When the Taxmen Knock Your Door…(III)

[Know about Income Tax Raids]

In the earlier issues of the TAX talk, we have discussed the powers of taxmen to surprisingly knock the door of taxpayers by way of Income Tax Survey. Let us know about Income Tax Search & seizure, most commonly referred to as ‘Income Tax Raid’ in common parlance.

‘Search’ means a thorough inspection of the person, building, place, vehicle, vessel, aircraft. ‘Seizure’ means taking possession thereof. It may be noted that even income tax survey conducted u/s 133A for the limited purpose of gathering information can also be converted into search and seizure action u/s 132 if the records & circumstances demand so.

Why Income Tax Raids Happens?

The obvious purpose is to unearth the black money, documents & records related to illegal transactions. Income tax authorities are empowered to carry out the raids if they have reason to believe that:

1. Any person has omitted or failed to produce books of account or documents as required by any summons or notice issued;
2. Any person to whom, when so summoned to produce the documents, etc., would not produce books of account or documents,

iii.  Any person is in possession of money, bullion, jewellery or other valuable article or thing representing, income or property which has not been disclosed or would not be disclosed for purposes of the Income-tax Act.

An analysis of the few raids in the recent years gives following instances which can be considered as a trigger point:

1. If there is credible information of tax evasion which may have been received from the Intelligence wing of the Income tax department, complaints by the employee/competitor/relatives, etc.
2. Information as to the unexplained cash credits, share premium, share transactions, etc;
3. Data analysis as to the investment / spending which is disproportionate to income of the taxpayers;
4. Evidence with the department as to Manipulation of books of accounts, vouchers, invoices, etc;
5. Information coming from other Government Agencies like GST, ED, etc;
6. Information as to heavy illegal investment in real estate;.
7. Information extracted from the assessment records of the taxpayers or other taxpayers.

How does it happen?

Various income tax officers are involved in the process of income tax raid which is divided into multiple smaller teams. Mostly in the morning, such teams strikes at all the places of residence, office, go down/factory etc of the taxpayers, directors, family members etc. Normally, income tax raids continue for 2-3 days which may be extended further if the situation warrants. If required, consequential surveys may be done instantly on other close associates, relatives, friends, also.

What is done in Income Tax Raids?

The Income-tax Act gives very wide powers to an authorised officer to carry out the search and also to seize documents and unaccounted assets. Investigation team usually checks cash, stock, jewellery, other assets, books of accounts, computers, files, loose papers, records, other documents etc as found in the premises. Statement of the taxpayers, management and other persons present in the premises is also recorded. Normally, use of telephones and mobiles during raids is not allowed by the department. The authorized officer has the power to:

1. Enter and search any building, place, etc. where he has reason to suspect that books of account, other documents, money, bullion, jewellery or other valuable article or thing representing undisclosed income is kept;
2. Break open the locks, where the keys thereof are not available;
3. Carry out personal search of the person who is suspected to have secreted some item as mentioned in (a) above;
4. Seize the items as mentioned in (a) above;
5. Place marks of identification and take extracts or copies of the books of account and other documents; and
6. Make a note or inventory of the valuables found during the search.

The authorised officer is also permitted to pass orders placing prohibition on the person in possession or control of the valuable article or thing from removing, parting with or otherwise dealing with such article or thing without prior permission. The authorised officer also has the right to demand the services of any Police officer or any officer of the Central Government.

What taxpayers must know during Income Tax Raids?

The taxpayers must know the following as far as income tax raids is concerned:

1. Income Tax Department can only make a note of stock in trade/ inventory and cannot seize it whether it is disclosed or undisclosed stock. If jewellery is forming the part of stock in trade (like in case of jewelers), it cannot be seized
2.  Cash in Hand cannot be seized if assessee is able to explain and prove the source or its recording in the books of accounts.
3.   Assets which are declared in the income tax returns or other records filed, cannot be seized by the income tax departments.
4. Whether recorded or not, gold jewelry and ornaments to the extent of 500 grams per married woman, 250 grams per unmarried woman, and 100 grams per male member cannot be seized. Even higher quantities /value of Jewellery for which source of investments can be proved or which are duly recorded in the books of accounts cannot be seized.

Duties of the Taxpayers during Income Tax Raids:

Charter of rights and duties of persons searched which has been reported in [1994] 208 ITR (St) 5. Some significant duties of the taxpayers during income tax raids are as under:

1. To identify all receptacles in which assets or books of account and documents are kept and to hand over keys to such receptacles to the authorized officers.
2. To identify and explain the ownership of the assets, books of account, and other documents found on the premises.
3. To allow the I-T team free and unhindered entrance into the premises
4. To identify every individual in the premises and to explain their relationship with the assessee
5. Not to allow or encourage the entry of any unauthorized person(s) into the premises
6. Not to remove any article from the location of the investigation without the notice or knowledge of the authorized officer
7. Being legally bound by an oath or affirmation to state the truth, if the assessee makes a false statement, he/she shall be punishable with imprisonment, or fine, or both under Section 181 of the Indian Penal Code
8. To ensure that peace is maintained throughout the duration of the search, and to cooperate with the investigating officers in all respects so that the search is concluded quickly and peacefully.
9. Cooperation should be extended even after the search is over so that the authorized officer is able to complete necessary follow-up investigations at the earliest.

Duties are coupled with some rights as well. In the next issue, I will cover the rights of the taxpayers during income tax raids, what are the precautions which must be taken by the taxpayers during such operations, and other key factors in the income tax raids.

[Readers may forward their feedback & queries at nareshjakhotia@gmail.com. Other articles & response to queries are available at www.theTAXtalk.com]

 

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