Income Tax Search and Seizure (Search)
It is not uncommon for any professional to face income tax search and seizure (also referred to as “Raid”) few times in their career. The very thought of an Income Tax Search and Seizure gives a chill in the spine and un-nerves people. The power of Search and Seizure under Section 132 and Survey under Section 133A, are important powers given to the Income Tax department in the process of unearthing unaccounted money on which tax is not paid. In this article we will examine what Tax Search and Seizure and Surveys are and examine the powers of the Income Tax department and right and responsibilities of individuals subjected to Search and Seizure and Surveys.
Income Tax Search and Seizure
Income tax laws in India provide for various provisions to ensure tax compliance by taxpayers. Search and seizure under Section 132 of the Income Tax Act is an important one. The Search and Seizure is also known as Raid, though the word Raid doesn’t find a place in the Income Tax Act. One of the most important powers that the Income Tax Department possesses is the power to conduct search the office and business premises, residence and all other places, followed by seizure of documents, money etc,. Normally Tax authorities exercise these powers to conduct Search on individuals, firms and companies suspected of evading tax or who are suspected to be in possession of any property or income belonging to another person that has not been disclosed and on which taxes are not paid. Of the many measures taken by the Government to curb black money and illegal wealth, income tax Searches have been the most successful ones.
Objectives of Income Tax Search and Seizure
The Income Tax Department exercises its right of search and seizure to achieve the following objectives:
- To address problems and issues due to evasion and avoidance of tax
- To address the menace of unaccounted and black money
- To uphold the law and ensure tax related compliance.
- To deal with any threat to social security
Who can conduct Income Tax Search?
As per Section 132 (1) of the Income Tax Act, the Additional Director or Additional Commissioner, Joint Director or Joint Commissioner or Assistant Director or Dy Director or Asstt. Commissioner or Dy. Commissioner or any other Income Tax Officer on being authorised by Principal Director General or Director General or Principal Director or Director of Principal Chief Commissioner or Principal Commissioner or Chief Commissioner or Principal Commissioner or Commissioner can conduct a Tax Search.
What can be searched in an Income Tax Search?
The Income Tax Department has powers to conduct Search on the following:
- Any property or premise used for the purpose of conducting any part of business operations
- Any residential property or premises
- Any vehicle or automobile
- Any lockers held in banks or financial institutions
- Any books, ledgers, documents containing account details and transactions
- Any stocks, bonds or shares
- Any valuable items such as jewellery, gold, and other precious metals
Reasons For Income Tax Search
The Income Tax Department can conduct Search on individuals or groups for a wide range of reasons. The most important ones are outlined below:
- Where the department has gathered evidence substantiating that an assessee is in possession of income or assets that have not been disclosed, and where the amount of tax that would be normally paid on such income or assets exceeds Rs 1 crore.
- Where the department suspects an individual or group are in possession of unaccounted for assets and which are suspected to have been used for the purpose of smuggling, public disorder, fraud and terrorism etc
- Where the department has intimation of lavish expenditure at marriages and other functions
- Where the department has gathered information and evidence relating to the evasion of tax gathered through informers or by revenue intelligence
- Where money has been confiscated by any state or central government law enforcement agency and the same has been reported to Income tax department
- Where the department has gathered data or information on perusal of tax assessment files.
- Where the department has gathered evidence of the manipulation of books of accounts, documents and invoices.
- Where the department has gathered evidence of the possession of substantial amounts of income with the assessee, at the resident, bank lockers, residence of the assessee, or partner or employees.
- Where intimation of person arrival at any of the airports in India with the possession of substantial sums of money, precious metals etc
- Where the department has gathered evidence of disproportionate income to known sources of income
- Where the department has gathered credible information, data and evidence from other governmental departments.
- Where the department has gathered information that
- any hawala activities and transactions that have taken place within the functioning of any business.
- the assessee making investments in benami
- undisclosed sums of money and investments held with banks under the name of the assessee or any of his or her family members, business associates, relatives etc
- of any undisclosed share investments, demat or forex accounts under the name of the assessee or any of his or her family members, business associates, relatives etc
- of the commercial transactions from organisations which are non existing
- heavy cash transactions and investments in real estate
- large amount of non existing sundry creditors
- huge discrepancies in stock quantities, inventory, production etc
- non-filing of income tax returns by the assessee
- individuals in possession of many Permanent Account Numbers (PAN) and filing income tax returns from different locations
- Any other reason that may be deemed valid or confidential by the Authorities.
Powers of Income Tax Authorities
The income tax officers who are authorised to conduct Search have the following rights:
- Enter and search the premises where reason to suspect that books of accounts, records, documents, money and other valuable article representing undisclosed income are kept
- Take extract or copies of the books of account and other documents and place marks of identifications also
- Break open the locks if keys are not made available during Search
- To carry out personal search of persons present in the premises Searched who are suspected to have secreted any items.
- Examine on oath any person who is found to be in possession or control of any books of account, documents or assets and any statement made by any such person may thereafter be used as evidence in any proceedings under the Act.
- To mark and seize valuables, books of accounts and records, computers and data storage devises.
- Seize any documents relating to properties
- All India jurisdiction: Investigation Wing has Pan India jurisdiction and can carry out searches all across India simultaneously. Ordinarily, Investigation Wing carries out search where it is located. However, to unearth total concealment, it must cover factories, godowns, branch offices, stockists, dealers and at times close relatives, employees etc., of the assessee who might be located all over the country.
Duties of an Assessee during Income Tax Search
- To allow free and unhindered ingress and access into the premises to the Search team
- To hand over the keys to all receptacles in which books of accounts, documents, records and assets are kept to the Search team
- Not to remove or let any one to remove any goods, articles, documents and records without notice or permission of the authorised officers of the Search team. If an assessee or any of his team members destroy any documents, records or assets they shall be punishable under Section 204 of IPC.
- Being legally bound by an oath to state the truth, the assessee shall answer all queries truthfully and to the best of his knowledge. If he makes any false statement, he shall be punishable under Section 181 of IPC.
- to identify every person present in the premises during the Search and to explain their relationship to the person being searched. In case of any attempt to impersonate, the same shall be punishable under section 416 of the Indian Penal Code
- Not to allow any unauthorised person to enter the premises or let any person to leave the premises during the Search without the permission of the authorised officer of the Search team
- To affix signature on the recorded statements, inventories and copies of the document and the panchanama as may be required by the authorised officials.
- To extend all cooperation and maintain peace and orderly behaviour during the process of riad.
Rights of an Assessee during Income Tax Search
In the event of a Search conducted by the income tax authorities the Assessee can exercise the following rights:
- The assessee has right to ask for and check the search warrant and the identity of the authorised income tax officer present
- The authorised officers should allow two individuals from the local area to stand as independent witnesses
- The assessee has a right to inspect and search the authorised income tax officers to ensure that no planting takes place
- Childrens must be permitted to leave for school subjecting their bags beingchecked
- Women, who do not make public appearances as per custom, have a right to not appear before the search party
- only authorised female tax officers shall be allowed to search the female family members of the assessee
- The assessee can also exercise right to eat meals at standard mealtimes and avail medical assistance should the need arise
- The Search can only commence at sunrise and must end at sunset
- Any Search can last only for a maximum of 48 hours
- The assessee has a right to get copy of statement used against him at the time of the Search or after the Search has been concluded, failure of which may affect the proceedings
- The assessee has a right to get a copy of the Panchanama along with all annexures
- The assessee has the right to get articles and documents that have been confiscated by the Search team sealed and stamped, and has the right to receive a copy duly witnessed by independent witnesses.
What are the assests that cannot be seized
- Stock in trade except cash
- Assets that were declared in tax returns
- Assets and cash that were recorded in books of accounts
- Gold upto 500 gms for each married lady 250 gms for each unmarried lady and 100 gms per every male member
Remedy available to Assessee in case he feels he has been wrongly searched
If an assessee feels that he or she has been unfairly placed under suspicion and has been wrongly Searched by the income tax department he or she can
- challenge the Search carried out by filing a writ petition with the High Court.
- challenge or appeal against the Search or assessment made by the authorities before the Commissioner of Income Tax (Appeals)
How to avoid Tax Search
In order to avoid Tax Search, the assesse has to take due care of the following:
- Assessee should disclose all income as well as wealth while filing income tax returns
- Assessee should maintain books of accounts and all related documents
- Assessee should pay tax due and file tax returns regularly in time
- Assessee should file all required information and documents required by Tax authorities through notices and summons.
Difference between Search and Survey
Both Seach under Section 132 and Survey under Section 133A of the Income Tax Act are used by the Income Tax Department to gather information and evidence about tax evasion, there are significant differences between them.
An income tax Search is carried out by the Income Tax Department, on the premises of the taxpayer, including their home, office, business premises, and other places where they may have stored undisclosed assets when they have reason to believe that a person or a group of persons is in possession of undisclosed income or assets.
Survey under Section 133A of the Income Tax Act is a less invasive procedure than Search. It is carried out by the Income Tax Department to gather information about the taxpayer’s business operations and assets. It is conducted during the business hours, only identification marks can be put and there cannot be any seizure of books of account, documents etc.
Differences between Search and Survey
While both Search and Survey are used to gather information and evidence about tax evasion, they have significant differences in terms of their purpose, approval, power to seize, and scope.
- Purpose: The purpose of a Search is to detect undisclosed income or assets, while the purpose Search is to gather information about the taxpayer’s business operations and assets.
- Scope: The scope of a Search is wider and it can be conducted on all premises including residence, vehicles and any other places where Income Tax authorities suspect that the taxpayer may have undisclosed assets. The scope of a Survey is limited to the premises of the taxpayer where business is carried.
- Type of search: in case of Survey a person cannot be physically searched but in case of a Search physical search of all the persons who are present in the premises and those who are entering into and leaving the premises is permitted.
- Approval: a Search can only be conducted after the approval of very senior level officials like the Director or Commissioner, while a Survey can be conducted by any authorized officer including an Assessing Officer of the Income Tax Department.
- Time: Search can be conducted at any time, including beyond normal business hours, while a Survey can only be conducted during business hours and in case of individuals, only during daytime.
- Right to record statements: Both in a Search and Survey the income tax officials are given the right to record the statements made by assessee or other persons, but in case of a Search a statement made by the assessee can also be taken on oath.
- Power to seize: During a Search the authorities have the power to seize any documents, books of account, cash or other valuables which they believe to be undisclosed. During a Survey the authorities do not have the power to seize any documents, they can only place marks of identification and take copies.
Search and Seizure are the powers given to Income Tax Authorities and they exercise these powers judiciously after conducting preliminary inquiries and having a prima facia information. Accessee should never give any inaccurate information and in case of any doubt about any information specially accounting information pertaining to previous years it is advisable to verify the books of account or documents before answering any query. The assessee must also be aware of their rights and responsibilities during an income tax Search or Survey, and cooperation with the Income Tax officials during the time of Search and/or follow up proceedings. In case of any doubt or concerns it is better to seek professional advice.
The Contributor S. Prabhakar, is a Fellow member of the Institute of the Company Secretaries of India, Chartered Secretary from the UK, Lawyer, and Registered Insolvency Professional.
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