Section 132(3) of the Income Tax Act
Income-tax Act, 2025: ss.247, 249, 251
Section 132(3) falls under section 132 of the Income-tax Act, 1961, which corresponds to section 247 (Search and seizure), section 249 (Reasons not to be disclosed) and section 251 (Copying, extraction, retention and release of books of account and documents seized or requisitioned) of the Income-tax Act, 2025.
Read section 247 of the 2025 ActRead section 249 of the 2025 ActRead section 251 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 132(3) is CIT v. Chetan Dass Lachman Dass (25 Taxmann.com 227), cited in 109 of the 64 judgments on BharatTax that turn on this section.
Leading authorities on Section 132(3)
An assessment under section 153A of the Income-tax Act is not solely restricted to the evidence found during the search; the Assessing Officer can also consider other post-search material or information available that relates to the search evidence.
The scope of assessment under Section 153A is not limited solely to seized material but includes any other information provided by the assessee in the return of income filed in response to a Section 153A notice. It also applies principles for estimating undisclosed income, such as from on-money receipts, even if there is material for only some transactions.
A search is considered complete once the search party leaves the premises with the seized material. A restraint order under section 132(3) can only be passed if there's a practical difficulty in seizing the material.
Penalties paid for a breach of law or contravention of statutory provisions are not allowable deductions as business expenditure because they cannot be considered wholly and exclusively laid out for the purpose of the business. This principle is now enshrined in Explanation 1 to Section 37(1) of the Income-tax Act, 1961.
A reference for assessment years preceding the commencement of a search protocol is invalid, and no extended limitation period can be applied.
A search under Section 132 of the Income Tax Act must be continuous; if discontinued and resumed, there must be a valid explanation for the gap.
An assessment under section 153A is not justified if the documents relied upon by the Assessing Officer pertain to a subsequent period and not the assessment years under consideration. Any estimation of gross profits must be based on valid material, which was absent in this case.
The Assessing Officer, while making an assessment under Section 153A, is not restricted to strictly making additions based only on evidence found during the search but can also rely on other relevant and attendant evidence or post-search material related to the seized evidence. This allows the AO to draw inferences about similar transactions throughout the relevant six-year period.
A restraint order under Section 132(3) cannot be passed solely on the ground that scrutiny of documents or assets could not be completed during a search, as the search process must be continuous. Additionally, Section 158BC (Chapter XIV-B) cannot be invoked if there is no violation of the Income-tax Act, such as when valid exemptions are claimed.
