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What if Income Tax Department Raids You?

What if Income Tax Department Raids You?

Date: 15-6-2015

Under the Income Tax Act, the Search and Seizure operations are a carefully and secretly devised plan of action on the basis of authentic and bonafide information and material (something more than a rumor and gossip), which may be gathered on its own or given by some informer.
As such operations invade upon the privacy and freedom of the tax payer, it is exercised under statutory requirements and principles of natural justice. The authorities can exercise these powers when due to the information in their possession; they have firm reason to believe –

  1. Any person to whom a summon or notice has been or might be served, has failed or would not produce the books of accounts or other documents as called for.
  2. Any person is in possession of money, bullion, jewellery or such property which has not been disclosed.

To face the situation efficiently, it is extremely important to understand some nitty-gritty of I.T. law on the subject. Lack of knowledge leads to panic and all the discomfort. The knowledge of your legal rights and responsibilities always protects you.

Merely living in a posh house or having a high standard of living alone does not form a basis for search unless records show that the living standard is not proportionate to income earned. Moreover, a lavish marriage is not a basis for search action.
The income tax authorities can enter the place to be searched only during the hours at which it is open for conduct of business/profession and in case of any other place only after the sunrise and before sunset. Once they enter, they can remain till the search is completed.


Rights of the Assessee in case of search-


1.  Examining the search warrant which must clearly specify the name of the party to be searched and be duly signed by the officer. The search warrant issued in the name of the firm cannot be used to seize assets of individual partners.
2. Calling two or more respectable inhabitants of the locality to act as witnesses.
3. Verifying the identity and make personal search of each member of the search party.
4.  Calling a doctor in case of emergency.
5.  Personal search of ladies to be taken only by lady.
6. Women may not come forward if their religious belief do not allow them to appear in public.
7.  Allowing the children to go to school after checking their bags.
8.  Having meals at the normal time.
9.  Inspect seals placed on various objects
10.  Have a copy of panchnama (first listing of evidence and findings made)
11. Inspect and take photocopies of the seized books of account and documents.
12. In case of difficulty in seizure of jewelry or other valuable articles (except stock in trade) the department may leave such items after necessary sealing etc. in the custody of assessee. Jewellery up to a specified limit (e.g. 500 grams per married lady, 250 grams per unmarried lady and 100 grams per male member of the family) is generally accepted. If it is a survey and not a search (the warrant will specify that), the raid team does not have the powers to seize or take away any valuables. They can only take away documents, files etc.
13. Whatever is being seized, make sure they are being properly listed and described. Please also have two of your neighbors stand witness to the same.
14. If any valuables do not belong to you, make that known upfront and also provide the name, address and other details of the owner.
15.  The raids can only start between sunrise and sunset.
16. You can also call your C.A or lawyer. He may not have the right to explain things on your behalf but he will ensure the raid team acts within their limits.
17.  Anything representing stock-in-trade of the business shall not be seized but the authorized officer shall make a note of it.
18.  Cases wherein people are convicted on the basis of digital data are on the rise. Now, businessmen use removable storage devices such as USB drives, pen drives, digital cameras, iPods and MP3 players to store data due to their miniature and inconspicuous look, making them easy for hiding in case of search. But the department keeps a close tab on all such moves. All these devices including computers and laptops are seized in the presence of witnesses. However, the person being raided can ask for a copy of the data on the drive.
 
Tip : It is advisable to make separate files for each family member which should specify the details of assets held and income earned, followed by a balance sheet for each financial year, along with the receipts and sources for acquisition of assets. Assets acquired as a result of gift or will should be supported by proper certificates. The details of various bank accounts and lockers held should also be mentioned in the file.

Responsibilities of Assessee in case of search -

1. You should allow free and unhindered ingress into the premises.
2. You should identify all receptacles in which assets or books of account and documents are kept and to hand over       keys to such receptacles.
3. You should identify and explain the ownership of the assets, books of account and documents found in the  premises.
4. You should identify every individual in the premises and to explain their relationships to the person being searched. You should not mislead them by impersonation. It is an offence punishable u/s 416 of the IPC.
5. You should not allow or encourage the entry of any unauthorized person into the premises
6.  You should not remove any article from its place without the notice or knowledge of raid team. If you destroy any document with the intention of preventing the same from being produced or used as evidence before the court or public servant, you shall be punishable with imprisonment or fine or both, in accordance with section 204 of the IPC.
7. You should answer all queries truthfully and to the best of your knowledge. You should not allow any third party to either interfere or prompt while your statement is being recorded by the officer. In doing so, you should keep in mind that – a. If you refuse to answer a question on a subject relevant to the search operation, you shall be punishable with imprisonment or fine or both, u/s 179 of the IPC. b. Being legally bound by an oath or affirmation to state the truth, if you make a false statement, you shall be punishable by imprisonment or fine or both u/s 181 of the IPC. c. Similarly, if you provide evidence which is false and which you know or believes to be false, you shall be liable to be punished u/s 191 of the IPC.
8.  You should affix your signature on the recorded statement, inventories and the panchanama.
9.  You should ensure that peace is maintained throughout the duration of the search and to cooperate with the search party in all respects so that the search action is concluded at the earliest and in a peaceful manner.
10.  Cooperation should also be extended even after the search action is over, so as to enable the authorized officer to complete necessary follow-up investigations.

 

Options of Assessee After the Raid –

1.      If you feel that the action of the department is unfair, you can file a writ petition before the High Court challenging the raid.
2.      Another option is to challenge the assessment before the Commissioner of Income Tax (Appeal).

Assets which cannot be seized

1.      Immovable assets
2.      Stock held in business
3.      Assets disclosed in Income Tax and Wealth Tax returns
4.      Assets appearing in books of account
5.      Cash for which explanation can be given
6.      Jewellery mentioned in wealth tax return
7.      Gold up to 500 gm per married lady, 250 gm per unmarried woman and 100 gm per male member of the family.
8.      Jewellery as per the status of the family if so appear to the investigating officer.

 

Assets which can be seized –

1.         Unaccounted cash, jewelry, gold, bullion, lockers, promissory notes, cheques, drafts.
2.         Books of accounts, chits, diaries, etc.
3.         Computer hard disks and other data storage devices
4.         Documents of property, title deeds, etc.

 

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.