In my second column on the Indian budget in MINT, I had written the following:
Some interesting (or disturbing) aspects of the Finance Bill and the finance minister’s speech have caught the attention of journalists and interested parties. One is that the Finance Bill adds an explanation to Section 132 (1) of the Income-Tax Act to remove the obligation on the part of the department to provide reasons for their search and seizure operations to any authority, including the Appellate Tribunals. It has been backdated to 1962. Section 132 (1A) also has been strengthened with such an explanation dating back to 1975. The Telegraph has written a good story on it and points out that these explanations “could remove an impediment to the resolution of a large number of tax cases that have been stuck in courts across the country” (“Recipe For Unfettered Raid Raj”, 6 February 2017). [Link]
I think I understand the situation better now. I spoke to someone in the know. These (inserted in the Finance Bill) explanations would not have been necessary had the Supreme Court, in one of its recent judgements (how recent and what it is – I do not have the details) introduced some ambiguity into the status quo. It has always been the case that the source of the tip-off is never revealed to the assessee who is raided. It is to protect the integrity of the source and to prevent harassment and intimidation of the sources.
At the same time, the assessees always have the right of recourse to the appellate authorities and to higher courts in the land if the search procedure leads to confiscation of certain documents, materials, assets, etc. In fact, the Income-Tax Officers have to disclose to the assessee what all they have seized and how they relate to their tax demand. The assessee will have a chance to explain the source of the assets and how they are not disproportionate. If the matter is not resolved, it can be appealed to higher authorities and/or higher courts. That remains intact.
The tip-off source and the information received is not revealed for reasons stated above. That is not new. That was the practice before some judicial pronouncement introduced some ambiguity and potential for litigation demanding revelation of the source of information and the information received, etc. In order to remove the ambiguity, the ‘explanation’ had been inserted into the budget. It is not a new ‘retrospective’ amendment on the part of the government.
One additional point: if it is alleged that there was absolutely no material for the search and it was purely vindictive, political etc. and was basically an abuse of power, then the affected person can use the constitutional remedy of a writ petition to the High Court or Supreme Court (but to no other court or tribunal); the HC /SC can require production of even the secret information leading to the search if it so wishes, but it would be in a sealed cover only seen by the Judges. This remedy flows from the Constitution, not the Income Tax act and is not taken away and cannot be taken away by the explanations inserted.