When the Taxmen Knock Your Door…(I)

The biggest weapon in the hands of the Income Tax Authorities to unearth black money or curb illegal transactions is by surprisingly knocking the door of the taxpayers through Income tax Raid or Survey. The word Raids/ Survey are the cause of biggest terror and highest fear amongst the taxpayers.

Taxpayers should not worry as the Constitution of India in Article 265 provides that “No tax shall be levied or collected except authority of law”. Further, Articles 226/ 227 of the Constitution of India provides that the citizens can approach the High Court when their fundamental rights are violated or when powers are exercised in a manner not authorised by the law. One needs to know that the powers of the income tax authorities are not the absolute & blanket power. To mitigate the possibility of its misuse by over-zealous officials, Income Tax Law has incorporated sufficient & reasonable safeguards. Similarly, taxpayers also have some rights and duties during the course of income tax raid & survey. The word “Search & Seizure” in the Income Tax Act is most commonly referred to as Income Tax Raid in the common parlance. It may be noted that there is no power contained in the Act or the Rules whereby the movement of a person against search is ordered can be restricted.

Why Income Tax Raids & Survey:

The power of Survey, search & seizure is a potent tool for the department to unearth unaccounted income, discover black money, to broaden the tax base & generate the flow of taxes in the Government Treasury. It is often also considered as a powerful tool to discourage tax evasion and malpractices.

Not everyone but only higher level of officers are authorised to carry out the income tax survey & that too by taking the required approval of their superior authorities. Lower officials of the department Authorities cannot be the authorised officer. The power of knocking the taxpayer’s door is subject to various terms & conditions which is different in search vs. Survey.

It may be noted that the business place cannot be sealed & the authorities do not have power to interrupt the ordinary business or peaceful life of citizens. Though the word search & Survey are very often used interchangeably, they are different. The purpose & objectives are also different and so are the cost, consequences and penal provisions. One needs to carefully know the differences between the search & survey as under:

1. Survey is covered by section 133A of the Income Tax Act – 1961 & can be carried out only at the place of business or profession (or place of charity in case of trust). Search is covered by section 132 of the Income Tax Act – 1961 & it can be carried out at any building or place which may not necessarily be the place of business.
2. Surveys can be undertaken only during working hours (though it can continue even after working hours) and on business days. Search can be carried out on any day after the sunrise and can continue until the procedure is completed.
3. During survey, inspection of books of accounts, records, vouchers, cash & inventory is undertaken. During search, the entire place can be searched so as to find undisclosed assets, records, valuables, jewellery, etc.
4. Income Tax Authorities don’t have any power to seize the assets during income tax survey. However, during income tax search, authorities are reasonably empowered to seize the assets & valuables.
5. Personal search of the person cannot be done during the course of income tax survey whereas it can be done during income tax search.
6. Assistance of the police officers is normally not undertaken during survey whereas income tax search is normally not carried out without the backing of the police team.
7. The team for carrying out income tax survey is comparatively very small and the scope is limited which is drastically opposite during income tax search operation. Survey is greatly milder & trivial proceeding as compared to the rigorous provisions of search & seizure. Search entails high costs & elaborated preparation.
8. To a great extent, the rights of privacy are getting impacted during income tax search & so a lot of homework, preparation and study is required for carrying out the income tax search as compared to the survey.
9. Normally, a survey is concluded on the same day & if the situation warrants, it may continue for the next day. Search operation normally subsists for at least 2-3 days or more.
10. Search operation normally starts at early morning immediately after sunrise whereas survey is done after the commencement of the business operations.
11. A survey can lead to a search if a sizable amount of cash is found or if there is information, documents & record which is so relevant that search authorization could be justified.

The basis of selection of cases for survey and raids varies from case to case basis & is the prerogative of the department, of-course subject to certain riders. What can be done by the authorities and what not, what are the duties and rights of the taxpayers, what are the precautions that one must take during regular business operations and various other practical aspects involved, we will discuss all this in our next issue.

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