreme Court) exercising writ jurisdiction under Articles 226 or 32, respectively. Judicial precedents suggest that such courts can call for and examine the recorded reasons in camera, even if they are not disclosed to the petitioner or other parties.
• Procedural Safeguards: The provision does not specify any mechanism for ensuring that the reasons are indeed recorded and are not arbitrary. This places a premium on internal checks and accountability within the department.
• Impact on Appellate Review: By barring the Appellate Tribunal from accessing the reasons, the provision curtails the Tribunal's ability to examine the validity of search or seizure proceedings, which may have significant consequences for the taxpayer.

Relationship with Sections 247 and 248

Clause 249 is expressly linked to sections 247 and 248 of the Income Tax Bill, 2025, which are presumed to deal with the powers of search, seizure, or requisition. The "reason to believe" or "reason to suspect" forms the jurisdictional foundation for the exercise of such powers. Clause 249 thus acts as a shield, preventing the disclosure of the subjective satisfaction that triggers these coercive powers.

Practical Implications

Impact on Stakeholders

The practical effects of Clause 249 are far-reaching:

• For Taxpayers: The inability to access the recorded reasons hampers the taxpayer's ability to challenge the validity of search or seizure actions before the appellate authorities. This places the onus on the taxpayer to challenge such actions only on procedural or substantive grounds, without being able to question the foundational satisfaction of the authority.
• For Tax Authorities: The provision empowers tax authorities to act without fear of their subjective satisfaction being second-guessed by the assessee or appellate forums. This may enhance the efficacy of enforcement actions, but also increases the risk of arbitrary or mala fide action if not checked by internal oversight.
• For Appellate Tribunal: The Tribunal's jurisdiction to examine the validity of search or seizure proceedings is curtailed, as it cannot access or scrutinize the reasons recorded by the authority.
• For the Judiciary: While the provision bars disclosure to "any person or authority," constitutional courts retain the power to call for the reasons in judicial review proceedings, thus acting as a check against abuse of power.

Compliance and Procedural Impact

From a compliance perspective, Clause 249 reinforces the need for tax authorities to meticulously record their reasons for "belief" or "suspicion," as these may be subject to judicial scrutiny even if not disclosed to the assessee. For taxpayers, the provision underscores the importance of procedural compliance and limits the grounds for challenging search or seizure actions.

Comparative Analysis with Explanation to sub-section (1) of section 132A of the Income-tax Act, 1961

Text of the Explanation to Section 132A(1)

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.

Comparison of Provisions

A close reading of Clause 249 and the Explanation to section 132A(1) reveals substantial similarity in language, scope, and legislative intent. Both provisions:

• Prohibit disclosure of the "reason to believe" (and in the case of Clause 249, also "reason to suspect") to any person, authority, or the Appellate Tribunal.
• Apply to the subjective satisfaction recorded by the income-tax authority for the exercise of powers under the respective sections (247/248 in the Bill; 132A in the Act of 1961).
• Oust the jurisdiction of appellate authorities to examine the validity of the recorded reasons.

Points of Distinction and Evolution

• Wording: Clause 249 refers to both "reason to believe" and "reason to suspect," whereas the Explanation to section 132A(1) refers only to "reason to believe." This may reflect an expansion in the types of subjective satisfaction covered by the non-disclosure in the new Bill.
• Context: Section 132A of the 1961 Act specifically deals with the powers to requisition books of account, documents, or assets seized or taken into custody by other authorities. Clause 249, by reference to sections 247 and 248, may cover a broader range of actions, depending on the content of those sections in the 2025 Bill.
• Legislative History: The Explanation to section 132A(1) was inserted by the Finance Act, 2017, with retrospective effect. This was in response to judicial pronouncements that had previously required disclosure of the recorded reasons to the assessee or appellate forums. The inclusion of Clause 249 in the 2025 Bill continues this legislative policy, indicating a conscious decision to maintain the confidentiality of the authority's satisfaction.

Judicial Interpretation

Prior to the insertion of the Explanation to section 132A(1), courts had sometimes required disclosure of the "reason to believe" to the assessee or the Tribunal, especially in cases where the validity of search or seizure was challenged. The legislative response was to bar such disclosure, as reflected in both the Explanation and Clause 249.

However, courts have also clarified that while the reasons need not be disclosed to the assessee, they must be recorded in writing and can be called for and examined by constitutional courts in judicial review proceedings. This judicial check remains a safeguard against arbitrary exercise of power.

Comparative Table

Feature	Clause 249 of the Income Tax Bill, 2025	Explanation to sub-section (1) of section 132A of the Income-tax Act, 1961
Scope of Non-disclosure	"Reason to believe" or "reason to suspect" u/ss 247/248 not to be disclosed to any person, authority, or Appellate Tribunal	"Reason to believe" u/s 132A(1) not to be disclosed to any person, authority, or Appellate Tribunal
Application	Presumably search/seizure/requisition under new Bill	Requisition of books, documents, assets seized by other authorities
Wording	Includes both "reason to believe" and "reason to suspect"	Only "reason to believe"
Legislative Intent	Maintain secrecy, prevent tipping off, protect investigation	Same as Clause 249
Judicial Review	Not barred; courts may call for reasons in camera	Same

Conclusion

Clause 249 of the Income Tax Bill, 2025, represents a clear legislative policy to maintain the confidentiality of the subjective satisfaction ("reason to believe" or "reason to suspect") that triggers coercive powers such as search, seizure, or requisition. This is in line with the Explanation to section 132A(1) of the Income-tax Act, 1961, and continues the legislative trend of insulating such reasons from disclosure to the assessee, authorities, or even the Appellate Tribunal.

While this enhances the effectiveness of tax enforcement by preserving secrecy and preventing tipping off, it also raises concerns about the ability of taxpayers to challenge arbitrary or mala fide action. The ultimate safeguard remains the power of constitutional courts to review the recorded reasons in appropriate cases, thus balancing the interests of revenue with the rights of the taxpayer.

As tax administration evolves, the tension between confidentiality and transparency will continue to shape legislative and judicial responses. Clause 249, by reinforcing the non-disclosure regime, reflects a conscious policy choice that prioritizes investigative efficacy over procedural openness, within the bounds of constitutional oversight.

Alternative Titles for the Commentary

1. Confidentiality of 'Reason to Believe' in Tax Search and Seizure: Analysis of Clause 249 and Section 132A(1) Explanation
2. Non-Disclosure of Tax Authorities' Satisfaction: Legislative Policy under Income Tax Bill, 2025 and the Income-tax Act, 1961
3. Clause 249 and the Shield of Secrecy: Comparative Study with Section 132A(1) Explanation
4. Balancing Tax Enforcement and Taxpayer Rights: The Non-Disclosure Regime in Indian Income Tax Law

 

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Full Text:

Clause 249 Reasons not to be disclosed.

 

 

Dated: 30-5-2025