Official sources said the travel document of Bhandari has been impounded by the investigating officer of the case under relevant sections of the Passport Act.
They said the action was taken by tax sleuths as they "apprehended" he may leave the country to impede investigation in the case.
The department has also summoned Bhandari for a fresh round of questioning in the wake of further leads in the case, they said.
The department is also mulling booking him under the stringent anti-blackmoney law.
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It has shared a "seizure memo record" with the Ministry of Defence made after searches against him in order to ascertain if they were of "sensitive" and "secret" nature, they said.
The IT department, which conducted searches on his premises in April, is also awaiting replies to some of its queries in this case from overseas locations and a case under the new law could only be made post success in this endeavour, they said.
The IT department has already approached British Virgin Islands (BVI), the UK, UAE, Switzerland and a few other countries in order to take its probe forward and obtain further details about the transactions and investments made by Bhandari and some companies he purportedly owned and operated.
They said probe in the tax evasion and assessment of income of Bhandari and a few others is on after the searches were conducted at multiple premises.
The tax sleuths claimed to have recovered certain emails that talk about renovation of a costly apartment in London in 2010 which was allegedly owned by Vadra, son-in-law of Congress President Sonia Gandhi.
Vadra's legal firm has denied that he owned the London property directly or indirectly. It also denied Vadra has any business ties with an arms dealer or his aide.