Search and Survey Matters

The Income Tax Department’s ‘search-and-survey operations’, more commonly known as ‘raids’, has always been one of the worst nightmares of illegitimate businessmen and individuals. They fear that once caught, they will have to make heavy tax and penalty payments apart from overcoming other legal hurdles. However, for the innocent, it may cause a possible deteriorating impact on the business as well as cause them mental harassment.

Nonetheless, search-and-survey ops are not feared as much as search-and-seizure ops, however, it is often considered that the former is a step towards the latter.

We have tried to summarize some of the significant aspects of I-T raids that assessees should remember in order to lessen its impact.

Search-and-seizure procedure

A team from the investigation wing of the I-T Department carries out the search operations, usually in the morning. The search team has to carry a search warrant to legally carry out the operation. It usually covers all known business premises of the assessee (in India), as well as the residential premises of persons important to the assessee, like his/her partner(s), or directors of the company, etc. The entire operation can extend up to two-three days on an average. If needed, the operation may extend to close relatives, friends, also, as long as the proper warrants are in place.

The search team usually checks cash, stock, jewelry, other assets, books of accounts, loose papers, etc. Besides checking the accounts and logs, the search team records statements of personnel, management, and also questions persons present, which may even include visitors, customers, and guests. Moreover, use of telephones and mobiles during raids is not allowed

Reliefs

It is essential to know of the reliefs the Income Tax laws grant to assessees under the scanner to reduce the damages caused by such operations. These include:

• The search party cannot seize stock in trade of a business and can only make a note of such inventory. This relief is available to disclosed as well as undisclosed stocks.
• The search party cannot seize available cash if the assessee can explain and prove its origins
• Jewelry held as stock in trade and that disclosed in wealth tax return cannot be seized
• Even if the assessee has not filed returns on wealth tax or is not assessed for it, gold jewelry and ornaments to the extent of 500 grams per married woman, 250 grams per unmarried woman, and 100 grams per male member cannot be seized.

Rights and duties of the assessee

Awareness about one’s rights and duties during such search operations is essential to avoid any severe legal implications and unpleasant situations.

Some significant rights and duties of assessees in such operations:

Rights

• To check the warrants and identities of the inspecting officers
• To insist that women assessees and their possessions are checked only by female personnel to ensure decency
• To have at least two respectable and independent residents of the locality as witnesses
• To call a medical practitioner in case of an emergency
• To allow the children to go to school, after checking their bags
• To have the facility of having meals, etc. at the normal time
• To inspect the seals placed on various receptacles, sealed in course of the search, and subsequently at the time of reopening of the seals
• To have a copy of the ‘panchanama’
• To have a copy of any statement that the Department uses against the assessee
• To inspect the seized books of account, etc., or to take extracts from such books in the presence of an authorized officer or a person empowered by the latter
• To submit an application objecting the approval of Income Tax Commissioner to retain seized books and documents beyond 180 days from the date of seizure

Duties

• To allow the I-T team free and unhindered entrance 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 officers
• To identify and explain the ownership of the assets, books of account, and other documents found on the premises
• To identify every individual in the premises and to explain their relationship with the assessee
• Not to allow or encourage the entry of any unauthorized person(s) into the premises
• Not to remove any article from the location of the investigation without the notice or knowledge of the authorized officer
• Being legally bound by an oath or affirmation to state the truth; if the assessee makes a false statement, he/she shall be punishable with imprisonment, or fine, or both under Section 181 of the Indian Penal Code
• To ensure that peace is maintained throughout the duration of the search, and to cooperate with the investigating officers in all respects so that the search is concluded quickly and peacefully
• Cooperation should be extended even after the search is over so that the authorized officer is able to complete necessary follow-up investigations at the earliest.

Generally, investigative action under section 133A is called ‘survey’. However, the term is not defined in the Act, although section 133A of the Act refers to the power of survey. In the context of the Act, the term ‘survey’ means to collect information and data for the purpose of the Act on the spot, at the place of business or profession. Surveys are considered to be milder than search procedures mainly because this procedure does not involve confiscation of cash or jewelry or other assets, taking statements on oath, searching residential premises etc.

Powers of income tax authorities while conducting the survey…

• To enter the place of business during the business hours, and after sunrise and before sunset in other places
• To enter the place other than the business premises, if the assessee states that the cash, stocks, records, and books of accounts relating to the business are lying there
• In case of books of accounts -- to place marks of identification on the books of accounts, to take extracts from such books of accounts and documents or records and to impound (confiscate) books of accounts noticed during survey w.e.f. June 1, 2002, after recording reasons (It may be remembered that survey teams have no power to seize assets). The Union Budget of 2008 proposed to extend the rebuttable presumption, which is currently applicable to search operations, to books of account, other documents, etc., found in the possession or control of any person in the course of a survey operation. In simple words, records in the books of account and other documents found during the survey operations will stand as a fact unless proven otherwise. This amendment took effect retrospectively from June 1, 2002
• To make an inventory of any cash, stock, and other valuables checked, to record the statements, to collect information regarding nature and quantum of expenditure incurred in connection with personal functions and events like a wedding ceremony, and any other functions, i.e. to discover and produce evidence, etc.
• A survey can lead to a search only on the basis of information collected in the said survey, subject to fulfillment of certain conditions of section 132(1)
• Normally, a survey is concluded on the same day; however, where situation warrants, it can be continued on the next day also
• Authority can take the statement of person available at the place of survey (not on oath) if it is deemed that his/her statements may be useful or relevant to any proceedings under the Act. It may be noted here that similar to search and seizure, the tax officer cannot force the assessee to make any statement about his income or minimum income
• It should be remembered that only an authority having jurisdiction over the assessee can conduct the survey

Rights and obligations of the assessee under survey

• To permit entry to the IT officers after confirming their identity
• To afford facility to the Income Tax authorities to conduct the survey, co-operate during the survey, and to maintain equilibrium and a peaceful atmosphere
• To assist in preparing an inventory of books of account, or documents, or cash, or stock in trade, or any other article or thing which may be found in the course of the survey, and to see that such inventories are detailed, exhaustive, and authentic
• To furnish requisite classification so that assets are duly accounted for
• To give statements truthfully and completely, and avoid giving false, or incorrect, or vague answers
• To sign the inventories and statements after carefully reading and vouching their correctness and obtaining copies
• To extend facility so as to complete the survey as expeditiously as possible
• To let the survey continue after business hours and to see that it is concluded on the same day
• To keep the place in an orderly manner so that authorities perform their duties expeditiously
• To keep and preserve copies of the inventories, statements, etc., and to contact the tax consultant immediately on completion of the survey
• To truthfully disclose all material facts and to be guided by his CA/tax consultant
• To initiate other steps which may be deemed desirable by the CA / Tax consultant in totality of the circumstances
• Not to hide or conceal material aspects that were detected from the material found in the survey.

The following dos and don’ts can, in a nutshell, assist in reducing the impact of this dreaded procedure:

• Maintain proper and updated books of accounts
• Ensure that all benefits and reliefs are availed
• Copies of important documents like returns of income/wealth filed, assessment orders, and tax payment challans should be readily available
• Investments made in assets should be properly accounted for and supporting evidence should be available to substantiate them
• Statements recorded at the time of search are very crucial. One should be very cautious and careful while answering the questions and the person under question should not panic
• Be cooperative and cordial with the search and survey teams