This article is written by Poonam Joshi, pursuing a Certificate Course in Advanced Corporate Taxation from LawSikho.com. Here she discusses “What are Income Tax Raids? When are these Conducted?”.
As per the lay man’s language Raid means a sudden/surprise lookout at somebody’s premises with information of something which is suspected for seizure. Raid in common parlance is used for search and seizure operations under any law. Likewise, even under Income Tax if department has reasonable belief that any person has evaded tax and acquired undisclosed moveable or immovable assets then as per section 132 of the Income Tax Act the premises of the person can be raided/searched and the documents/accounts containing details of unaccounted expenditure/investments or of undisclosed income can be seized.
In order to unearth the black money and undisclosed wealth of a person the following persons:
- the Principal Director General or Director-General or
- Principal Director or Director or
- the Principal Chief Commissioner or Chief Commissioner or
- Principal Commissioner or Additional Director or
- Additional Commissioner or Joint Director or Joint Commissioner
may authorize any officer subordinate to him but not below the rank of Income-tax officer to conduct a search. The officer has the power to enter, break open and search any premises, place, vessel, aircraft or vehicle where he has reason to believe that suspicious documents and material are kept there. He can also search for a person who is leaving or who are entering the place where the search is conducted. Before making a search the authorized officer shall call upon two or more respectable persons of the locality in which the premises to be raided is situated to witness the search. These persons are generally known as panch and the document mentioning/recording the details of search proceedings is known as Panchnama.
If any person is found to be in possession of any material the officer has the power to inspect that material. The officer can seize any material found during the search. However, w.e.f 1.6.2003 he has no power to seize any bullion, jewellery or any other valuable thing or article which is the stock-in-trade of the business found during the search. He shall make note of the inventory of the stock-in-trade and of such money, bullion or jewellery. In order to identify the material seized the officer can put identification marks on the material seized.
Circumstances under which Search and Seizure can be Authorized
Clauses (a) (b) and (c) of section 132(1) spell out the circumstances under which the authorizing authority may issue a warrant of authorization in the following manner:
Under clause (a) action may be taken if the person is served interalia with a summons under section 131 or notice under section 142(1) to produce or cause to be produced specified books of accounts or other documents and he fails to comply. Such non-compliance is sufficient reason for the issuance of the authorization.
Under clause (b) a formal notice is not essential. The Authorising Officer must have reason to believe that the person, whether or not a notice has been served upon him, is not likely to produce his books of accounts and other documents which may be useful and relevant to income-tax proceedings. Prior to 1.4.2017 if the authorizing authority was challenged, he had to prove the basis of his belief as decided in the case of Manchand and Co. v. CIT (1970) 76 ITR 217 and also in the case of Kusum Lata v. CIT (1989) 180 ITR 365 (Raj,)
The circumstance under which clause (c ) is applicable where the authorising authority has information that firstly that the person is in possession of money, etc and secondly, that much money, etc represents either wholly or partly income or property which has not been or would not be, disclosed for the purpose of the Income Tax Act. Under clause(c ) the authorizing authority is under the heavy burden to justify the ground of his belief.
Taking into consideration the provisions of search and seizure under the Income Act, it could be seen that the raids can be conducted by the Income Tax Department on any person or on a group under the following circumstances:
When the department has sufficient evidence and has reason to believe that the person on whom the raid is conducted is in possession of undisclosed or unaccounted fixed or current assets.
When a person is not filing any income tax return despite having sufficient amount deposited in his bank accounts.
When the department has information that some exorbitant expenses are made on any occasion/ ceremony or any other event by a person and has not disclosed the source of that expenditure.
When the department has got information from other state or central government departments about some evasion of tax.
When the department has information that unaccounted amount is spent or used in terrorist activities or for smuggling of goods.
When the department has received the information from some close relative of the person or from the informer hired by the department.
Any other information or reason which the department finds valid and permissible under law for conducting a search.
Person to be Searched
Taking into consideration the above circumstances under which search can be conducted the persons to be searched are persons:
- Who is in possession of books of accounts or documents which are not produced or are likely not to be produced in response to notices or summons or
- Persons who are likely to be in possession of unaccounted money, undisclosed income or property.
- This person could be a resident or non-resident. In the case of Ram Kumar Dhanuka v. UOI (2001) 252 ITR 205 (Raj)(HC), the Honourable High court of Rajasthan held that, even a non-resident Indian can be subjected to a search under this section if the department has definite information that the person concerned has income earned in India which may be taxable under the Act and which might not have been disclosed or would not be so declared.
Reasons forming belief are to be recorded by Authorizing Authority before Authorizing Search & Seizure
Section 132 of the Income Tax Act, 1961 does not confer any arbitrary authority upon the Revenue Officers. However, since by the exercise of the power under this section a serious invasion is made upon the rights, privacy and freedom of the taxpayer, the power must be exercised strictly in accordance with the law and only for the purpose for which the law authorizes to be exercised. The opinion or the belief so formed and recorded must be such that it clearly reveals under which clause of section 132(1) of the Act the belief falls. The satisfaction should be recorded on the basis of some relevant material and should not be based on mere suspicion or doubt. This is supported by the judgement in the case of Visa Comtrade Ltd. V. UOI (2011) 338 ITR 343 (Ori).
Can a person demand reasons for conducting the search?
There is no condition of section 132 or any other provision of the Act which mandates that the reasons recorded should be disclosed to the assessee. Therefore, if the copy of reasons recorded is not provided to the seizure cannot be the ground to hold that search and seizure proceedings against assessee are bad-in-law. This view is supported by the judgement in the case of Genom Biotech Pvt. Ltd vs Director of Income Tax, (Investigation) 2009 10 Taxman 395 (Bom). However, still, the petitions were filed on a regular basis challenging the legality of the search. To put an end to this, w.e.f 1.4.2017 an Explanation is inserted to sub-section (1) and to sub-section (1A) of section 132 and to sub-section (1) of section 132A of the Income-tax Act 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. As per – Circular No. 2/2018, Dated 15-2-2018 this amendment has its effect retrospectively to sub-section (1) of section 132 of the Income-tax Act from 1st day of April 1962 and to sub-section (1A) of section 132 of the Income-tax Act and to subsection (1) of section 132A from 1st day of October 1975.
However, the High Courts and 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. This view is supported by the decision of the Honourable Supreme Court in the case of Dr. Pratap Singh v. Director of Enforcement (1985) 155 ITR 166 (SC).
From the above discussion it is clear that the raids are conducted by the department in order to address the repercussions of avoidance and evasion of tax to ensure that economic and social health of the country is not compromised and that invasion upon the privacy of a person is well within the parameters of law not violating the principles of natural justice. However, if the provisions of the law are violated by the department the person has a remedy to file a writ against the department.
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