SEARCH, SEIZURE AND SURVEY SIMPLIFIED
Search and Seizure are the burning topics in current Tax scenario. It seems that North Block is completing its direct as well as indirect tax targets through this amour of ‘SEARCH & SEIZURE’. As the corporate’s as well as practitioners need to be very handy with the procedure, I have drafted the language of this article in very easy to understand manner.
I. Search and Seizure under Income Tax Law
Indian Legislature has made provisions for search and seizure under Income Tax Act with the objectives:
i) To get hold of evidence that person has undisclosed income which has bearing on tax liability of assessee.
ii) Identifying undisclosed assets generated from suppressed income.
iii) Seizure of documents for proceedings under Income Tax Act.
iv) For other similar objectives, these powers are given against persons who have not or will not produce books of accounts and other documents.
I.B. Departmental Instructions
Department has issued following instructions in Investigation Wings:
i) Searches should be carried out only in cases where there is credible evidence to indicate existence of substantial unaccounted income / assets in relation to tax normally paid by assessee or where the expected concealment is more that Rs. 1 Crores.
ii) Search operations should also be carried out when there is evidence of hidden unaccounted assets arising out of a conspiracy to cause public harm, terrorism, smuggling, narcotics, fraud, gangsterism, fake currency, fake stamp papers and such other activities.
iii) Professionals of excellence who are taxpayers should not be searched without there being compelling evidence and conformation of substantial tax evasion.
These guidelines are issued by department to its officers who are required to strictly follow them. These guidelines can act as guideposts in determining whether search may or may not be conducted in the case, but assessee cannot question the validity of search on these guidelines.
I.C. Officers authorized to conduct raid
Specified officials of income tax department are empowered to authorize specified officers to conduct raid as per section 132 if they have reasons to believer existence of any of the following circumstances:
1. Omission or failure of a person to produce books of accounts or other documents to whom, summons under section 131(1) o notice under section 142(10 were issued.
2. Any person to whom above summon or notice has been or might be issued, will not or would not produce books of accounts or other documents which will be relevant or useful under Income Tax Act.
3. Any person is in possession of money, bullion, jewellery or other valuable article or thing which represents wholly or partly any income or property which has not been or would not be disclosed for the purposes of this act.
I.D. Sources of information
Before passing order of search against a person or a group of persons information is gathered and processed to justify a search. Information is gathered by department from these sources:
2. Internal sources; and
3. Other sources;
I.D.1. Informers may be professional informers who supply information for the greed of rewards or other informers generally are disgruntled employee, jealous neighbor, humiliated director or any other person who intends to take revenge. Identity of such informers is kept secret and closely guarded.
I.D.2. Internal sources include data gathered by department, by looking into records where:
a) Income Tax returns not filed, after year.
b) Delay in Furnishing of information or books of accounts.
c) Cases where assessments are made under section 144, year after year.
d) Inventory of stock is not submitted and quantitative reconciliation of stock, production sales etc. is not filed.
e) Steady increase of expenses is seen and there are doubts on genuineness of such expenses.
f) Sundry Creditors in the balance sheet appear continuously or where there are huge loans or cash credits repeating, year after year.
I.E. Other Procedural aspects of Search
I.E.1. After information is gathered it is verified and checked across all possible sources. Surveillance on assessee and informers are set in place, to test the information gathered and also to ascertain tax evasion, modus operandi etc. This task of verification is very secret and carried out be CIB wing or investigation wing.
I.E.2. Search can be conducted at anytime whether at residence or at business place and even on holidays, though generally it is seen that departments hit all targets simultaneously at dawn. Search party is accompanied by police and they are retained there until search is completed.
I.E.3. Act has empowered very senior officials of department to authorize search in respect of assessee falling under their jurisdiction, though it is not necessary that building, vehicle etc. where search is to be conducted should also fall under territorial jurisdiction. However in case of emergencies jurisdictions may not even be seen.
I.E.4. Search commences by showing search warrant and getting it signed from the person to be searched, in presence 2 witnesses. Search party will then carry out search for unexplained and undisclosed assets held in the form of cash, bullion, jewellery or other investments and take statement on oath of persons involved. Statement of family members and other occupants of the premises may be taken in respect of their own tax matters. It is generally advised neither to deny obvious facts nor to state any facts for which he is not sure until he qualifies his statement. Search party may seize books of accounts, cash, bullion, jewellery, however stock in trade cannot be seized. Search party may break open any lock of door, box, safe, almirah etc. during the course of search.
Any person inside the premises at the time of commencement of search will not be allowed to leave the premises until assessing officer is satisfied and he is searched. Also no person will be allowed to enter in such premises until assessing officer is satisfied that he has a connection with search and if he won’t be allowed he would be adversely affected.
I.E.5. Immediately after the search is completed a document named panchnama is drawn by search party, which contains detailed log of this search. Person searched much ensure correctness of search and every detail in this panchname. Panchnama is to be signed by person searched, panchas and officer authorized. Person searched must get a legible and complete copy of panchnama including all annexures.
II. Survey under Income Tax Law
Legislature has given powers to conduct survey under income tax act, with intent of detecting tax invasion by:
· Identifying cases where no return of income has been filed, whether fraudulently or negligently.
· Verifying whether proper books of accounts and documents are maintained by assessee.
· Verifying that all transactions are regularly recorded by assessee.
II.B. Officers authorized
Survey shall be authorized by any of the following officers who is assigned the area within which the place to be surveyed is situated or who has especially assigned jurisdiction in respect of particular assessee:
2. Deputy Commissioner
4. Deputy Director
5. Assistant Director
6. Assessing Officer
Authorization can be made by any of above officers in respect of any of following persons:
(b) Deputy Commissioner
(d) Deputy Director
(e) Assistant Director
(f) Assessing Officer
(g) Inspector of Income Tax
There is no restriction in section 133A as to officer of which rank of officer will authorize whom, thereby authorization will be irrespective of the ranks of officers. Officer at one rank may authorize officer at same rank or other rank.
There are neither any pre-conditions to be fulfilled before issuing authorization for survey nor for the conduct of survey.
Keeping in view that income tax department has appointed staff exclusively for conducting surveys, it can be assumed that these officers are very well versed with the provisions of survey.
II.C. Other aspects of Survey
Surveying authorities can enter at any place where business or profession of assessee is being carried on, even though if may not be a principal place of business. Officer cannot enter business or residential premises of third parties including chartered accountant, income tax petitioner of whom assessee may be the client. But wherein assessee makes a statement to officer that his books are kept at some other place, then this place immediately comes under the purview of survey. It is also advised to assessee that he should not make a claim of ignorance about his books of accounts, as such statement may be taken as reasons to believe for carrying out search and seizure.
Survey authority shall enter the premises during normal working hours of the business or profession; one the officers have entered in premises during business hours, survey may even be continued after such business hours. However, if books of accounts, cash, stock, documents or other valuables relating to business or profession are kept at any other place, authority may enter such place only after sunrise and before sunset, once the officer has entered in appropriate time survey may be continued ever after sunset.
II.D. Powers & Duties
II.D.1. Power of surveying authority/officer
a) Inspect books of accounts and other documents;
b) Place identification marks on books of accounts or other documents;
c) Make or cause to be made extracts or copies from books of accounts or documents etc.;
d) Impound books of accounts. Prior approval of chief commissioner or director general is required for retaining the books beyond 10 days;
e) Verify cash, stock or other valuable articles found in survey;
f) Make an inventory of cash, stock etc.; and
g) Record statement of any person found during survey.
II.D.2. Limitation on powers of surveying authority/officer
(i) When premises surveyed are found to be locked, authority has no power to compel the person to open or break the lock.
(ii) Authority cannot seal the premises surveyed after conducting servey.
(iii) Authority cannot seize cash, stock, other valuables etc.
(iv) Assessee cannot be examined on an Oath. No evidentiary value of statement given during the course of survey exists.
(v) Inspector does not have powers mentioned under point d), e), f), g) above.
II.D.3. Rights of person surveyed
(a) Verification of identity of person coming for survey.
(b) Resist any attempt of office to seize cash, stock or other valuable.
(c) Get receipt for books of accounts, documents etc. impounded.
II.D.4. Duties of person surveyed
Assessee or his employee or any other person at the time and place of survey helping in carrying out the business or profession should:
i. Provide necessary facilities to inspect books of accounts or other documents;
ii. Provide necessary facilities to verify stock, cash and other valuable articles;
iii. To furnish such information as may be required by surveying officer; and
iv. To answer questions which are put by surveying officer, while recording his statement during the course of survey.
III. Search, Seizure and Arrest under Excise Law
III. A. Introduction
Wherein a Central Excise Officer (“CEO”) has reasons to believe that duty has not been paid before removal of goods, with the intention of evading payment of duty, then he may detain or seize such goods. CEO can summon any person (whether accused or not) to give evidence required for inquiry under the Excise Law. Person summoned shall be given a copy of the statement made by him, if authorities intent to rely on such statement.
III.B. Departmental Instructions
Department has issued following instructions to CEO:
(a) Directors, Managing Director and Chairman of the companies shall not be summoned without fullest justification.
(b) Sign Visitor’s book maintained by factory.
(c) Not to visit manufacturing units and premises of registered dealers without permission of assistant commissioner.
CEO above the rank of inspector, with the prior approval of commissioner has the power to arrest any person believed to be liable to punishment under the act.
All searches and arrests shall be made in accordance with the provisions of code of criminal procedure.
IV. Search, Seizure and Arrest under Customs Law
Proper officer may search any person if he has reasons to believe that such person (specified under section 100(2) of customs act, 1962) has secreted any goods liable to confiscation or has secreted any documents relating thereto.
Customs officer authorized by Commissioner of customs may search a person if he has reasons to believe that such person has secreted watches, gold, diamonds, manufactures of gold or diamond or any other item as specified by central government.