By : M.S.Yatnatti: Editor and Video Journalist Bangalore : According to the financial experts the search and survey operations conducted by the Income tax department, commonly known as Income tax raids ('raids'), has always been one of the worst nightmares of businessmen, high earners and corporate .Reportedly some reasons for this fear being heavy tax and penalty payments, possible devastating impact on the business, mental harassment faced during such raids etc. Although surveys are not feared as much as search and seizure operations, often it is considered to be a step towards such operations. Most of the fears for such operations are valid and the negative impacts are generally unavoidable, though the impact can be much lesser if the assessee has reasonable knowledge about various aspects relating to the raids. This compilation has tried to summerise some of the significant aspects about raids that assessees should remember in order to lessen the impact of such operations .Search And Seizure ("Search”) Procedures :Search operations are carried out by a team of members from investigation wing and usually it takes place in the morning. The search team carries a search warrant with it for verification. The search team usually cover all the business premises of the assessee (in India) and the residential premises of the important and key persons of the assessee like the partners of the assessee firm; directors of the company etc. and can extend upto 2-3 days. It may also cover residential premises of close relatives, friends, business associates etc. One of the most important powers that the Income Tax Department possesses is the power of search and seizure. Tax authorities usually exercise their right to conduct raids on individuals or groups who are suspected of evading tax or who are deemed to be in possession of any property or income belonging to another party that has not been disclosed. While this might seem like a drastic step, it is an act that is upheld by the constitution, and is deemed entirely necessary in cases where the Income Tax Department feels extreme action is needed.
Objectives of Income Tax Search and Seizure: The Income Tax Department exercises its right of search and seizure to achieve the following objectives :To ensure that any threat to social security is dealt with effectively .To directly address problems and issues that arise due to evasion and avoidance of tax .To meet the menace of black money head on .To uphold the law laid down by the constitution of India .Income Tax Raids: As per law, if evasion of tax or undisclosed possession of property or valuables is suspected, officers authorised by the Income Tax Department are well within their powers to conduct raids and searches on the following: Any residential property or premise. Any property or premise used for the purpose of conducting business .Any vehicle or automobile. Any lockers held at banks or financial institutions. Any books or ledgers containing account details and transactions. Any stocks, bonds or shares that have been acquired or sold. Any valuable items such as jewellery, gold, and other precious metals.As per Section 1 32A of the Income Tax Act, the authorised officers can also exercise their right to inspect any books of accounts or any items of value that have been seized by any other department belonging to the government. Reasons For Income Tax Raids: The Income Tax Department can conduct raids on individuals or groups for a wide range of reasons. The most pertinent of these are outlined are:Where the department has gathered evidence substantiating that an assessee is in possession of income or assets that have not been disclosed, and where the amount of tax that would be normally paid on such income or assets exceeds Rs 1 crore.Where the department suspects an individual or group of holding assets that have been unaccounted for, and which are deemed to be used for the purpose of smuggling, public disorder, fraud, terrorism etc.Where the department has received verification of lavish expenditure at weddings or marriages.Where the department has gathered evidence relating to the evasion of tax that is based on actual fact rather than rumors or assumptions.Where the department has acquired reports or tax evasions that have been gathered by intelligence departments .Where the department has acquired reports in relation to the confiscation of money by any state or central government law enforcement agency.Where the department has gathered information from 'informers' hired by the law to provide critical data on any individual or organisation suspected of tax evasion.Where the department has gathered data or information that has been put together from the perusal of tax assessment files and records that have passed through the process of verification .Where the department has gathered information received from any party with an intimate relation with the assessee in question such as a member of the assessee's family, a business partner, an employee etc. This information is subject to independent questioning on the part of the Income Tax department.Where the department has gathered evidence of the manipulation or 'cooking' of any of the following: Books or ledgers showing accounting details and transactions.Any documentation or records.Any invoices.Any vouchers.Any bills.Where the department has gathered evidence suggesting that the assessee is in possession or has maintained duplicates or copies of his or her books of accounts.Where the department has gathered evidence of the possession of substantial amounts of income held with the following: The assessee.At banks or financial institutions.At the residence of the assessee.At any business property.At lockers held in banks or financial institutions.At the residence of any member of the assessee's family.At the residence of any business partner of the assessee.At the residence of any employee of the assessee.Where the department has gathered evidence linking the arrival of a person at any of the airports in India with the possession of substantial sums of money, gold, incriminating documents etc.Where the department has gathered evidence showing assessees earning low salary or income to be in possession of vast sums of money.Where the department has acquired information or data that contradicts any facts that have been recorded.Where the department has gathered evidence of any business transactions, transfers or activity that has been deemed suspicious, including travel from one location to another, whether within India or abroad.Where the department has gathered credible information pointing to illegal and suspicious business activities from the following portals: Magazines.Social media and other internet web pages.Newspapers.News on the television.News on the radio.Where the department has gathered credible information, data and evidence from other governmental departments.Where the department has gathered information showing that the following items are not accounted for in the books of account or balance sheets of the assessee: Cash.Assets.Jewellery.Bank balances.Investments.Shares.Where the department has gathered evidence linking that assess to the illegal purchase or investment in and of any property or real estate.Where the department has gathered evidence of any hawala activities and transactions that have taken place within the functioning of any business.Where the department has gathered evidence of the assessee making investments in benami or 'non titled' property.Where the department has gathered evidence of undisclosed sums of money and investments held with banks under the name of the assessee or any of his or her family members, business associates, relatives etc.Where the department has gathered evidence of any undisclosed share investments, demat or forex accounts under the name of the assessee or any of his or her family members, business associates, relatives etc.Where the department has gathered evidence of any undisclosed amounts that have been omitted or have been withheld during the time of declaration of turnover with regards to the following: Excise duty authorities.Value Added Tax.Service Tax.Central Sales Tax.Sales Tax.Where the department has gathered evidence of the purchase or acquisition of massive amounts of assets or machines from organisations that are found to be illegal or that do not exist.Where the department has gathered evidence of a large amount of sundry creditors every year, despite of the non-existence of any such organisation, company or individual.Where the department has gathered evidence of any discrepancies or anomalies in the submission of stock quantities, inventory, sales production etc.Where the department has gathered evidence of any discrepancies or anomalies with regards to the personal accounts of the assessee in question, wherein the accounts show large amounts of loans or cash appearing consistently and on a continuous basis every year.Where the department has gathered evidence of any regular improper or illegal contact with a judicial member such as a lawyer or a judge as per Section 144 of the Income Tax Act.Where the department has gathered evidence of the non-filing of income tax returns by the assessee for a single year or multiple years.Where the department has gathered evidence of persons or individuals in possession of many Permanent Account Numbers (PAN), who file income tax returns from different locations around the country, and who declare large sums of income.Any other reason that may be deemed valid or confidential by the Income Tax Authorities, or in specific cases dealing with evasion of tax across state borders.