The Supreme Court observed that prior notice before search and seizure could cripple investigations in the digital age. While hearing a PIL on Section 132 of the Income Tax Act, the Court upheld powers based on “reason to believe” to tackle undisclosed income.
NEW DELHI: The Supreme Court emphasized the practical challenges investigators face in the digital era, asserting that providing prior notice before a search and seizure could effectively halt an investigation before it even starts.
The Court was addressing a PIL that questioned the extent of search and seizure authorities under Section 132 of the Income Tax Act, arguing that this provision could be misused by the authorities.
Section 132 of the Income Tax Act grants IT officials the authority to conduct searches and seizures when they have “reason to believe” that an individual possesses undisclosed income, assets, or documents.
A bench consisting of Chief Justice Surya Kant and Justices Joymalya Bagchi and N V Anjaria listened to submissions from senior advocate Sanjay Hegde, representing PIL petitioner Vishwaprasad Alva, before deferring the matter for consideration in two weeks.
During the hearing, Justice Bagchi raised concerns about the practical difficulties of issuing prior notice in search and seizure situations, particularly in the context of digital evidence.
Justice Bagchi stated that giving advance notice could undermine the investigation’s purpose, as electronic evidence can be easily destroyed.
He explained,
“If notice is given for search and seizure, there is a potential for destroying the evidence. The best way to snub out such an investigation against the digital record is to destroy the device itself,”
Hegde contended that the contested provision grants excessive authority to tax officials, which could subject not only the alleged tax evader but also third parties to coercive measures.
The senior lawyer remarked,
“Suppose you go after the lawyer, then you go after the clerk’s phone. Please see, it is not only the evading assessee who is at risk. Anybody in contact is at risk, and the power is kept with the Joint Commissioner,”
In response, the Chief Justice noted that the statutory powers were neither unchecked nor excessive.
The CJI affirmed,
“This is not an uncontrolled or unwieldy power. Your concerns will go,”
Scope of Section 132 of IT Act:
Section 132 of the Income Tax Act, 1961 empowers senior investigation authorities, including the Director General of Income Tax (Investigation) and the Director of Income Tax (Investigation), to carry out search and seizure operations. These powers may be exercised only when the authorities have valid “reason to believe” that a person has hidden income or is likely to conceal taxable amounts exceeding the prescribed exemption limit.
The scope of these powers is wide and includes searching residential or commercial premises, vehicles, vessels, and aircraft. Officials are authorized to seize books of accounts, documents, cash, bullion, jewellery, and other valuable assets. They may also examine and secure electronic records, computer systems, and digital storage devices. In appropriate cases, bank accounts and lockers can be temporarily frozen to prevent dissipation of assets.
With the passage of the Finance Act, 2025, Section 132(1A) was expanded to cover cryptocurrency wallets and digital assets, acknowledging the growing role of digital finance and virtual currencies in modern transactions.
Judicial decisions have further shaped the application of these powers. In CIT v. Kabul Chawla (2024), the Supreme Court stressed that search operations must be based on genuine grounds and follow due legal process. The Delhi High Court, in Priya Enterprises v. DGIT (2024), held that search warrants should clearly mention the suspected nature of concealment. Additionally, the Income Tax Appellate Tribunal in Sharma Industries v. ITO (2025) ruled that digital evidence must be properly preserved and documented to be admissible in proceedings.