Surprising why people think this is new, confiscation of jewelry is not new. Funny people pretending to be cavemen here.
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Income Tax search and surveys (RAIDS) - what you need to know!
India Infoline News Service | Mumbai |
It is essential to know about certain reliefs granted by the income tax law to the assessee undergoing the search operations to reduce the damages caused by such operations
The search and survey operations conducted by the Income tax department, commonly known as Income tax raids (‘raids’), has always been one of the worst nightmares of businessmen, high earners and corporates. Some reasons for this fear being heavy tax and penalty payments, possible devastating impact on the business, mental harassment faced during such raids etc. Although surveys are not feared as much as search and seizure operations, often it is considered to be a step towards such operations. Most of the fears for such operations are valid and the negative impacts are generally unavoidable, though the impact can be much lesser if the assessee has reasonable knowledge about various aspects relating to the raids. We have tried to summerise some of the significant aspects about raids that assessees should remember in order to lessen the impact of such operations.
Search And Seizure (“Search”) Procedures
Search operations are carried out by a team of members from investigation wing and usually it takes place in the morning. The search team carries a search warrant with it for verification. The search team usually cover all the business premises of the assessee (in India) and the residential premises of the important and key persons of the assessee like the partners of the assessee firm; directors of the company etc. and can extend upto 2-3 days. It may also cover residential premises of close relatives, friends, business associates etc.
The search team usually checks cash, stock, Jewellery, other assets, books of accounts, loose papers. Besides the checking of records the search team records statements of personnel, management and at times questions any person present at the searched premises, which may include even visitors, customers and guests. Search team generally does not allow use of telephones and mobiles during raids.
Reliefs
It is essential to know about certain reliefs granted by the income tax law to the assessee undergoing the search operations to reduce the damages caused by such operations, these reliefs include –
- The search party cannot seize stock in trade of a business and can only make a note of inventory of such stock in trade. This relief is available alike to disclosed as well as undisclosed stock.
- The search party cannot seize the cash if it is adequately explained and evidenced.
- Jewellery held as stock in trade and the Jewellery disclosed in the wealth tax return cannot be seized.
- If assessee is not filing return of wealth or are not assessed to wealth-tax, gold Jewellery and ornaments to the extent of 500 gms. per married lady, 250 gms. per unmarried lady and 100 gms. per male member of the family, cannot be seized.
Rights and duties of the assessee
Awareness about the rights and duties during the search operations is essential to avoid any severe legal implications and unpleasant situation. Some of the significant rights and duties of the assessee during the such operations are–
Rights
- To check the warrants and identities of the inspecting officers
- To insist on personal search of ladies being taken only by a lady, with strict regard to decency.
- To have at least two respectable and independent residents of the locality as witnesses.
- To call a medical practitioner in case of emergency.
- To allow the children to go to school, after checking their bags.
- To have the facility of having meals, etc. at the normal time.
- To inspect the seals placed on various receptacles, sealed in course of search and subsequently at the time of reopening of the seals.
- To have a copy of the panchanama.
- To have a copy of any statement that is used against him by the Department.
- To have inspection of the seized books of account, etc., or to take extracts there from in the presence of any of the authorised officers or any other person empowered by him.
- To make an application objecting to the approval given by the Commissioner of Income-tax for retention of books and documents beyond 180 days from the date of the seizure.
Duties
- To allow free and unhindered entrance into the premises.
- 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 authorised officer.
- To identify and explain the ownership of the assets, books of account and documents found in the premises.
- To identify every individual in the premises and to explain their relationship to the person being searched. He should not mislead by impersonation.
- Not to allow or encourage the entry of any un-authorised person into the premises.
- Not to remove any article from Investigations place without notice or knowledge of the authorised officer.
- Being legally bound by an oath or affirmation to state the truth, if he makes a false statement, he shall be punishable with imprisonment or fine or both under section 181 of the Indian Penal Code.
- To ensure that peace is maintained throughout the duration of the search, and to co-operate with the Investigation officers in all respects so that the search action is concluded at the earliest and in a peaceful manner.
- Similar co-operation should be extended even after the search action is over, so as to enable the authorised officer to complete necessary follow-up investigations at the earliest.
Survey Procedures
Generally action under section 133A is called ‘Survey’. However, the term Survey is not defined in the Act although section 133A of the Act refers to the power of survey. In the context of the Act, the term ‘Survey’ means to collect information and data for the purpose of the Act on the spot, at the place of business or profession.Surveys are considered to be milder than search procedures mainly because this procedure does not involve confiscation of cash or Jewellery or other assets, taking statements on oath, searching residential premises etc.
Powers of income tax authorities while conducting the survey
- To enter the place of business during the business hours and in other places, only after sunrise and before sunset.
- To enter the place other than the business premises, if the assessee states that the cash, stocks, records and books of accounts relating to the business are lying there.
- In case of books of accounts - to place marks of identification on the books of accounts, to take extracts from such books of accounts and documents or records and to impound (confiscate) books of accounts noticed during survey w.e.f.1-6-2002, after recording reasons.(It may be remembered that survey teams have no power to seize assets). It may be noted that the Budget 2008 proposes to extend the rebuttable presumption, which is currently applicable to search operations, also to books of account, other documents, etc., found in the possession or control of any person in the course of a survey operation. In simple words records in the books of account, other documents found during the survey operations will stand as a fact unless proved otherwise. This amendment will take effect retrospectively from 1 June 2002.
- To make an inventory of any cash, stock and other valuables checked by him, to record the statement of any person, to collect information regarding nature and quantum of expenditure incurred in connection with personal functions and events like a wedding ceremony and any other functions, to discover and production of evidence etc.
- A survey can lead to a search only on the basis of information collected in survey, subject to fulfillment of certain condition of section 132(1).
- Normally survey is concluded on the same day, however, where situation warrants it can be continued on the next day also.
- Authority can take the statement of person available at the place of survey (not on oath) if it is deemed that his/her statements may be useful or relevant to any proceeding under the Act. – it may be noted here that, similar to search and seizure, the tax officer cannot force the assessee to make any statement about his income or minimum income.
- It may remembered that Only an authority having jurisdiction over the assessee can do survey.
Rights and obligations of an assessee being surveyed
- To permit entry to the IT officers after satisfying their identity.
- To afford facility to the Income tax authority to conduct survey, to co-operate during survey, to maintain equilibrium, to maintain peaceful atmosphere.
- To assist in preparing inventory of books of account or documents or cash or stock in trade or any other article or thing which may be found in the course of survey and to see that such inventories are detailed, exhaustive and authentic.
- To furnish requisite classification so as to let the income tax authority satisfy as to the assets found duly accounted for.
- To give statements truthfully and completely and avoid giving false or incorrect or vague answers.
- To sign the inventories and statements after carefully reading and vouching its correctness and obtaining its copies.
- To extend facility so as to compete the survey as expeditiously as possible.
- To let the survey continue after business hours and to see that it is concluded on the same day and is not required to be resumed on the next date.
- To keep the place in the orderly manner so as to let the authorities perform their duties expeditiously.
- To keep and preserve copies of the inventories, statements etc. and to contact the Tax Consultant immediately on completion of survey.
- To truthfully disclose all the material facts and to be guided by the sound advice of his CA / Tax consultant.
- To do any other act or steps or retract or which may be deemed desirable by the CA / Tax consultant on the facts and in totality of the circumstances.
- Not to hide or conceal such material aspects, which stand detected from the material, found in the survey.
Do’s and Don’ts during the raids
The following do’s and don’ts in nutshell can assist in reducing the impact of the dreaded procedure of raids-
- Maintain proper and updated books of accounts
- Ensure that the benefit all the reliefs are availed.
- Copies of important documents like returns of income / wealth filed, assessment orders, tax payment challans should be readily available.
- Investments made in assets should be properly accounted and supporting evidence should be available to substantiate the investment made.
- Statements recorded at the time of search are very crucial. One should be very cautious and careful while answering the question and the person questioned should not panic.
- It is important to be co-operative and cordial with the search and survey teams.
The author is Chartered Accountant and founder of RSM Astute Group.
