Under section 132 of the Income Tax Act, senior officials from the Income Tax Department, including roles such as Principal Director General, Director General, and Chief Commissioner, can initiate Raids or Search and Seizure operations.
This typically occurs when there is reason to suspect that an individual possesses undisclosed income, property, or valuable items like cash and jewellery. Additionally, if someone is unresponsive to notices or summons from the Income Tax Department, they may find themselves subject to these operations.
During a raid, officials have the authority to enter premises, search individuals, break locks if necessary, and seize assets. The primary aim of these actions is to tackle the issue of black money in the country.
What Happens during a Search and Seizure?
The Senior Income Tax officials are authorized to carry out the following actions during a search and seizure operation:
Entry and Inspection: Senior income tax officials are authorized to conduct searches in any location, including buildings, aircraft, or vehicles, should they have reasonable grounds to believe that undisclosed items such as cash, jewellery, property, or documents may be concealed there.
Break Locks: If access keys to the searched premises are unavailable, income tax officials have the authority to forcibly open locks.
Search Persons: The income tax officials have the authority to inspect anyone who is present at, entering, or departing from the location being searched.
Seizure of Evidence: Income tax officials are authorized to confiscate cash, jewellery, financial records, or documents linked to property or income.
Recording Statements: Anyone discovered with relevant documents, hidden assets, or unreported income may be questioned under oath. Their responses will be documented and can be utilized as evidence in income tax cases.
Freezing Bank Accounts: The income tax authorities have the power to instruct banks to freeze the accounts of taxpayers suspected of holding undisclosed income, preventing any transfer of funds from those accounts.
Access Electronic Records: Tax authorities are authorized to access computers, mobile phones, and other devices that may assist in gathering evidence related to the taxpayer.
Seize Assets: The tax authorities have the power to confiscate undisclosed assets, including cash, jewellery, gold, and any documents associated with undisclosed property.
Mark and Copy Documents: The tax officials have the authority to designate certain documents as evidence collected during the raid. While some essential business documents cannot be confiscated, they may be copied and used as proof instead of the originals.
Assessment and Tax Recovery: Following the income tax raid, officials will review the total income, property, and wealth of the assessee, including both declared and undeclared assets. The assessee will receive a notification to submit an Income Tax Return for the six assessment years leading up to the year of the raid, as well as for the relevant years affected. Once the officials evaluate both the disclosed and undisclosed income post-raid, they will determine the total tax liability for the assessee. It's important to note that significant penalties, interest, and potential prosecution can arise if there is any underreporting of income or assets.
When does a Raid Happen?
An income tax raid, also referred to as Search and Seizure, serves as a vital tool for the Income Tax Department in their fight against black money. This procedure is recognized as constitutionally valid. A raid may be initiated under several specific circumstances:
Reliable reports concerning tax evasion, including those stemming from communications received from the Intelligence Wing of the Income Tax Department. Information coming from government departments.
Details obtained from taxpayer assessment records.
The information indicates a situation where the taxpayer's spending appears excessive compared to their income, specifically highlighting instances of extravagant expenditures that do not align with their financial situation.
Management of financial records, including ledgers, receipts, and invoices, among other documents..
Illegal investment in real estate.
Unexplained cash credits, share transactions etc.
To fight the menace of unreported and illegal funds, safeguard the law, and ensure compliance with tax laws.
Who is Authorised to Conduct an IT Raid?
Section 132 (1) of the Income Tax Act states that a tax search may be carried out by a Commissioner or any authorized Income Tax Officer. This authorization comes from the Principal Director General, Director General, Principal Director, Director, Principal Chief Commissioner, Principal Commissioner, or Commissioner. Positions that can be involved in this process include Additional Director, Additional Commissioner, Joint Director, Assistant Commissioner, Assistant Director, Deputy Director, or Assistant Commissioner.
To conduct a tax raid, the authorizing officer will do so if he has a "reason to believe" that
A taxpayer has not adhered to any summons or notices issued by the Department.
He possesses funds that either fully or partially represent income or assets that have not been disclosed..
It has been established by various courts that a taxpayer undergoing a search generally does not possess the right to access the information that led to the initiation of that search by the department, as this could interfere with the investigation process. This access is restricted solely to the High Courts and the Supreme Court.
Assets that can be Seized
The authorized officials can seize the following types of assets:
Undeclared cash, jewellery
Books of accounts, challan, diaries, etc.
Computer chips and other data storage devices
Documents relating to property, deed of conveyances, etc.
Any Private Building Or Land
All types of Vehicle
Bank And Financial Lockers
Securities , Bonds Or Shares
Assets that cannot be Seized
The authorized officials cannot seize the following types of assets:
Stock-in-trade (except cash) of a business
Assets or cash that are disclosed before the Income Tax and Wealth Tax Department
Assets declared in the books of account
Cash which are duly explained
Jewellery provided in wealth tax return
Gold up to 500 gm for each married lady and 250 gm for each unmarried woman, and 100gm per male member
Rights of a Person during a Tax Raid
To insist on a 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
A lady occupying an apartment being searched has a right to withdraw before the search party enters, if, according to custom, she does not appear in public
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 usual time
To inspect the seals placed on various receptacles, sealed in the course of search and subsequently at the time of reopening of the seals
To have a copy of the panchanama together with all the annexures
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 therefrom in the presence of any of the authorized officers or any other person empowered by him
The assessee may avail his or her right to a search warrant and the raid must take place in front of two witnesses so that no planting of evidence or tampering occurs
An assessee must provide truthful answers to the queries of the income tax official. The statements made by an assessee under oath can be used as evidence. Being silent to the queries of the income tax officials can bring adverse inferences to the assessee, but no assessee can be coerced into confessing the undisclosed asset or income
Rights of a Person after a Tax Raid
The individual whose books of account or other documents are taken can make copies or extracts of those items while in the presence of authorized officers or any other person they designate. Should anyone feel wronged, they have the option to submit a writ petition to the High Court to contest the raid, especially if they believe the department acted unjustly. Additionally, they can dispute the assessment and file an appeal with the Commissioner of Income Tax (Appeals).
Duties of a Person during a Raid
To allow free and unhindered ingress 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 authorized officer
To identify and explain the ownership of the assets, books of account and documents found in the premises
It is essential to accurately identify each individual present on the premises and clarify their relationship to the person being searched. Misleading others through impersonation is unacceptable. Should anyone engage in deception by pretending to be someone else or by deliberately confusing one person with another, they would be committing an offense under section 416 of the Indian Penal Code.
Not to allow or encourage the entry of any unauthorized person into the premises
It is important not to remove any article from its designated location without prior notice or the knowledge of the authorized officer. If an individual destroys any document with the intent of preventing it from being produced or used as evidence before the court or by a public servant, they will face penalties including imprisonment, a fine, or both, as stipulated in Section 204 of the Indian Penal Code.
To answer all queries truthfully and to the best of his knowledge. He should not allow any third party to either interfere or prompt, while his statement is being recorded by the authorized 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
Similarly, if he provides evidence which is false and which he knows or believes to be false, he is liable to be punished under section 191 of the Indian Penal Code
To affix his signature on the recorded statement, inventories and the panchanama
To ensure that peace is maintained throughout the search process, 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.
Similar co-operation should be extended even after the search action is over, so as to enable the authorized officer to complete necessary follow-up investigations at the earliest.
Procedure for Assessees who have been Raided Wrongly
If an assessee believes that a raid conducted by the income tax department is unwarranted or based on incorrect information, they have the option to contest it. This can be done by filing a writ petition with the High Court. Alternatively, if they feel that they have been unfairly targeted, they can appeal the raid or assessment through the Commissioner of Income Tax (Appeals).
According to Section 132, income tax raids or search and seizure operations are led by senior officials, such as the Principal Director General, Director General, or Chief Commissioner. These actions are initiated when there is reasonable suspicion that an individual possesses undisclosed income, property, or other valuable assets like cash or jewelry. Additionally, if a person fails to respond to notices or summons from the income tax department, they may also come under scrutiny for such operations.
During a raid, income tax officials are authorized to enter premises, search the site, break locks if necessary, search individuals, and seize assets. The main goal behind conducting these raids is to tackle the issue of black money in the country.
What is Black Money?
Black money refers to illegally obtained funds that have not been reported for tax purposes. This includes any hidden or unaccounted money, assets, or jewellery that one might possess without proper declaration. It's crucial to avoid keeping any undeclared wealth, as failing to do so increases the likelihood of a tax authority raid on the taxpayer. Moreover, if an individual is in possession of money that doesn't belong to them, they must ensure that it is properly accounted for to protect themselves from potential legal issues.
What Happens during a Search and Seizure?
The Senior Income Tax officials have the power to take the following actions during a search and seizure operation:
Entry and Inspection: Senior income tax officials are authorized to conduct searches in any location, including buildings, vehicles, or aircraft, if they have reasonable suspicion of undisclosed items such as cash, jewellery, property, or documents being concealed.
Break Locks: If keys are not available of the place under search, the income tax officials have the power to break open the locks.
Search Persons: The income tax officials can search any person present at, entering or leaving the place under search.
Seizure of Evidence: Income tax officials hold the authority to confiscate cash, jewellery, financial records, and any documents pertaining to property or income.
Recording Statements: Any individual discovered possessing undisclosed documents, assets, or income may be questioned under oath, with their statements being documented and utilized as evidence in income tax proceedings.
Freezing Bank Accounts: The income tax authorities have the power to instruct banks to freeze an assessee's account if it is suspected to hold undisclosed income. This measure ensures that the assessee cannot make any transfers from that account.
Access Electronic Records: Tax officials are authorized to access computers, mobile phones, and other devices to gather evidence relevant to the case against the assessee.
Seize Assets: The income tax authorities have the power to confiscate hidden assets, including cash, jewellery, gold, and documents pertaining to unreported property.
Mark and Copy Documents: The tax officials have the authority to classify the documents as verified evidence discovered during the raid. Certain essential business documents cannot be confiscated; however, copies can be made to serve as proof of the original documents for evidence purposes.
Assessment and Tax Recovery: After an income tax raid, officials will evaluate the total income, property, and wealth of the taxpayer, considering both disclosed and undisclosed assets. The taxpayer will receive a notice requiring them to submit an Income Tax Return for the six assessment years leading up to the year of the raid, or for the relevant assessment years. Once the officials have reviewed both disclosed and undisclosed income, they will determine the taxpayer's overall tax liability. It's important to note that substantial penalties, interest, and even prosecution may be imposed for any underreporting of income or assets.
When does a Raid Happen?
An income tax raid, formally referred to as Search and Seizure, serves as a vital tool for the Income Tax Department in combating black money. This measure is also constitutionally valid. A raid may be instigated under various circumstances, which include the following:
Credible information of tax evasion; for instance, any evasion coming out of reports received from the Intelligence Wing of the Income tax department.
Information coming from government departments.
Information procured from assessment records of taxpayers.
Information received with regard to spending being disproportionate to the income of the taxpayer i.e. an instance of lavish spending without corresponding income to match the same.
Manipulation of books of accounts, vouchers, invoices etc.
Illegal investment in real estate.
Unexplained cash credits, share transactions etc.
To fight the menace of unreported and illegal funds, safeguard the law, and ensure compliance with tax laws.
Who is Authorised to Conduct an IT Raid?
Section 132 (1) of the Income Tax Act states that a tax search can be initiated by a Commissioner or any authorized Income Tax Officer. This authorization comes from figures such as the Principal Director General, Director General, Principal Director, Director, Principal Chief Commissioner, Principal Commissioner, or Commissioner. The designated roles for those conducting the search include Additional Director, Additional Commissioner, Joint Director, Assistant Commissioner, Assistant Director, Deputy Director, or Assistant Commissioner.
To conduct a tax raid, the authorizing officer will do so if he has a "reason to believe" that
A taxpayer has failed to comply with any summons or notices sent to him by the Department or
He has in his possession money, and secondly, such money represents either wholly or partly income or property which has not been disclosed.
It has been held by various courts that the taxpayer being searched ideally does not have the right to get access to information based on which the search has been initiated by the department, considering that this would hamper the department's investigation process. Only the High Courts and the Supreme Court have the right to do so.
Assets that can be Seized
The authorized officials can seize the following types of assets:
Undeclared cash, jewellery
Books of accounts, challan, diaries, etc.
Computer chips and other data storage devices
Documents relating to property, deed of conveyances, etc.
Any Private Building Or Land
All types of Vehicle
Bank And Financial Lockers
Securities , Bonds Or Shares
Assets that cannot be Seized
The authorized officials cannot seize the following types of assets:
Stock-in-trade (except cash) of a business
Assets or cash that are disclosed before the Income Tax and Wealth Tax Department
Assets declared in the books of account
Cash which are duly explained
Jewellery provided in wealth tax return
Gold up to 500 gm for each married lady and 250 gm for each unmarried woman, and 100gm per male member
Rights of a Person during a Tax Raid
To insist on a 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
A lady occupying an apartment being searched has a right to withdraw before the search party enters, if, according to custom, she does not appear in public
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 usual time
To inspect the seals placed on various receptacles, sealed in the course of search and subsequently at the time of reopening of the seals
To have a copy of the panchanama together with all the annexures
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 therefrom in the presence of any of the authorized officers or any other person empowered by him
The assessee may avail his or her right to a search warrant and the raid must take place in front of two witnesses so that no planting of evidence or tampering occurs
An assessee must provide truthful answers to the queries of the income tax official. The statements made by an assessee under oath can be used as evidence. Being silent to the queries of the income tax officials can bring adverse inferences to the assessee, but no assessee can be coerced into confessing the undisclosed asset or income
Rights of a Person after a Tax Raid
Individuals from whom books of account or other documents are seized have the right to make copies or take extracts while in the presence of authorized officers or other designated representatives. If someone feels that the raid was unjust, they have the option to file a writ petition with the High Court. Additionally, they can contest the assessment and submit an appeal to the Commissioner of Income Tax (Appeal).
Duties of a Person during a Raid
To allow free and unhindered ingress 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 authorized 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. If he cheats by pretending to be some other person or knowingly substitutes one person for another, it is an offence punishable under section 416 of the Indian Penal Code
Not to allow or encourage the entry of any unauthorised person into the premises
Not to remove any article from its place without notice or knowledge of the authorised officer. If he destroys any document with the intention of preventing the same from being produced or used as evidence before the court or a public servant, he shall be punishable with imprisonment or fine or both, in accordance with section 204 of the Indian Penal Code
To answer all queries truthfully and to the best of his knowledge. He should not allow any third party to either interfere or prompt while his statement is being recorded by the authorized 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
Similarly, if he provides evidence which is false and which he knows or believes to be false, he is liable to be punished under section 191 of the Indian Penal Code
To affix his signature on the recorded statement, inventories and the panchanama
To ensure that peace is maintained throughout the search process, 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.
Similar co-operation should be extended even after the search action is over, so as to enable the authorized officer to complete necessary follow-up investigations at the earliest.
Procedure for Assessees who have been Raided Wrongly
If an assessee feels that a raid was unjust or that the Income Tax Department acted in error during the raid, they have the right to contest it by filing a writ petition with the High Court. Alternatively, they can appeal the raid or the assessment made by the tax authorities to the Commissioner of Income Tax (Appeals) if they believe they have been treated unfairly.
Once the Income Tax Department has seized relevant documents or any undisclosed property under suspicion, they reserve the right to reassess for a period of up to six years prior to the conclusion of the raid for any valid reason they find necessary.
How can one Prevent Raid?
The Assessee is required to maintain all necessary records and books of account.
The Assessee is required to file tax returns on time and pay any due taxes.
The Assessee is required to furnish any information and documents demanded by the tax authorities through summonses and notices.
Reasons for Income Tax Raids
Income tax raids are usually carried out when authorities have solid evidence or credible intelligence suggesting that someone is hiding income or assets over ₹1 crore, or is involved in illegal activities like smuggling, fraud, or terrorism.
These raids can also be prompted by verified reports of extravagant spending (such as lavish weddings), confiscations by enforcement agencies, tips from informants or trusted associates, and validated information from tax assessments or intelligence sources. This ensures that actions taken are founded on facts rather than mere assumptions.
An Income Tax Search V/S Survey
An Income Tax Search and Survey are both essential mechanisms for investigating tax evasion, yet they have distinct differences in terms of scope, authority, and procedure. A search is designed to uncover undisclosed income or assets and can take place at any location and at any time—including personal residences and vehicles. It allows for the seizure of documents and assets and includes the ability to record statements under oath, requiring approval from senior authorities.
On the other hand, a survey is restricted to business premises during operating hours and primarily aims to gather information about activities that have already been declared. Unlike a search, it does not allow for the seizure of items but does permit inspection and copying of records. Additionally, surveys do not authorise physical searches of individuals.
Conclusion
Income Tax Authorities have the authority to conduct searches and seizures, and they approach this responsibility carefully, ensuring they gather preliminary information before proceeding. It's crucial not to provide false information to an assessee. Always verify the books of accounts or supporting documents if you have any doubts about the accuracy of prior accounting information. Additionally, it's important for the assessee to cooperate with the income tax authorities during searches and follow-up processes, and to understand their rights and obligations during an income tax survey or search. If you're uncertain or feeling uncomfortable about any aspect, seeking expert advice is a wise choice.
