News on income tax raid can be found flashing quite often on your TV screen and in morning newspaper, highlighting the unaccounted cash and wealth of the affected. Such news sends jitters in our spines and makes us dread income tax authorities.
Under the Income Tax Act, the Search and Seizure operations are a carefully and secretly devised plan of action on the basis of authentic and bonafide information and material (something more than a rumor and gossip), which may be gathered on its own or given by some informer.
As such operations invade upon the privacy and freedom of the tax payer, it is exercised under statutory requirements and principles of natural justice. The authorities can exercise these powers when due to the information in their possession; they have firm reason to believe –
- Any person to whom a summon or notice has been or might be served, has failed or would not produce the books of accounts or other documents as called for.
- Any person is in possession of money, bullion, jewellery or such property which has not been disclosed.
Merely living in a posh house or having a high standard of living alone does not form a basis for search unless records show that the living standard is not proportionate to income earned. Moreover, a lavish marriage is not a basis for search action.
The income tax authorities can enter the place to be searched only during the hours at which it is open for conduct of business/profession and in case of any other place only after the sunrise and before sunset. Once they enter, they can remain till the search is completed.
The tax payer has the following rights in case of search-
- Examining the search warrant which must clearly specify the name of the party to be searched and be duly signed by the officer. The search warrant issued in the name of the firm cannot be used to seize assets of individual partners.
- Calling two or more respectable inhabitants of the locality to act as witnesses.
- Verifying the identity and make personal search of each member of the search party.
- Calling a doctor in case of emergency.
- Personal search of ladies to be taken only by lady.
- Allowing the children to go to school after checking their bags.
- Having meals at the normal time.
- Inspect seals placed on various objects
- Have a copy of panchnama (first listing of evidence and findings made)
- Inspect and take photocopies of the seized books of account and documents.
Anything representing stock-in-trade of the business shall not be seized but the authorized officer shall make a note of it. As regards gold ornaments and jewellery, 500 gms. per married lady, 250 gms per unmarried lady and 100 gms per male member of the family shall not be seized.
Cases wherein people are convicted on the basis of digital data are on the rise. Now, businessmen use removable storage devices such as USB drives, pen drives, digital cameras, iPods and MP3 players to store data due to their miniature and inconspicuous look, making them easy for hiding in case of search. But the department keeps a close tab on all such moves. All these devices including computers and laptops are seized in the presence of witnesses. However, the person being raided can ask for a copy of the data on the drive.
So, it is advisable to make separate files for each family member which should specify the details of assets held and income earned, followed by a balance sheet for each financial year, along with the receipts and sources for acquisition of assets. Assets acquired as a result of gift or will should be supported by proper certificates. The details of various bank accounts and lockers held should also be mentioned in the file.