SEARCH & SURVEY-PROVISIONS & PROCEDURES - A BRIEF OVERVIEW
Search & seizure-meaning of:
Search, according to normal dictionary meaning, means to look out, to seek or to find something the presence of which is suspected etc.
Seize means to take possession of goods, contrary to the wishes of the owner or to take forcible possession.
From income tax point of view, in common parlance search is referred to as ‘RAID’. However, there is no such term as raid anywhere in income tax law.
Search & seizure-from income tax perspective:
Search operations are exploratory exercises on the basis of information with the income tax department to find hidden income and wealth in cases of tax payers, who have not disclosed their true financial state of affairs in discharge of their tax obligations.
Seizure implies taking possession of assets, which have not been disclosed to the Income-tax Department and of accounts/documents, papers which contain details of unaccounted wealth/income not disclosed to the income tax authorities.
Thus, search and seizure is a very powerful weapon in the armory of income tax department to unearth any concealed income or valuables and to check the tendencies of tax evasion thereby mitigating the generation of black money.
Why searches are conducted:
a. To collect evidences of undisclosed income/investment.
b. To seize undisclosed assets/money/bullion/jewellery.
c. To keep a check on tendencies of tax evasion.
d. To keep an eye on black money.
e. To act as a deterrent.
The law as it stood
The current search and seizure provisions are contained in section 132 of the Act. These provisions are analogous to section 37 of the 1922 Act wherein originally the power to search was restricted only to find and seize any books of account or other documents which may be relevant for any proceeding under the Act. Thereafter, the provisions were completely overhauled by the Finance Act, 1964 so as to add more bite and sting into it. The current search provisions contained in the Act evolved over a period of time and underwent thorough amendments in 1975, 1984 and 1987. Block assessment proceedings were replaced by the Finance Act 2003 with the insertion of section 153A to 153C applicable to searches conducted on or after 01.06.2003.
CBDT guidelines on conduct of searches:
According to a CBDT circular, searches should be conducted where there is a credible evidence to indicate substantial unaccounted income/assets by the assessee where the expected concealment is more than Rs. 1 crore. Search operation would also be mounted 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 manifestations. It has also been provided that professionals of repute not to be searched in the absence of any corroborative evidence against them.
Reasons to believe-sine qua non:
The Authority authorizing the conduct of search must have reasons to believe that:
a. The person to be searched is likely not to produce or suppress any books of account,
b. Found to be in possession of any money, bullion or jewellery which may be his undisclosed income or property,
c. Not likely to honor any notice or summons.
Reasons to believe is a sine qua non for conduct of search proceedings as per the provisions of law and various judicial pronouncements also supports this view. Every authorizing officer must record in writing the fact that he has sufficient reasons to believe that search operation should be mounted on a person.
Whether the person searched in entitled to get copy of reasons recorded:
The answer is loud and clear- NO. The person searched is not entitled to get a copy of reasons recorded by the department as it is a privileged document and cannot be shared with the person searched. It has been held in the case of Dr. PRATAP SINGH v DIRECTOR OF ENFORCEMENT (1985) 155 ITR 166 (SC) that Only the High Courts and the Supreme Court have the jurisdiction to call for and look into the reasons recorded to decide whether the issue of the search warrant was called for.
The search procedure at a glance:
a. Authorization of search by issuing search warrant in form 45 of IT Rules.
b. Entering into the premises to be searched by producing search warrant. Conducting search in presence of at least two witnesses.
c. Preparing Panchnamas for each premise and person.
d. Preparing inventories of cash/valuables/loose papers /jewellery found and seized.
e. Recording statements.
What is a panchnama:
A panchnama is a vital document evidencing the conduct of search at a premise on the day of search in the presence of at least two witnesses whose signatures are taken on the panchnaama. The panchnama contains the name and address of the person searched in whose respect search warrant has been issued. It is accompanied by annexures prepared by the department as inventories of books of account, cash and other valuables found and seized by the department. The person searched in entitled to obtain a copy of the Panchnama.
Recording of statements:
Statements may be recorded during and after search u/s 132(4). They have strong evidentiary value and are binding on the person searched unless retracted on valid grounds. Retraction of statements is permissible only if made within a reasonable period of time and burden of proof lies on the retractor to prove that the statements were recorded under duress or undue influence.
Rights & duties of person searched:
a. To check identity of each of the member of search party
b. To have authorized representative
c. To have witnesses
d. To search every person of search party when they leave the place
e. To call doctor for the ill person
f. To send kids to school after verification of their school bags
g. Female to be searched by female only
h. To have inventory of items found and seized
i. To use phones
j. To have copy of statements recorded
k. To have copy of books and documents seized
a. To allow search party enter the premises without obstacles
b. To sign search warrant
c. To give explanation when asked
d. To restrict entry of any unauthorized persons
e. Not to move any items without permission of search party
f. To co-operate with search party
Items which can be seized:
During the course of search, the income tax officers conducting the search are empowered to seized books of account, cash, jewellery and other valuables such as FDs/RDs, shares certificates, NSCs, hundies, promissory notes, title deeds of immovable properties.
Items which cannot be seized:
a. Immovable assets
b. Stock held in business
c. Items disclosed in Income Tax and Wealth tax returns
d. Items appearing in books of accounts
e. Cash for which explanation can be given
f. Jewellery mentioned in wealth tax return
g. Gold up to 500 Gm per married woman, 250Gm per unmarried woman and 100Gm per male member of the family
h. Jewellery as per the status of the family if so appear to investigating officer
Assessment procedure after search:
The new scheme of assessment comprising of section 153A to 153C are applicable in case of searches conducted on or after 01.06.2003. Under section 153A, the assessing officer is empowered to issue notice to the person searched requiring him to furnish return of income for six assessment years immediately preceding the previous year in which search was conducted. It has also been provided that pending assessment proceedings, if any, against the person searched shall abate. However, it has to be borne in mind that it is only the pending assessment proceedings that shall abate and not the pending appellate proceedings if any. Thereafter, on scrutiny of the return furnished by the person searched for all six years comprised in search proceedings as per the provisions of section 153A and going through the seized material, the assessing officer commences assessment proceedings by issuing detailed notices/questionnaires. In the initial stages of the assessment, the assessing officer has to collect as many evidences and documents as possible apart from the seized material in his possession. In search cases, the assessing officer is required to make assessment of income in respect of seven years including six years covered under search and the year in which the search was conducted.
Time limit for completion of search assessments:
The provisions of section 153B provides time limit for completion of assessments after search. Section 153B is a lengthy section divided into many sub sections, provisos and explanations. According to the said section, in normal search cases, i.e. where reference to TPO is not made, for the six years covered under search, the time limit is two years from the end of FY in which search was conducted and for the year in which search was conducted, same time limit is applicable. However, in case of a search conducted between 01.04.2004 to 31.03.2010 the time limit extends to 21 months from the end of the FY in which search was conducted for all the seven years. Let us understand these provisions with the help of a few examples:-
Case I. Search conducted on 28.01.2009
Quite clearly, time limit applicable in this case is 21 months from the end of the FY in which search was conducted since the search was conducted in the period 01.04.2004 to 31.03.2010. Thus, the assessments will have to be completed by Dec 31, 2010.
Case II. Search conducted on 12.02.2010
Time limit applicable in this case will also be 21 months since it was conducted in the period 01.04.2004 to 31.03.2010. Accordingly, the assessments will have to be completed by Dec 31, 2011.
Case III. Search conducted on 28.05.2011
Time limit applicable in this case will be two years from the end of the FY in which search was conducted since it does not fall in the period 01.04.2004 to 31.03.2010. Therefore, time limit expires on 31.03.2014.
Assessment of a person other than the person searched:
Section 153C is a unique provision in itself in as much as it empowers the IT authorities to conduct assessment proceedings even in case of a person who was not searched as if a search has been conducted in his case also. This happens when during search at a premise, some documents or valuables were found in respect of which there was apprehension that they may belong to some other person. In such a case section 153C may be invoked against that person by the IT authorities after recording reasons for satisfaction and all the provisions of section 153A shall apply as they apply in case of a person searched.
Search & seizure under income tax law is a very vast subject in itself consisting of various issues, considerations, procedural aspects and litigation. An attempt is made in this article to give a brief overview of concept of search and procedures thereof. Some of the fine aspects of search proceedings are discussed in brief without going into the nitty gritty of complexity of law and litigation involved. The author sincerely hopes that the article would be useful to the professional readers to have a general understanding of search & seizure under income tax law.
CS ABHISHEK GOYAL