This article is written by Shreya Bajaj, pursuing a Certificate Course in Advanced Corporate Taxation from LawSikho.com. She discusses “Powers and Procedure for Income Tax Raids (Search and Investigation)”.

Income Tax Act, 1961 (hereinafter referred to as “the act”) is the code for levying and computing taxes on the income of the people and is a mandatory statute with consequences for violation of the law. With such a nature, it becomes necessary to have enforcement machinery in a mechanism to curb the proliferation of “Black Money”, that is, the unaccounted money on which tax has been avoided. One of the tools that the Income-tax department have with them is the power to conduct a survey, search and investigation in the premises of the suspected tax avoiders, this process being popularly known as “Raids”. 

1. Survey

This power primarily emanates from Section 133A and enables the tax authority to collect information about the financial transaction of various persons within various classes to help with or that are relevant to any proceedings within the act. It is a much-tempered power as compared to the search and seizure. Under this section, the officers authorised can enter any place within jurisdiction where any business or profession is carried out and inspect books of accounts, place marks of identification on them and even impound in his custody for reasons recorded, make inventory of stock, cash etc and verify values, and record statements that can be relevant in proceedings. A place where no business or profession is carried out can also be surveyed if it contains a book of account or such document relevant and all necessary facilities would, therefore, be extended to such officers in those places as well. Additionally, as per section 133(5), in case of ostentatious expenditure suspected in a function or ceremony, the authorities can require the furnishing of such information necessary about such expenditure from persons who would have the knowledge and such information can be used as evidence in tax proceedings. If a person required to furnish information in a survey doesn’t do so, summons can be issued to him to enforce compliance. Additionally, the act also contains the power to conduct door to door surveys over a geographical area under Section 133B. 

2. Search and Seizure

The power to conduct search and consequent seizure emanate primarily from Section 132 of the Act. It can be conducted after a survey or even straight away on the prerequisites being fulfilled. Its purpose is twofold: acquire evidence disclosing the person’s tax liability, and getting hold of assets that can represent undisclosed income and be used to be applied to discharge outstanding liabilities.

While being an indispensable tool in the hands of income tax authorities, it has fetters in the form of important procedures to be followed for such search and seizure to be legal.

• When can a search and seizure be conducted

As mentioned in 132(1), such an operation can be conducted when any among a certain set of officers has a “reason to believe” as a consequence of information possessed, that any of the following conditions have been fulfilled:-

Where a person to whom a summons or notice has been issued to produce any book of account or document and the person has failed to comply to produce or cause such documents to be produced Where a person to whom such a summon has been or might be issued will or would fail to comply in producing the documents relevant for any tax proceeding Where a person is in possession of bullion, money, jewellery or other valuable articles and such other things that represent the income undisclosed. 

Following are the officers entitled to form such a “reason to believe”:

Director-General/Director

Chief Commissioner/Commissioner

Joint Director or Joint Commissioner empowered by the Central Board of Direct Taxes (“CBDT”)

Thus, when a certain level of officers possess certain information, which can be in the form of credible information received from government departments, the intelligence wing, informants etc, and information from records of the tax department, from a survey conducted, from records of unexplained transactions, lavish expenditure, illegal investments and a plethora other sources, and such information leads to an application of mind that there is reason to believe that the aforesaid circumstances mentioned exist in a case, then such an operation can be conducted. But the operation itself can be conducted by lower-level officers as well as authorised. 

• Who can conduct a Search and Seizure

It is important to know this procedural condition to conduct a legal raid and also to defend oneself from illegal action by tax authorities. Only the following officers ( hereinafter referred to as “Authorized officers”)can conduct a search:

The Joint Director/commissioner/Assistant director/deputy director/Assistant commissioner/deputy commissioner/Income tax officer as authorised by the Director/Director-General or Commissioner/Chief Commissioner

The joint director/Joint commissioner can authorise any Assistant Director/deputy director/assistant commissioner/deputy commissioner/IT, officer

Thus, a certain level of officers like Assistant Director cannot institute such an action without proper authorisation from senior officers as mentioned in the statute. Additionally, as per the first proviso to Section 132(1) and Section 132(1A), relevant officers can be authorised by Chief Commissioner/commissioner to conduct action with respect to persons outside the jurisdiction and where delay in getting authority from that other jurisdiction’s commissioner can be prejudicial to revenue interests, and with respect to such other places or premises if the original authorisation is inadequate.  

Such a warrant of authorisation by the competent officer can sanction certain powers to an authorised officer in his search and seizure operation. Such a warrant of authorisation is as per Rule 112 of the Income Tax rules, 1962 with forms 45, 45A, and 45B for the appropriate circumstances. 

• Powers of an Authorised Officer

To enter and search any premises like any building/vessel/place etc where he has reason to suspect that the articles/documents in question are kept 

When the key to doing the above action is not available, then such an officer can break open locks of lockers/almirahs/safes etc

Such an officer can also conduct a personal search of a person who has just got out of the premises, is about to get in, or is inside and there is a reason to suspect that such persons are hiding their identity or of certain articles in question

To require persons in possession of electronic records to give the facility to access and inspect it

Placemarks of identification on documents or/and get extracts or copies made

Make an inventory of articles/things

Seizure: One important power within the power to search is the power of seizure. The officer can seize any book of account/other documents or other articles in the question of the raid, successfully found as a consequence of the search. There is an exception to this. If such things are stock in trade of the person’s business, that is, the things are to be used in the ordinary course of business and don’t function as a personal asset, then such articles cannot be seized and only an inventory or note can be made in respect of such items.

Other administrative processes: As per the manual of procedure for Income tax search and seizure, the authorised officer alone does not conduct such an operation. He heads a “Search party” that needs to be brief thoroughly beforehand on the person in question, time of the strike, tax records, information seeked, nature of business etc and care is assumed to let all this information be absolutely confidential until the time of the raid. Certain search kits are also provided to such a party. Additionally, a control room is set up in a local tax office with officers manning it including a custodian of seized articles. The search party coordinates with the control room throughout the search and updates on all important developments and to get guidance. 

• Taxpayers Rights and Duties

As per official publications emanating out of statutory provisions and practice (ITR Vol. 208 (St.) 1994), there are certain rights and duties of taxpayers that are recognised in such raids. 

Rights

• To see the warrant duly signed and sealed in the prescribed fashion
• To check and verify the identities of the search party members
• To have two independent and respectable people from the locality as witnesses

(witnesses are to be appointed by the officer in the beginning in all premises where there is a locality from which witnesses can be procured, such witnesses should not be related to either the tax department or the party searched, should be literate etc. Such witnesses have the duty to examine the operation and make sure there is no illegality, for instance, undue coercion in the record of statements)

• To have females searched only by female officers
• To have copies of the punchnama
• To have a copy of the statements recorded
• To call a medical practitioner if unwell
• To have children go to sell on their bags being checked
• To have meals at proper times
• To inspect or take extracts from documents seized
• To object to the retention of documents beyond 180 days of the seizure

Duties

• To allow unhindered access to the premises
• To sign the warrant, recorded statements, punchnama, inventories etc
• To identify all receptacles with the articles and to hand over the keys to such receptacles and identify and explain the ownership of assets found, and identify each person around explaining the relationship with himself
• To maintain peace, and cooperate with the investigation including after the raid in any follow-up information required in the investigation

In addition to the general duties as mentioned above, certain other duties can be inferred from the penal consequences of certain actions:

• Section 416 of Indian Penal Code (“IPC”): cheating by impersonation, by assuming another identity. Thus a person can be punished under this offence if he doesn’t identify himself accurately in the raid
• Section 204 of IPC: A person cannot remove any article without notice to the officer and if a person does anything with an article to prevent it from being produced as evidence in a court of law, he is punished under this section
• Section 179 of IPC: A person is punished under this when they refuse to answer relevant questions with respect to the search operation
• Section 181 of IPC: If a person lies under oath in a recorded statement, he is punished under this section. 
• Section 191 of IPC: If a person gives false evidence, then he is punished under this section.

Thus, with such consequences flowing from the IPC including the prosecution available under the Income Tax Act itself show that the person has to be very cautious and prudent and be absolutely truthful and sincere in such operations. 

It is also relevant to note that barring situations for which the act itself has special provisions, the provisions of the Code of Criminal Procedure would apply with respect to the procedure in search and seizure. For instance, in case of a woman staying in the premises who does not appear in public, she should be given the facility to withdraw, before the operation. 

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• Other important provisions

1. Restraint order: Under section 132 (3), a restraint order can be issued to a person not to remove or deal with the articles in question in any manner except with permission of an authorised officer. This is not deemed to a seizure and is invoked in cases such as when it is not practicable to seize right away due to special arrangements yet to be made when the search is inconclusive and is postponed to another date. 
2. Deemed seizure: This is under 132(1) second proviso and it states that when an article cannot be seized due to it being dangerous, or due its volume or weight, it shall be constructively seized and an order would be served on the person not to part with it or deal with it in any manner. 
3. Power to examine on oath: Under section 132 (4), the officer can conduct on the spot “oath examination” to elicit the maximum truth as refusing to give a statement would lead to an offence and an adverse inference and lying under oath is also an offence as described above
4. Requisition of accounts: Under section 132A, the officer can requisition accounts/documents kept in custody of other officers other departments of the government
5. Prosecution: For refusal to obey various orders that can be passed by an authorised officer in the course of the raid, the prosecution can be instituted under section 275A. 
6. Under section 132 (8), seized goods can be retained only for 30 days after the assessment order and it can be extended with reasons with the approval of the commissioner, but not for more than 30 days after all proceedings under the act are completed. 

There exist various other rules, and departmental instructions to deal with various minute aspects of the search including how to seize various kinds of articles and articles are valued. For instance, cash, FDRs, keys, pieces of art, bullion etc will all be treated differently. For instance, in case of perishable articles to be seized, assets can be released with an irrevocable bank guarantee furnished on the tax authority. However, where articles are to be used as evidence, they can not be released until the proceedings are over, irrespective of the nature of the articles and the value they can fetch. 

3. Survey and Search/Seizure

There are certain differences between the two with respect to the scope of power that the authorised officers have. Under the survey, only places deemed to be places of business or profession can be entered. In search, any premises including residential premises can be entered. Only books of accounts can be impounded in a search while all kinds of articles can be seized in a search. Statements are recorded in both, however, the only search consists of statement under oath having wide legal ramifications and increased risk in case of lying. There is no power of personal search in the survey while it does vest in the officers in case of a search operation. Thus, survey can be considered a preliminary operation with search and seizure more focussed once a reason to believe has been developed. 

4. Case Laws

There are a plethora of judgements by various tax tribunals and high courts holding various points of law regarding raids. For instance, that premises of a non-resident can also be searched [Ram Kumar Dhanuka v. UOI (2001) 252 ITR 205 (Raj)(HC)], or that survey operations can be converted into search operations only after record of reasons and satisfaction [Dr. Nalini Mahajan and others v. DIT (Inv)(2002) 257 ITR 123 (Delhi)(HC)]. However, certain important principles have been highlighted by the apex court as well, as given below

1. Pooran Mal v. DIT (1974) 93 ITR 505 (SC)

In this case, the constitutionality of the provisions of section 132 of the act and rule 112 of the Income-tax rules 1962 was upheld and were held not to be violative of Article 19 of the Constitution. The apex court held the law to be covered under “reasonable restrictions” and also held that evidence obtained in such search is not liable to be rejected. 

It cited another case (M.P. Sharma v. Satish Chandra, 1954 AIR 300) to assert that search and seizure is only a temporary interference with the right to hold the articles and premises and for limited purposes of investigation and any damage caused due it is a subject of redress in other proceedings. It also commented that there are many inbuilt safeguards including the fact that this power is vested only in the highest officers.

2. Rajendran Chingaravlelu (Mr) v. R. K. Mishra, Addl. CIT (2010) 320 ITR 1 (SC) (10)
   

In this case, the court shunned the practices of various officers of informing the media before an investigation is completed. Thus, a trial by media has to be strictly avoided in case of raids as well.

3. K.Choyi v. Syed Abdulla Bafakky Thangal & Ors. (1980) 123 ITR 435 (SC) (437) 

In this case, the court held that section 132 occurs in the -pre-assessment stage and can never be brought into action after an assessment has already been made to recover the tax. Thus, there can be no seizure once an assessment has been completed.

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