Dealing with Income Tax Search and Seizure

Compiled by Ashish Shah

What leads to income tax raids, searches and seizures

Non compliance with Summon & Notice u/s 131(1),142(1) and other relevant section o Non-compliance with the summons issuedunder Section 142(1) by the Assessing Officer for the production of books of account or other documents might result in an income tax raid. o It is, therefore, absolutely necessary to fairly and properly comply with the summons o Co-operation on the part of a person, whether he is an income tax assessee or not, will ensure prevention of a raid. The summons or notice calls for the books of account or other documents to be produced before the authorised officer as soon as earlier All unaccounted income, should be declared. If such a disclosure is made before its detection by the Income Tax Department, the chances of being trapped in a tax raid are minimized Make correct disclosure of income and wealth in returns

Matters relating to search and seizure

Tax officers should henceforth strictly adhere to the following guidelines : Credible evidence to indicate substantial unaccounted income/assets by the assessee owned, where the expected concealment is more than Rs. 1 . crore crore. Search operation will also be mounted when there is evidence of hidden unaccounted assets arising out of a conspiracy to cause
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Dealing with Income Tax Search and Seizure

Compiled by Ashish Shah

public harm, terrorism, smuggling, narcotics, fraud, gangsterism gangsterism, fake currency, fake stamp, papers and such other manifestations; Taxpayers who are professionals of excellence should not be searched without there being compelling evidence and confirmation of substantial tax evasion. Henceforth, search operations shall be authorised only by the concerned DGIT (Inv.), who will be accountable for the action initiated by the officers working under him (Source : Instruction No. 7/2003, dated 30 30-7-2003 2003.) Cases wherein people are convicted on the basis of digital data are on the rise. Now, businessmen use removable storage devices such as USB drives, pen drives, digital cameras, iPods and MP3 players to store data due to their miniature and inconspicuous look, making them easy for hiding in case of search. But the department keeps a close tab on all such moves. All these devices including computers and laptops are seized in the presence of witnesses. However, the person being raided can ask for a copy of the data on the drive. So, it is advisable to make separate files for each family member which should specify the details of assets held and income earned, followed by a balance sheet for each financial year, along with the receipts and sources for acquisition of assets. Assets acquired as a result of gift or will should be supported by proper
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Dealing with Income Tax Search and Seizure

Compiled by Ashish Shah

certificates. The details of various bank accounts and lockers held should also be mentioned in the file.

The tax payer has the following rights in case of search

Examining the search warrant which must clearly specify the name of the party to be searched and be duly signed by the officer. The search warrant issued in the name of the firm cannot be used to seize assets of individual partners. Calling two or more respectable inhabitants of the locality to act as witnesses. Verifying the identity and make personal search of each member of the search party. Calling a doctor in case of emergency. Personal search of ladies to be taken only by lady. Allowing the children to go to school after checking their bags. Having meals at the normal time. Inspect seals placed on various objects Have a copy of panchnama (first listing of evidence and findings made) Inspect and take photocopies of the seized books of account and documents.
Anything representing stock-in-trade of the business shall not be seized but the authorized officer shall make a note of it.

Guidelines for seizure of jewelry and ornaments in course of search

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Dealing with Income Tax Search and Seizure

Compiled by Ashish Shah

In the case of a wealth wealth-tax assessee assessee, gold , jewelry and ornaments found in excess of the gross weight declared in the wealth wealth- tax return only need be seized. In the case of a person not assessed to wealth wealth-tax Gold jewelry and ornaments o 500 gms per married lady o 250 gms. per unmarried lady o 100 gms per male member of the family need not be seized (Instruction :No. 1916, dated 11 11-5-1994.)

How to prevent an income tax raid on lockers, and safe deposit vaults

Income tax raids are often conducted to seize bank lockers, safe deposit vaults and other lockers It is necessary to declare the lockers in the income tax statements and ensure that no unaccounted income, property or wealth is kept in them. If all lockers are duly declared there is no risk of a raid If a person is not the owner of any bullion, jewelry, relatives , precious stones or any other article or books of account in his possession but merely a custodian of a friend or relative s property In such cases it is always better for the custodian to get a declaration from the owner regarding the nature and source of the articles to satisfy himself that they do not represent any undisclosed income or property.

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Dealing with Income Tax Search and Seizure

Compiled by Ashish Shah

Pre Survey & Search Precautions

Avoid :

To keep Books of accounts at any place other than Registered Office. To share common premises, however if assesses share common premises then the MAP should be affixed at some common visible place identifying the assignment of particular area to particular assessee, since it could lead to Multiple Operations. To Keep Personal documents of workers and employees in business premises. To do Backdating and editing in books of Accounts. In case practices like backdating or editing are followed then confirm from computer software vendor that such practices are not detectible.

Ensure

That physical cash available and cash in books of account matches. Registered value of property in name of every relevant person should be known. Where records are maintained at various levels for cross verification, they should be in reconciliation up to date e.g. records maintained at Gate, Security Guard, Stores Keeper etc. Assessment particulars of Directors in case of company, partners in case of firms, members in case of AOP and trustees in case of trust should be readily available.

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Dealing with Income Tax Search and Seizure

Compiled by Ashish Shah

Difference Between Survey & Search

Survey Survey is basically a surprise inspection carried out by the officers of the Income-tax department to verify co-related information, check the cash balance with the books, verify the position of stocks as compared to the position thereof in the books etc. Search and Seizure Search means not looking for something which is produced or Open but which is hidden, concealed or not obvious. The word has varied meanings and it should be given the general meanings to look for or to seek which are well known meaning attributable to the word in the context of section 132 as has judicially been held in Assainar Vs ITO reported in 101 ITR 854. It also means taking possession of the record etc. for the purpose of inspection. It includes a thorough inspection of the building, place, vessel, and aircraft and of the person.

Meaning

Survey means to inspect or in a wider sense to scrutinize. The object of a survey is to find out, gather information, verify and collate information so as to apprehend a tax dodger or a tax evader.

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Dealing with Income Tax Search and Seizure Procedure Survey u/s 133A can be conducted only at the business premises of the person concerned. No survey can be conducted at the residential premises unless the residential premises are shown to as the business premises by the assessee concerned. Moreover if the assessee has stated that any stock or books of accounts or cash related to business is kept at his residential premises survey proceedings can also be extended to such residential place. Its not necessary that the survey is only conducted at the principal place of business, it can be conducted simultaneously to all branches of business premises concerned. Since the power of Survey is limited to the business premises only therefore the survey can be conducted only during business hours i.e after sunrise and before sunset. However the survey proceedings started before sunset can be continued till after sunset. Survey proceedings can

Compiled by Ashish Shah Under Sec/ 132 IT Authority can enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such books of accounts, other documents, money, bullion, jewelry or other valuable article or thing are kept,,,,,,, Break open the lock of any door,box, locker, safe, almirah or other receptacle,,,,,, Search any person who (a) has got out of, or (b) is about to get into, or (c) is in thebuilding, place, vessel, vehicle or aircraft, if the authorized officer has reason to suspect that such person has secreted about his person any such books of account, other documents, money, bullion, jewelry or other valuable article or thing........... Require any person who is found to be in possession or control of any books of account or other documents maintained in the form of electronic records, to afford the necessary facility to the authorized officer to inspect all such books of account or other documents.

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Dealing with Income Tax Search and Seizure not be initiated on holidays festive days when the business premises are closed.

Compiled by Ashish Shah Seize any such books of account, other documents, money, bullion, jewelry or other valuable article or thing found as a result of such search. However, w.e.f. 1-6-2003, the authorized officer shall have no powers to seize any bullion, jewelry or other valuable article or thing being stock-in-trade of the business found as a result of search. He shall make a note or inventory of such stock-in- trade of business. Place marks of identification on any books of account or other documents or make or cause to be made extracts or copies therefrom.

Assessments

Sections 153A/153B/153C deal with assessments in pursuance of search. Irrespective of findings in search and irrespective of whether assessments are already made for these years, there will be fresh assessments in pursuance of search for assessment years preceding the assessment year relevant to the previous year of search. Assessments pending on the date of initiation of search shall abate.

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Recent Amendments
o

Central Government empowered to notify cases or class of cases of persons where in AO shall not be required

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Dealing with Income Tax Search and Seizure

o

Compiled by Ashish Shah

This Amendments would result in initiating assessment proceedings only for the assessment year relevant to the previous year in which search or requisition has been made.

Notice will be issued by Assessing Officer to the person in whose case the search is carried out, requiring him to furnish returns for these years. In an assessment or reassessment made in respect of an assessment year u/s.153A, the tax shall be chargeable at the rate or rates applicable to such assessment year. Assessments shall be made within 21 months from the end of the year of execution of last authorization subject to extended limitation applicable in cases of stay by a court/audit under section 142/fresh opportunity of hearing under section 129/applications to Settlement Commission or Authority for Advance Ruling. If Assessing Officer is satisfied that the seized items belong to another person, the relative items shall be handed over to Assessing Officer having jurisdiction over the other person and he shall undergo similar proceedings. In his case, assessments pending on date of receipt of relative items by his Assessing Officer shall abate. Extended limitation for assessment shall apply in his case.

Presumptions :

Any books of accounts, other documents, money, bullion, jewelry or other valuable article or thing are or is found shall be presumed to be belong or belongs to Such person in whose possession or control these are found during the course of search. The contents of the books of accounts or other documents so found shall be presumed to be correct and true.

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Dealing with Income Tax Search and Seizure

Compiled by Ashish Shah

That the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular persons handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested

Settlement Commission
Income Tax Settlement Commission is a premier Alternative Dispute Resolution (ADR) body in India. Its mandate is to resolve tax disputes in respect of Indian Income Tax & Wealth Tax Laws between the two disputing parties, Income Tax Department on one side and litigating tax payer on the other. The settlement mechanism allows taxpayers to disclose additional Income before it over and above what has been already disclosed before the Income tax Department. The applicant has to pay full amount of tax and interest on the additional income disclosed before the Commission, before filing the application. The Commission then decides upon the admissibility of the application and in case of admitted applications, carries out the process of settlement in a time bound manner by giving opportunity to both parties. The Commission is required to pass the Settlement order within 18 months of filling of the application. It has wide power of granting immunity from Penalty and prosecution, which are major sources of litigation. The orders passed by the Commission are final and conclusive.
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Dealing with Income Tax Search and Seizure

Compiled by Ashish Shah

At present the benefit of the settlement mechanism can be availed by a taxpayer only once in life-time, who has made the first application on or after1st June, 2007. In search and seizure cases where the income-tax payable for all the years covered by the search exceeds Rs. 50 lakhs. (In non-search cases, the minimum additional amount of income-tax payable is proposed to be increased to Rs. 10 lakhs instead of the present limit of Rs. 3 lakhs), the settlement application can be filed after the commencement of the proceedings for the assessment or reassessment in respect of any of the assessment years referred to in clause (b) of sub-section (1) to section 153A but before the assessments for those years is made by the Assessing Officer. The time limit for completion of the settlement proceedings is 18 months from the end of the month in which the settlement application was made.

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