1. Search and Survey

Power to carry out search under section 132 and survey under section 133A are important tools in the armoury of the Income–tax department for detecting and preventing tax evasion. Though the need to have such tools cannot be grudged, the department has to use it sparingly and in deserving cases and after complying with necessary guidelines and safeguards. A search is violation of personal privacy and rights of a citizen and its use should only be in rarest of rare cases.

2. Search and Seizure u/s. 132

2.1 Meaning

‘Search’ means a thorough inspection of the building, place, vehicle, vessel, aircraft and of the person.

‘Seizure’ means taking possession under the authority of law.

2.2 Powers in exercise of search

The Income-tax Act gives very wide powers to an authorised officer to carry out the search and also to seize documents and unaccounted assets. The authorised officer has the power to:

1. Enter and search any building, place, etc. where he has reason to suspect that books of account, other documents, money, bullion, jewellery or other valuable article or thing representing undisclosed income is kept;
2. Break open the locks, where the keys thereof are not available;
3. Carry out personal search of the person who is suspected to have secreted some item as mentioned in a) above;
4. Seize the items as mentioned in a) above;
5. Place marks of identification and take extracts or copies of the books of account and other documents; and
6. Make a note or inventory of the valuables found during the search.

The authorised officer is also permitted to pass orders placing prohibition on the person in possession or control of the valuable article or thing from removing, parting with or otherwise dealing with such article or thing without prior permission.
The authorised officer also has the right to demand the
services of any Police officer or any officer of the Central Government.

2.2.1 The authorised officer cannot seize stock-in-trade of a business and he can only make a note of inventory of such stock-in-trade. Irrespective of nature of business and stock held for such business whether it is jewellery, bullion or any other valuable article or thing, if such material is held by person searched as stock-in-trade of his business, the same cannot be seized. Also, bar on seizure applies irrespective of whether the person searched is able to explain the source of acquisition of such stock; in common parlance, whether stock is disclosed or undisclosed is immaterial and the same cannot be seized in any circumstance. However, restriction on seizure of stock-in-trade applies only to valuables and not cash. Unaccounted cash, even if forming part of stock-in-trade of business for an assessee, say carrying on money lending business, can be seized, if other conditions are satisfied.

2.3 Circumstances in which search can be carried out

The powers of search can be exercised when the authorised officer has reason to believe that:

1. Any person has omitted or failed to produce books of account or documents as required by any summons or notice issued,
2. Any person to whom, when so summoned to produce the documents, etc., will not or would not produce books of account or documents,
3. Any person is in possession of money, bullion, jewellery or other valuable article or thing representing, income or property which has not been disclosed or would not be disclosed for purposes of the Income-tax Act.

2.4 Who can authorise search

The authorisation to carry out the search can be given by the Principal Director General, Director General, Principal Director of Income Tax, Director of Income Tax, Principal Chief Commissioner of Income Tax, Chief Commissioner of Income Tax and Commissioner of Income Tax only.

2.5 Authority who can execute and carry out search

However, the search warrant can be executed by any Additional Director or Additional Commissioner, Joint Director, Joint Commissioner, Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income Tax Officer and they can be authorised to carry out actual search and seizure.

2.6 Adjustment of Assets seized u/s.132 or requisition u/s. 132A

Section 132B provides that the asset seized u/s.132 or requisition u/s. 132A may be adjusted against the amount of existing liability under the Income-tax Act, Wealth Tax Act etc. and the amount of liability determined on completion of assessment.

2.7 Guidelines for seizure of jewellery and ornaments in course of search

The CBDT has vide instruction No. 1916 dated 11th May, 1994, issued guidelines for seizure of jewellery and ornaments in course of search. The said guidelines, which is reported in (1994) 120 Taxation (St.) 98, is reproduced below.

‘Instances of seizure of jewellery of small quantity in course of operations under section 132 have come to the notice of the Board. The question of a common approach to situations where search parties come across items of jewellery, has been examined by the Board and following guidelines are issued for strict compliance:—

1. In the case of a wealth-tax assessee, gold jewellery and ornaments found in excess of the gross weight declared in the wealth-tax return only need be seized.
2. In the case of a person not assessed to wealth-tax, gold jewellery and ornaments to the extent of 500 gms. per married lady, 250 gms. per unmarried lady and 100 gms. per male member of the family, need not be seized.
3. The authorised officer may, having regard to the status of the family and the custom and practices of the community to which the family belongs and other circumstances of the case, decide to exclude a larger quantity of jewellery and ornaments from seizure. This should be reported to the Director of Income-tax/Commissioner authorising the search at the time of furnishing the search report.
4. In all cases, a detailed inventory of the jewellery and ornaments found must be prepared to be used for assessment purposes.

These guidelines may please be brought to the notice of all the officers in your region.’

3. Power of Survey – Section 133A

3.1 Introduction

The powers under provisions of survey, though not very wide as powers of search, are wide enough to effectively detect evasion of tax on income earned. The preconditions which need to be satisfied by the Income Tax Authority before exercising the power of survey are limited.

3.2 Extent of powers of survey

An Income Tax Authority can exercise following powers during survey:

1. To inspect books of account and other documents,
2. To place marks of identification on books of account or documents examined,
3. To make extracts or copies of books of account or documents,
4. To impound books of account or other documents. However, the same cannot be retained beyond ten working days without prior approval of Chief Commissioner of Income Tax or Director General.

Though the survey party can visit during survey only a place of business, but if the party surveyed states that any books or other things relating to business are kept at a place other than place of business, then power to visit and survey such place is also available to the officers carrying out survey.

3.2.1 An Income tax authority can exercise the power of survey to verify that tax has been deducted at source or collected at source in accordance with the provisions of the act.

Income Tax Authority can enter after sunrise and before sunset any office or any other place were business and profession is carried on were books of account or documents are kept to inspect such books of account or other documents and to furnish such information as may require in relation to such matter. However under such survey, no action can be taken to impound and retain any books of account or other document or to make inventory of cash, stock or other valuable article or thing.

3.3 Whether books, cash, valuables, etc. can be seized or impounded during survey

By Finance Act, 2002, law has been amended to empower the Income Tax Authority to impound and retain in his custody books of account or other documents inspected by him during survey, after recording his reasons for doing so. However the power to impound is restricted to only books and documents and does not extend to cash, valuables and other assets found. Further, books of account and documents so impounded cannot be retained beyond fifteen (exclusive of holidays) working days without obtaining prior approval of the Principal Chief Commissioner of Income Tax or Chief Commissioner of Income Tax or Principal Director General or Director General or Principal Commissioner or Commissioner or the Principal Director or Director.

3.4 Presumption in respect of seized/found books of account, documents, etc.

According to S. 292C of the Act, where any books of account, other documents, money, bullion, jewellery or other valuable articles are found in the possession of any person during a search, it is presumed that such documents, etc. belong to that person. This presumption is rebuttable.

This section provides that such presumption will also apply in respect of books of account, documents, etc. in the possession or control of any person in the course of survey operation u/s. 133A. This presumption is also extended to books of account, documents etc. delivered to the requisition officer u/s. 132A.

3.5 Authority who can carry out survey

An Assessing Officer or a Tax Recovery Officer or an Inspector of Income Tax or Assistant Director or an Deputy Director cannot carry out survey without obtaining prior approval from the Joint Commissioner or the Joint Director.

4. It is important to note that neither under the provisions of search nor of survey, there is power to arrest the assessee for offence, if any, of concealment of income.

5. Recording of statements u/ss. 131 and 132(4)

The authorised officer has the right to examine on oath any person who is found to be in possession of books of account, etc. or valuable article or thing. A statement on oath may be used as evidence in any proceedings under the Act.

Recently a circular has been issued directing officers carrying out search to desist from recording confessional statements offering income in such statements. (F. No. 286/2/2003-IT [Inv] dated. 10-3-2003)

6. Charter of Rights and Duties of Persons searched

The following is the Charter of rights and duties of persons searched which has been reported in [1994] 208 ITR (St) 5.

6.1 Rights of the person searched

• To see the warrant of authorisation duly signed and sealed by the issuing authority.
• To verify the identity of each member of the search party before the start of the search and on conclusion of the search.
• To insist on 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 normal time.
• To inspect the seals placed on various receptacles, sealed in course of search and subsequently at the time of reopening of the seals.
• Every person who is examined under section 132(4) has a right to ensure that the facts so stated by him have been recorded correctly.
• 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 authorised officers or any other person empowered by him.
• To make an application objecting to the approval given by the Commissioner of Income-tax for retention of books
  and documents beyond 180 days from the date of the seizure.

6.2 Duties of the person searched

• To allow free and unhindered ingress into the premises.
• To see the warrant of authorisation and put signature on the same.
• 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 authorised 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 secretes or destroys any document with the intention of preventing the same from being produced or used as evidence before the court or 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 authorised officer. In doing so, he should keep in mind that –
• If he refuses to answer a question on a subject relevant to the search operation, he shall be punishable with imprisonment of fine or both, under section 179 of the Indian Penal Code.
• 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 duration of the search, and to co-operate 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 authorised officer to complete necessary follow-up investigations at the earliest.

7. Do’s and Don’ts for assessees

1. Return of income should be filed within the time limit prescribed.
2. Copies of returns of income filed should be properly documented. Though your tax representative may be having and maintaining complete tax records, it is necessary that a copy of income tax and wealth tax returns filed are kept at office premises and in case of individuals, it should also be maintained at residence for all family members.
3. Books of account are maintained properly and up-to-date.
4. You may be called upon to explain any document, loose papers, etc. found during search or survey. As such, care should be taken to maintain papers in proper manner.
5. Investments made in assets should be properly accounted and supporting evidence should be available to substantiate the investment made.
6. Ornaments belonging to different members of the family should be kept separately. It is advisable to keep lists of the ornaments of each person and also where the ornaments are kept. Valuation report of a jeweller can be obtained. Also Tax records substantiating such ownership should be available at residence.
7. Statement recorded at the time of search are very crucial. The person making statement is advised to state truly, correctly, fully and completely. Reply should not be vague or evasive. One should be very cautious and careful while answering the question and the person should not panic.
8. Further, necessary co-operation should be made with the authorised officers. As per amendment made by the Finance Act, 2002, if a person who is required to afford the authorised officer the necessary facility to inspect the books of account or other documents maintained in electronic form, fails to afford such facility to the authorised officer, he shall be punishable with rigorous imprisonment for a term which may extend to two years and shall also be liable to fine.

8. The Survey Party to give details of Senior Officers to the assessee before start of Survey Operation

The Survey Party is required to give name, address and phone numbers of the Principal Chief Commissioner of Income Tax, the Chief Commissioner of Income Tax, Commissioner of Income Tax, Additional Commissioner of Income Tax to the assessee who is under Survey. This transparency will enable the party to speak to senior officer in case of any pressure or coercion during the survey.