Income Tax Survey/Search/Seizure/Raid

Background & Overview

Often termed as ‘Raid’ by laymen, income tax survey and search are becoming increasingly common as businesses continue to grow. As such, there is no word called ‘raid’ in the Income Tax Act. The two important tools which the Income Tax Department (‘Department’) uses are ‘survey’ and ‘search’ and when one or both of these two operations get initiated, people term it as raid. Most people including savvy professionals intermingle the terms – survey, search & scrutiny. Although scrutiny refers to the regular assessment and stands on a completely different trajectory, search and survey are the mechanisms that may be used by the Department independent of the assessment (scrutiny) proceedings. Usually, people always are afraid of things about which they do not have any clear idea. 'Income Tax Survey & Raid' is one of those things. Even many genuine/ innocent taxpayers are afraid of 'Income Tax Survey & Raid' due to lack of proper knowledge and complicated law. So, it's important to know some common things about Income Tax Visits and its provisions.

Why such action?

‘Search or/and survey operations’ are conducted by the Department, when they suspect an individual or business to have hoarded illegal money/assets or not disclosed the income liable to tax. The method of search and seizure for unearthing black money is adopted by the Income Tax Department only in cases where there is sufficient reason to believe that the person concerned has/would not disclosed the true picture of his income in the normal course of filing of return and during regular assessment.

What is Black Money?

Black money is income earned on which income and other taxes have not been paid. The unaccounted money hoarded illegally and concealed from the tax authorities is also called black money

Income Tax Survey

Income Tax Survey means inspection of books and verification of cash & inventory in your business or profession place by authorised income tax officers.


Where can a survey be conducted?

The powers of the income-tax authority extend only to an entry to a business premises or place of profession. It is not necessary that the place which the survey is carried on is a principal place of business. Business premises would also include a place where from business need not be carried on by the assessee if books of account, documents, cash stock, valuable article or thing is kept.

At what time can the Survey be initiated?

The survey action has to be initiated during the business or working hours i.e. say after the sunrise and before the sunset, but once properly initiated, it can carry on through the night. There is no time limit provided for concluding or exit from the business premises. Normally, a survey is concluded on the same day; however, where situation warrants, it can be continued on the next day also.

Statement recorded in survey

It is frequently seen that the income-tax authority conducting a survey normally does not leave unless a confessional statement is recorded. Such statement is given by the assessee many a times to get rid of the officer and to bring an end to the proceedings. Later on the assessee files a declaration that the statement is taken under undue pressure and the facts stated therein are incorrect. As such the statement is retracted. A statement recorded under section 133A (3) (iii) is not a statement on oath and hence does not have evidentiary value.


SEARCH & SEIZURE (RAID)

People are afraid of ‘Income Tax Search and Seizure’ due to lack of proper knowledge and complicated law. Knowing the following will ease them. One should not worry if they are genuine.

When can I.T. Department Raid?

1. If any summons issued u/s 131 or any notice issued u/s 142 of Income Tax Act, or

2. They have any “reason to believe” that you possess undisclosed assets, income, valuables, and documents

Who are the Persons to be searched: From the above it is clear that the persons to be

Searched are persons:

(a) Who have books of account or documents which have not been produced or are not likely to be produced in response to notices or / summons, or

(b) Persons who are likely to be in possession of undisclosed income or property.

A search and seizure action can be undertaken against any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been disclosed or would not be disclosed for the purpose of this Act (i.e. to unearth undisclosed income or property) The search and seizure action can also be taken when there is failure to produce books of accounts, documents etc. in respect of summons issued or notice issued under section 143(2)

What are the basis for search and seizure?

The assessing officer must have a “reason to believe” that the person, whether or not a notice has been served on him, is not likely to produce his books, etc. in such a case, the basic is that the person will suppress books of account and other documents which may be useful and relevant to an income tax proceedings. Here the authorizing authority, if challenged, has to prove the basis of belief.

Satisfactory note:-“Reason to believe” as per sec. 132(1).

Confidentiality and sensitivity are the hallmarks of proceedings under section 132 and section 132A. However, certain judicial pronouncements have created ambiguity in respect of the disclosure of 'reason to believe' or 'reason to suspect' recorded by the income-tax authority to conduct a search under section 132 or to make requisition under section 132A. Therefore an Explanation to sub-section (1) (retrospectively from 1 April 1962) and to sub-section (1A) of section 132 and to sub-section (1) of section 132A (retrospectively from 1 April 1975) inserted to declare that the 'reason to believe' or 'reason to suspect', as the case may be, shall not be disclosed to any person or any authority or the Appellate Tribunal.

Is the assessee entitled to a copy of reasons recorded for issuing a search warrant?

Disclosure of the material or the information to the person against whom the action is taken u/s 132(1) is not mandatory, because such disclosure might affect or hamper the investigation. 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.

Revenue intelligence

The Directorate of Revenue Intelligence (DRI) functions under the Central Board of Indirect Taxes and Customs in the Ministry of Finance, Department of Revenue, Government of India. It also works to prevent the proliferation of black money, commercial frauds and trade based money laundering.

Inter Departmental coordination with other Government agencies such as CBDT, CBIC, ED, MHA, SEBI, RBI, DEA, Revenue Secretary, DCA, NSCS, CEIB, NCB, DRI, DGGI etc.


Income Tax Department Is Tracking Your Transactions

The income tax department is actually tracking your every financial transaction. Banks & other Financial Intermediaries are required to report high value transactions to the department through an Annual Information Return (AIR).


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