The term “Raid in Indian Income Tax Law” is incredulous and any unexpected encounter with IT sleuths generally leads to chaos and vacuity. If you are likely to experience such action it is better to familiarise with the subject, so that, the situation can be faced with confidence and serenity. Income Tax Raid is conducted with the sole objective to unearth tax avoidance. It is the process which authorizes IT department to search any residential / business premises, vehicles and bank lockers etc. and seize the accounts, stocks and valuables..
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 raids can only start between sunrise and sunset.
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.
Steps to Prevent Raid
(i) Compliance with Summon and Notices u/s 131(1), 142(1) and other relevant sections.
(ii) The Summons or notice calls for the books of account or other documents to be produced before the authorized officer as soon as earlier.
(iii) One should not keep any unaccounted or undisclosed money, property or income popularly known as Black Money.
(iv) All unaccounted income should be declared. If such a disclosure is made before its detection by the Income Tax Department, the chances of being trapped in a tax raid are minimized.
(v) It is always better to make a full disclosure of one’s income, whether taxable fully or partially exempt, in the Income Tax Return filed.
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–
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.
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.