Aug 10,2022 | 5 min read

Legalities of Income Tax Raid

Introduction:

Income Tax to implement the collection of tax, has various mechanisms. Voluntary mechanisms of collection of tax, includes filing of income tax return by the assesses. There are also involuntary mechanisms of tax collection, where income tax authorities forcefully collect the tax. Involuntary measures are put in place when the department has exhausted Voluntary measures of tax collection, such as Income tax filing, summons for clarifications, etc. The Income Tax Department may do a survey or search & seizure on assessee property.

 

Section 132 of the Income Tax Act, 1961, deals with search and seizure, while section 133A of the Income Tax Act, 1961, deals with survey. Survey, is a kind of spot check or inspection in general terms. A search and seizure is a raid in general terms. In the survey, the authorized income tax officials can enter the assessed places of profession or business. In a search & seizure, any place in relation to assesses, can be entered into by authorized income tax officials. In a survey, only books of accounts, related to the business, can be taken into possession of the income tax department. In a search and seizure, anything can be searched & seized.

 

Income Tax Department on receipt of credible information of undisclosed finances & evasion of tax, given by Intelligence Department, Government Departments, or any credible source or information deduced from assesses records of tax filing & other records, or inference deduced from disproportionate spending, or from information on manipulation of book, undisclosed/illegal assets & unexplained tax credit, can decide to do a search and seizure of property & assets in relation to taxpayer in question, by its authorized officers.

 

Legalities Involved:

As per Section 132 of Income Tax Act, 1961, Income Tax Officer, Deputy Commissioner, Assistant Commissioner, Deputy Director, Assistant Director, Joint Commissioner, Joint Director, Additional Commissioner, Additional, may be authorized from Commissioner or Principal Commissioner, Principal Chief Commissioner or Chief Commissioner, Principle Director or Director, Principal Director General or Director General to conduct a raid. The authorizing officer, for going forward with the raid, must have a reason to believe that the  taxpayer in question, has not disclosed the income partly or wholly, or have not responded to the summons or notices of the department.

 

The officer authorized to raid can enter any place, where he has reason to believe that money, jewellery, books of account, bullion, undisclosed articles or other valuable articles, is kept. In the absence of a key, for opening the lock, the authorizing officer can open the lock, by breaking it. Authorized officer can do a search of a person, where it has reason to believe that the person in question might have something on him or her, required that decency is maintained, in case of search of a female, a female officer must do the search. Copies of documents can be made, by the authorizing officer, an inventory of what is seized, must be maintained by authorized officers. Stock in trade of a business, disclosed assets, disclosed monetary amount, assets specified in books of account, disclosed jewellery, shall not be seized by the authorized officer. During the raid, the taxpayer in question can insist on having two respectable persons.

 

If a pardadhari women, occupies the residence to be searched, she can withdraw, before search party enters. In case of medical emergency, a medical professional is required to be provided. Children can leave for school, subject to the conditions, that their possessions while leaving are checked. Meals are to be provided to the taxpayer in question, and all the people affected for the reason of raid, at proper timings. Seals are subject to inspection by the taxpayer. Panchnama, copy of statement which is used against the taxpayer, are to be provided to the taxpayer in question. The taxpayer in question, can take extracts from books of account in presence of authorized officers. A person who are being affected by search and seizure, are duty bound to to allow free access required in the process of search and seizure, furthermore, the person is also duty bound to hand over books of account & documents, as well as explain them if asked to do so.

 

The taxpayer in question, would be punishable under section 416 of Indian Penal Code, 1860, if the taxpayer in question, cheats by identifying himself/herself as someone else, or knowingly identifying one person as other. The taxpayer in question must not allow anyone unauthorized access to the premises, where the search and seizure is currently going on. If the taxpayer in question provides false evidence, he or she shall be liable to be punished under section 191 of the Indian Penal Code, 1860. When, the taxpayer in question is legally bound under oath, falsifies, he or she shall be liable to the punishment under section 181 of the Indian Penal Code, 1860. If the taxpayer in question destroys any article or document, with the intention of the destroyed article and document to be not produced as evidence, before the court, he or she shall be liable to the punishment under section 204 of the Indian Penal Code, 1860.A person aggrieved by the raid, can file a writ before high court to challenge the validity of raid. An appeal can also be filed by the aggrieved to challenge the assessment, before Commissioner of Income Tax (Appeals). 

The issue of black money is not just in the government, the private sector has many transactions, which are unaccounted for, evasion of taxes are a major concern in private sectors. In legal professionals, there are often cases, when clients pay in cash, and advocates & legal professionals evade taxes on that money.

Recent Cases:

In a recent case, as per the information provided in an article by hindustan times, IT department raided Advocate Manoj Kumar Singh’s office including 38 offices linked to the law firm. It is alleged that he has received Rs. 117 crores from client in cash, but has only disclosed Rs. 21  crores, in records, which amount was received by him through cheque. As per the report of legallyindia, Rs.5.5 Crores were seized, and 10 lockers were restrained. The investigation also revealed many high profile clients like developers and businesses who are involved in tax evasion. 

In another tax evasion case of Income tax raid at the renowned advocates office by the IT officials in Chandigarh where the investigation revealed that the advocate has received Rs.217 crore in cash. Such cash is used in purchase of residential and commercial properties and in taking over trusts engaged in running of schools.

In some other case, police and income tax officers, in the name of search and seizure have committed breaches in attorney client privilege, as per the report by wire, delhi police in raid on Mehmood Parchas office, seized computer documents with clients information. Section 126 of Indian Evidence Act, restricts an attorney to disclose any information exchanged with clients in communication. The Supreme Court has also frowned over the recent trend of police raiding lawyers and at the same time taking them outside of the territorial jurisdiction, so that they cannot avail the judicial remedies. Such practices by the income tax officers and police are unaccounted for and must be stopped at once.

 

Reference

 


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