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SEARCH, SEIZURE AND SURVEY

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Title: SEARCH, SEIZURE AND SURVEY


1
All India Chartered Accountants Society 6th
Annual Workshop on Direct Taxes
SEARCH, SEIZURE SURVEY
CA Rohit Jain Vaish Associates, Advocates
2
SEARCH, SEIZURE AND SURVEYA WALKTHROUGH
  • Search - Stages in search proceedings
  • Stage 1 Authorization of search
  • Stage 2 Actual conduct of Search Proceedings
  • Stage 3 Post Search Proceedings/ Assessment
  • Practical aspects of search
  • Penalty in search cases
  • Survey Proceedings

3
  • SEARCH - AN INTRODUCTION
  • Means to look for or seek out
  • Mechanism for gathering evidence regarding
    evasion of tax and for unearthing black money
  • Invading the personal/ office premises of any
    taxable person by surprise
  • THREE STAGES OF SEARCH UNDER SECTION 132
  • Pre-search enquiries and authorization
  • Actual conduct of search
  • Post Search - Assessment of income

4
Stage - I
  • Pre search enquiries
  • and authorization

5
  • Pre-search enquiries/ information
  • Summons u/s 131(1A)
  • Annual Information u/s 285BA read with Rule 114E
  • Private Sources/ Informers
  • Pre- search investigations
  • Authorization for search can be issued only
  • by a Competent Authority and
  • after satisfying prerequisite conditions
    prescribed under section 132

6
  • Competent Authority
  • Director General
  • Director
  • Chief Commissioner
  • Commissioner
  • Additional Director/ Commissioner
  • Joint Director/ Commissioner

May Authorize
May Authorize
  • Assistant Director/ Commissioner
  • Deputy Director/ Commissioner
  • Income Tax Officer

Note Addl. Director, Joint Director are also
empowered by CBDT to issue authorization u/s 132
(1) refer Proviso to section 132(1) read with
Notification No. SO 2879(E), dated 11-11-2009
7
  • Notes / Observations
  • Additional Director/ Commissioner have been
    authorized by retrospective amendment in section
    132 w.r.e.f. 1.10.1998
  • To overcome following judicial precedents holding
    that such authorities did not have authority to
    authorize search-
  • Dr. Nalini Mahajan vs. DIT (E) 257 ITR 123
    (Del.)
  • Pawan Kumar Garg 178 Taxman 491 (Del.)
  • Capital Power Systems Ltd. 222 CTR 47 (Del.)
  • Raghuraj Pratap Singh vs. ACIT 179 Taxman 73
    (All.)

8
  • Notes / Observations
  • Vide Instruction No. 7/2003 dated 30.07.2003,
    Board has issued following guidelines
  • (a) Searches shall be authorized only by DGIT
    (Inv.) and search to be carried out in cases
    where
  • (i) substantial unaccounted income/ assets
    involved
  • (ii) expected concealment is in excess of Rs.
    1 crore
  • (b) Tax payers who are professionals of
    excellence should not be searched without there
    being compelling reasons

9
  • Pre-requisite Conditions to authorize search
  • Competent Authority has,
  • in consequence of information in his possession,
  • reason to believe that either of the three
    conditions contained in clauses (a), (b) and(c)
    of section 132 are satisfied, which are
  • (a) Where any person was summoned u/s 131 or
    was issued notice u/s 142(1) to produce books or
    other documents and has failed to do so (refers
    to facts which actually exist)
  • (b) Where any person will not, if summoned or
    notice issued, comply with the same
    (refers to belief likely to take place)
  • (c) Where any person is in possession of
    any money, bullion, jewellery or any other
    valuable article or thing which he has either
    failed to disclose or is not likely to be
    disclosed to the Income Tax Authorities (refers
    to undisclosed moveable property)

10
  • Information
  • Must be something more than just rumor or a
    gossip or a hunch
  • Some valid, definite information and not any
    imaginary or invalid information
  • Must be authentic
  • Reason to believe has been analyzed in various
    decisions to mean-
  • Belief of a reasonable man formed in good faith
    and must not be mere pretence
  • There must be application of mind by the
    competent authority
  • Nexus between information/ material or reason and
    belief formed

11
  • Following have been held to be invalid basis
  • Mere knowledge about huge investment in house or
    expenditure on lavish marriage/functions refer
    L.R. Gupta 194 ITR 32(Del.) SLP dismissed CA
    891/ 93 dated 10.8.98
  • Report about roaring practice or charging high
    rates from customers and about standard of living
    refer Dr. Nand Lal Tahiliani 170 ITR 592 (All.)
    SLP dismissed 172 ITR 627 and 260 ITR 67 (Cal.)

12
  • Following have been held to be invalid basis
  • Mere information from CBI/Police that assessee
    possess money refer Ajit Jain 242 ITR 302 (Del)
    affirmed in 260 ITR 80 (SC)
  • Post search material cannot justify search refer
    Dr. Anita Sahai 266 ITR 597 (All.), Smt. Kavita
    Aggarwal vs. DIT (E) 264 ITR 472 (All.)
  • What are the primary contents of a Search
    Warrant?
  • Ans. Refer Rule 112 - Form No. 45
  • Specifies Person
  • Specifies Premises
  • Identifies the condition on the basis of which
    search is authorized
  • Identifies the officers authorized to conduct
    search

13
  • Issues
  • What is the remedy if it is felt that search has
    not been properly authorized?
  • Ans. To file writ petition challenging the
    validity of search proceedings. Appellate
    Authorities have no power to adjudicate validity
    of the search proceedings
  • M.B. Lal V. CIT 279 ITR 298/ 199 CTR 571 (Del.)
  • Gaya Prasad Pathak vs. ACIT 162 Taxman 307 (MP)
  • C. Ramaiah Reddy V. ACIT 87 ITD 439 (Bang) (SB)
  • Promain Ltd V. DCIT 95 ITD 489 (Del) (SB)
  • Contra
  • CIT vs. Smt. Chitra Devi Soni 313 ITR 174 (Raj.)
  • Once search takes place, whether legal or
    illegal, evidence collected can be used -
    refer Pooran Mal vs. DI 93 ITR 505 (SC)

14
  • Issues
  • Whether search is assessee specific or premises
    specific?
  • Ans. Search is assessee specific and not
    premises specific.
  • Refer
  • Nenmal Shankarlal Parmer V. CIT 195 ITR 582
    (Kar.)
  • Mrs. Dhiraj Suri 98 ITD 187(Del.)
  • Dr. Mrs. Surjit Tosaria V. JCIT 92 TTJ 338
    (Del.)

15
STAGE 2
  • ACTUAL CONDUCT
  • OF
  • SEARCH
  • PROCEEDINGS

16
  • Powers of authorized officer
  • To enter and search the place (section 132(1)(i))
  • To break open locks where key not available
    (section 132(1)(ii))
  • Search any person who is to get in or to go out
    (section 132(1)(iia))
  • To direct facility to inspect books or other
    documents (section 132(1)(iib))

17
  • Powers of authorized officer
  • Make inventory and/or place marks of
    identification on books of account/ documents or
    make extracts or copies therefrom(section
    132(1)(iv) (v))
  • Seek police assistance (section 132 (2))
  • Record statement under sub-section (4)
  • Seize any such books of accounts, documents,
    money, bullion, etc (section 132(1)(iii)).
  • Pass a restraint order or prohibitory order
  • w.e.f. 1.06.2003, stock in trade cannot be
    seized at the time of search.

18
  • RIGHTS OF SEARCHED PERSON
  • To see warrant of authorization following
    particulars must be checked -
  • Companies/ Directors named in the warrant
  • Premises specified
  • Designation of Competent Authority
  • Reason for search
  • Authorized Officers
  • In case search warrant does not contain the
    requisite particulars, search can be resisted.
  • Aforesaid facts must be recorded somewhere for
    future reference.
  • Searched person has a right to continue business
    as usual
  • L. R. Gupta 194 ITR 32 (Del.)

19
  • Rights recognized by Taxpayers Charter issued by
    CBDT
  • 208 ITR (St.) 5
  • To see the warrant duly signed and stamped
  • To verify the identity of each member search
    party
  • To make personal search of all members of search
    party
  • To insist on personal search of ladies by ladies
    only
  • To have two witnesses (refer Rule 112 (6) and (7))

20
  • Rights recognized by Taxpayers Charter issued by
    CBDT
  • 208 ITR (St.) 5
  • Allow children to go to schools
  • To seek medical help, if required.
  • To have the facility of having meals at the
    normal time.
  • To have copy of Panchnama together with annexures
  • To have copy of any statement used against the
    person

21
  • Duties of Person Searched recognized by
    Taxpayers Charter issued by CBDT - 208 ITR
    (St.) 5
  • To allow free and unhindered entry to the search
    party
  • To see the warrant and sign the same
  • To identify and explain ownership of assets or
    books of account/ documents
  • To identify every individual in the searched
    premises

22
  • Duties of Person Searched recognized by
    Taxpayers Charter issued by CBDT - 208 ITR
    (St.) 5
  • To answer queries to the best of his knowledge
  • To affix his signatures on statements,
    inventories and Panchnama
  • To ensure that peace is maintained through the
    duration of search
  • Not to remove any article from its place without
    prior knowledge of the authorized officer

23
  • SEIZURE
  • Seizure means forcibly taking over possession
    from the owner or person who has possession and
    who is unwilling to part with possession refer
    Tarsem Kumar 161 ITR 505 (SC)
  • Only an undisclosed asset could be subjected to
    seizure section 132(iii)
  • Refer
  • L.R. Gupta 194 ITR 32 (Del.)
  • Om Prakash Jindal 104 ITR 389 (PH)
  • Indiscriminate search and seizure of third party
    books/ assets not permissible-
  • H.L. Sibal vs. CIT 101 ITR 112 (PH)
  • S.R. Batliboi Co. vs. DIT (Inv.) 224 CTR 369
    (Del.)

24
  • Modes of Seizure
  • Actual Seizure
  • Deemed Seizure/Restraint order
  • (second proviso to section 132(1))
  • Due to physical attributes, possession of any
    valuable article or thing not possible or
    practicable then
  • order served on the person in possession of such
    article or thing and
  • person directed not to part/ deal with the
    article or thing
  • Such action is termed as deemed seizure

25
  • PROHIBITORY ORDER (SECTION 132(3))
  • Where its not practicable to seize any
  • books of accounts/ others documents,
  • money, bullion, jewellery,
  • other valuable article or thing
  • order served on person in possession of above
    and
  • such person is directed not to part or otherwise
    deal with same

26
  • PROHIBITORY ORDER (SECTION 132(3))
  • Does not amount to deemed seizure
  • Search concludes when prohibitory order is lifted
    and Panchnama is prepared therefor
  • Such order is valid for 60 days sub-section (8A)
    power to extend the period has been taken away,
    w.e.f. 1.06.2002

27
  • PROHIBITORY ORDERS
  • Articles or things referred to in sub-section (3)
    of section 132 are those which the authorized
    officer was empowered to search for and seized
    and no other. An asset which is already known
    cannot be subject to search and seizure and
    consequently, cannot be subject of an order under
    section 132(3) of the Act
  • Ramesh Chander vs. CIT ITR 244 (PH)
  • Moti Lal 80 ITR 418 (All)
  • Sardar Praduman Singh Vs. UOI and Ors 166 ITR
    115 (Del.)

28
  • PROHIBITORY ORDERS
  • No order can be passed u/s 132(3) where
    authorized officer is in doubt whether the asset
    is disclosed or undisclosed
  • Om Prakash Jindal Vs. UOI 104 ITR 389 (PH)

29
  • Certain assets cannot be seized
  • Stock-in-trade of the business cannot be
    seized
  • Section 132(1) - 3rd Proviso
  • Following Jewellery cannot be seized Instruction
    no. 1916 dated 11.05.94
  • Jewellery declared in Wealth Tax
  • 500 gms. per married lady
  • 250 gms. per unmarried lady
  • 100 gms. per male member

30
  • STATEMENT DURING SEARCH - Section 132 (4)
  • Authorized officer may examine any person on
    oath during course of search
  • If such person is found to be in possession of
    books of accounts, documents, money, etc.
  • Statement can be used as an evidence in any
    proceedings
  • Recording of Statement
  • Questions are normally put in order to gain
    further evidence to support the findings in the
    search
  • Correct facts must be stated or time may be
    sought
  • Such examination may be in respect of all matters
    relevant for investigation connected with any
    proceedings under the I.T. Act

31
  • STATEMENT DURING SEARCH (contd.)
  • No obligation to make a surrender (Vide F.No.
    286/ 2/ 2003 dated 10th March, 2003 Board has
    advised search teams not obtain confessions of
    surrenders)
  • Statements must be availed as an opportunity to
  • (a) explain disclosed assets to avoid seizure
  • (b) avail benefits of immunity from penalty
  • Right to ensure correct statement has been
    recorded

32
  • STATEMENT DURING SEARCH (contd.)
  • Post Recording
  • Copy of statement not made available by the
    Department
  • Record the contents/ statement for future
    reference
  • To ensure correct statement has been recorded
    before signing the same

33
  • CONCLUSION OF SEARCH
  • Right to obtain a copy of Panchnama
  • Must ensure that it correctly states
  • Company subjected to search
  • Premises searched
  • Documents/ Books found and seized
  • Cash seized and balance Found, seized and balance
    handed over
  • Jewellery/ Ornaments, etc

34
  • CONCLUSION OF SEARCH
  • Must ensure that it correctly states
  • Factum of personal search of search party
  • Factum of closure of search
  • Names of persons of whom statements were recorded
  • Factum of assessee claiming immunity from penalty
  • Factum of prohibitory orders passed

35
STAGE 3
  • Post Search
  • Assessment of income

36
  • Section 132
  • Right to obtain photocopies of the various books
    of accounts and records seized by the search
    party sub-section (9)
  • Seized Assets to be handed over to AO having
    jurisdiction over the person within 60 days of
    last authorization refer sub-section (9A)
  • Practically an Appraisal Report is prepared by
    Investigation Wing

37
  • Section 132
  • Seized books of accounts or other documents can
    be retained up to 30 days of the assessment order
    passed or upto 30 days of all the proceedings
  • Earlier power to retain books up to 180 days from
    the date of seizure
  • If the person legally entitled to the books of
    accounts and records, objects to the seizure, he
    may make an application to the Board for return
    of books of account and records sub-section
    (10)
  • For release of disclosed assets, application for
    release to be filed with 30 days of seizure
    refer 132 B

38
  • Post-Search Assessment
  • Change in the procedure for assessment of search
    cases
  • Block Assessment under Chapter XIV-B applicable
    for searches after 1.7.95 and up to 31.05.2003
  • Section 153A to section 153C applicable for
    searches on or after 1.06.2003
  • Block Assessment
  • Introduced by the Finance Act, 1995 for searches
    on or after 1.07.95

39
  • Block Assessment
  • For the purpose of assessment, block period
    comprised of
  • 10 years in the case where search is made before
    1.06.2001
  • 6 years in the case where search is made after
    1.06.01 but upto 31.05.03
  • (block period includes period upto the date of
    search of the relevant previous year)
  • Example
  • Search conducted on 8.10.2002
  • Block Period A.Y.s 1997-98 to 2002-03 and
    partly A.Y. 2003-04
  • ( 1.04.1996 to 31.03.2002 and 1.04.2002 to
    8.10.2002)

40
  • Salient Features of Block Assessment
  • Parallel Block and Regular Assessment
  • Assessment of undisclosed income on the basis
    of evidence found as result of search
  • Section 158BC Block Assessment of person
    searched
  • Section 158BD/BC Block Assessment of any other
    person based on satisfaction of AO of person
    searched that any undisclosed income belong to
    that person

41
  • Salient Features of Block Assessment
  • Taxation at Special Rate of 60 u/s 113
  • Separate provision for imposition of interest and
    penalty u/s 158BFA
  • No penalty where income disclosed in block
    return and tax paid thereon

42
  • Withdrawl of Block Assessment
  • Block Assessment gave rise to numerous litigation
    on
  • Whether two separate and parallel assessments can
    be done?
  • Whether income was undisclosed income or not?
  • Whether income to be assessed as normal income or
    undisclosed income?

43
  • Block Assessment was dispensed with by the
    Finance Bill, 2003 for the following reasons
  • Scheme failed in its objective of early
    resolution
  • Procedure spawned fresh stream of litigation
  • Scheme postulated two parallel assessment

44
  • Section 153A to 153C
  • Under the present scheme four sections have been
    inserted
  • Section 153A
  • Section 153B
  • Section 153C
  • Section 153D

45
  • Section 153A Salient Features
  • Overrides sections 139, 147, 148, 149, 151and 153
  • AO shall issue notice to the person searched to
    file ROI for 6 assessment years preceding the
    year of search
  • ROI filed is treated as return u/s 139
  • AO to assess/ reassess total income for six
    assessment years
  • Assessment/ reassessment in relation to any
    assessment year -
  • falling within the period of such six assessment
    years
  • pending on the date of initiation of search
  • shall abate

46
  • ABATE - Meaning
  •  
  • Blacks Law Dictionary defines the term as under
  • To throw down, to beat down, destroy, quash. To
    do away with or nullify or lessen or diminish. To
    bring entirely down or demolish, to put an end,
    to do away with, to nullify, to make void.
  •  

47
  • ABATE - Meaning
  •  K J Aiyars Judicial Dictionary, 12th Edition,
    defines the term abate as under
  • Abate is a generic term derived from French
    word Abatre and signifies to quash, to beat
    down or destroy. Abate means to throw down, to
    beat down, destroy or quash (Blacks Law
    Dictionary, Fifty Ed.).
  • To diminish or take away, to prostrate, to beat
    down remove or destroy also to let down or
    cheapen the price in buying or selling. Encyc.
    L., Stroud, p.5.
  •  

48
  • ABATE Meaning
  • In civil law, an abatement of a suit is a
    complete termination of it. To abate a suit is to
    put an end to its existence. (refer Srinibas Jena
    vs. Janardan Jena, (1980) 50 Cut LT 337 (DB)).
  •   

49
  • EXAMPLE
  • Date of Search 2.07.2010
  • Assessments in progress A.Y. 2008-09 u/s
    143(3)
  • A.Y. 2006-07 u/s 147
  • Pending Appeals A.Y. 2005-06 ITAT
  • A.Y. 2007-08 CIT(A)
  •  
  • Effect of Search
  • Proceedings u/s 153A A.Y. 2005-06 to
    2010-11 6 yrs.
  •  
  • Abated Proceedings A.Y. 2006-07 and A.Y.
    2008-09
  • Appellate Proceedings No effect
  •  

50
  • SECTION 153B
  • Limitation for assessment u/s 153A and 153C

21 months from the end of the F.Y. in which last
authorization was executed
Searched Person
21 months from the end of the F.Y. in which last
authorization was executed
Others
Later of
9 months from the end of the F.Y. in which books
handed over u/s 153C
51
  • Section 153C
  • Assessment of income of any other person
  • Overrides sections 139, 147, 148, 149, 151and 153
  • Where AO of the person searched is satisfied that
    any money, bullion, jewellery or other valuable
    article or thing or books of accounts or
    documents seized belong to some other person
  • AO shall hand over the aforesaid assets/
    documents to AO of such other person
  • AO of such other person shall proceed u/s 153A
  • Reference to date of search u/s153A construed as
    reference to date of receipt of aforesaid assets/
    documents

52
  • PREREQUISITE OF SECTION 153C
  • Seizure of books of account or documents or
    undisclosed asset belonging to assessee is sine
    qua non for assumption of valid jurisdiction
    under section 153C
  • Vijaybhai N. Chandrani V. ACIT 231 CTR 474
    (Guj.)
  • P. Srinivas Naik vs. ACIT 117 ITD 20 (Bang.)

53
  • PRE - REQUISITE OF SECTION 153C
  • Meaning of belonging to
  • As per Compact Oxford Dictionary, the term
    belong means as under
  • belong -
  • be rightly put into a particular position or
    class.
  • fit or be acceptable in a particular place or
    situation.
  • (belong to) be a member of.
  • (belong to) be the property of

54
  • PRE - REQUISITE OF SECTION 153C
  • As per Blacks Law Dictionary Sixth Edition,
    the term belong means as under
  • Belong. To appertain to to be the property
    of to be a member of to be appropriate to be
    own
  • Reference to the name of the assessee or casual
    connection in the seized documents does not mean
    that documents belong to the assessee refer
    Vijaybhai Chandrani (supra) and P. Srinivas Naik
    (supra)


55
  • Sections 153A to 153C
  • OTHER SALIENT FEATURES
  •  
  • Assessment to be completed as per normal
    provisions
  • Taxation of income (including undisclosed income)
    at normal rates
  •  
  • Assessment to be completed with prior approval of
    Joint Commissioner section 153D
  •  
  • Abated proceedings revive if assessment u/s 153A
    is annulled section 153A(2)
  •  
  • Penalty governed by section 271AAA and 271(1)(c)
  •  
  •  
  •  

56
  • SECTION 153A TO 153C - Issue
  • It is no longer required that addition/
    disallowance must be made only on the basis of
    any evidence found as a result of search as held
    in the following cases
  • Harvey Heart Hospital Ltd. v. ACIT (2010) 36 DTR
    (Chennai) (Tri.) 201
  • Shyam Lata Kaushik v. ACIT 114 TTJ 940 (Del)
  • Shivnath Rai Harnarain (India) Ltd v. DCIT 117
    TTJ 480 (Del)
  • Contra
  • LMJ International Limited vs. DCIT (2008) 22 SOT
    315
  • Anil Kumar Bhatia v. ACIT ITA No.
    2660-2665/D/2009

57
  • Presumption regarding documents found during
    search
  • Section 292C presumes that if books of accounts,
    documents or any other valuable assets is found
    from the possession or control of a person during
    the course of search or survey then
  • such books or assets are presumed to belong to
    that person
  • contents of such books or documents are presumed
    to be correct
  • signature and contents purportedly in handwriting
    of a particular person are presumed to be so
  • in any proceedings under the I.T. Act.

58
  • Presumption regarding documents found during
    search
  • Comments/ Observations
  • Presumption is rebuttable presumption refer CIT
    V. SMS Investment Corporation 207 ITR 364
    (Raj.) and onus to dislodge same shall be on the
    person from whose possession such seized
    documents/valuables are found
  • Section 292C was inserted to overcome Supreme
    Court decision in the case of P.R. Metrani vs.
    CIT 287 ITR 209 wherein the Court held that the
    identical presumptions in section 132(4A) are not
    applicable to regular assessment and are
    restricted to provisional assessment made earlier
    under section 132(5).
  •  

59
  • Section 132B
  • Application of seized assets
  • Seized assets to be dealt with as under
  • Any Existing liability
  • Liability determined on completion of the post
    search assessment
  • Where any disclosed asset has been seized
  • Application must be filed within 30 days of
    seizure for release explaining the same

60
  • Section 132B
  • Application of seized assets
  • On such application such asset is to be released
    within 180 days of execution of last
    authorization
  • Any assets or proceeds thereof which remain
    after meeting the aforesaid liabilities shall be
    handed over to the person from whose custody the
    assets were seized.

61
  • PRACTICAL ASPECTS
  • OF
  • SEARCH SEIZURE

62
  • Difficulties faced during Search
  • Lack of awareness about legal provisions/exemption
    s
  • Lack of awareness about legal rights and duties
  • Lack of awareness about practical dos and dont
  • Improper accounts and/ or accounting system
  • Non availability of important documents

63
  • Important aspects of a Search
  • Covers all the business premises (all offices,
    factories, etc.)
  • Also covers residential premises of key persons
    like partners, directors, finance heads and key
    employees
  • In case of individual/ firm - May also cover
    residential premises of close relatives, friends,
    business associates, etc.
  • Search operations may commence on any day
    including Sundays/ holidays
  • Search may continue for days

64
  • On initiation of Search - the assessee should
  • Maintain cool and remain composed
  • Check the following facts stated in search
    warrant-
  • Searched Person named in the warrant (i.e.
    Individual/ Companies/ Directors, etc)
  • Premises specified
  • Designation of Competent Authority
  • Reason for search
  • Authorized Officers
  • Date of Authorization
  • Whether warrant completely filled up
  • Aforesaid facts must be recorded for future
    reference

65
  • On initiation of Search - the assessee should
  • In case Authorization is found to be illegal -
    Search should be resisted
  • Verify identity of Search Party and Witnesses
  • Avoid discussing irrelevant issues.

66
  • What does the Search Party Generally Look out
    for?
  • Loose Papers including diaries, note books/ pads
  • Any Documents containing financial data
  • Emails, including Provisional Financial Data, MIS
    Reports, etc.
  • Account books
  • Discrepancy in Cash
  • Discrepancy in Stock

67
  • What does the Search Party Generally Look out
    for?
  • Production and/or Sales Records
  • Investments
  • Expenditure, particularly commission
  • Discrepancy in Jewellery
  • Details of household expenses
  • Lockers

68
  • Loose papers/ Documents
  • Third Party papers
  • Must be clarified during statement or otherwise
  • Particulars of the such third party may be given
  • Provisional/ Rough Documents
  • Factum of Provisional data must be clarified
  • Nature of noting must be clarified

69
  • Precautions
  • Document/ Paper must contain appropriate
    indication of its nature like Provisional,
    Estimate, Rough, Projections, etc.
  • Working Notes/ Provisional Data should be
    periodically reviewed
  • Periodical review and cleansing of irrelevant
    papers/ documents
  • Irrelevant emails should be deleted from the
    system
  • Data on digital diaries, pen drives, etc., should
    be reviewed periodically
  • Loose sheets or papers should be dispensed with
  • Unnecessary working papers/ documents should not
    be retained

70
  • Account Books and Cash in Hand
  • Books of accounts should be updated regularly
  • Nature/ Sources of unrecorded transaction should
    be explained like investment, gift, personal
    transaction, etc.
  • Old Books should be updated with final audited
    accounts
  • Proper reconciliation of cash found should be
    given to avoid seizure
  • Nature of un-reconciled cash should be stated
    like Third Party, Advances, etc.

71
  • Stock in trade
  • Initially assessee asked to furnish details of
    Stock like shares, etc.
  • Item wise physical verification is carried out
  • Inventory of Stock in trade is prepared
  • Exemption from the seizure
  • (a) Irrespective of nature of business
  • (b) Even if unexplained
  • Precautions
  • Periodical physical verification of stock and
    reconciliation with the books
  • Identification of Stock in trade to avoid seizure

72
  • Stock in trade
  • Precautions
  • Carefully oversee/ watch procedure followed by
    Search Party to ensure that
  • Stock found is normally valued on the basis of
    the purchase bills produced.
  • Method of valuation
  • Quantity
  • Rates applied for valuation
  • Arithmetical accuracy
  • Error must be immediately brought to the notice
    of the Search Party

73
  • Jewellery
  • Weighment and Valuation usually by accompanying
    Valuers
  • Carefully oversee/ watch procedure followed by
    Search Party
  • Precautions
  • Following Jewellery must be identified to the
    Search party
  • Stock in trade
  • Disclosed in the wealth tax return
  • Wealth tax return disclosing jewellery should be
    readily available
  • Copies of bills and source of purchases should be
    readily available

74
  • Jewellery
  • Precautions
  • Critically check the report prepared by the
    valuer
  • Jewellery received as gift on occasions must be
    specified
  • Request for exemption of following jewellery
    where wealth tax return not filed
  • 500 gms. per married lady
  • 250 gms. per unmarried lady and
  • 100 gms. per male member of the family

75
  • Statement u/s 132(4)
  • Statement Whose, When and Why?
  • Whose - All key persons like proprietor, partner,
    director, finance employees
  • When On commencement, during search and before
    conclusion
  • Why To gather further evidence
  • Precautions
  • Remain cool and composed during statement
  • Insist on choice of language if not comfortable
    in English

76
  • Statement u/s 132(4)
  • Precautions
  • Request for assistance of consultant
  • Avoid wrong answers - seek time, if required
  • Opportunity to explain disclosed assets to avoid
    seizure
  • Before signing the statement
  • Check its correctness
  • Mention date and time

77
  • Retraction of Statement 
  • Assessee entitled to retract from admission and
    explain the incorrect statement made
  • Pullangode Rubber Produce Co. Ltd V. State of
    Kerala 91 ITR 18 (SC)
  • K.T. M. S. Mohd. V. UOI 197 ITR 196 (SC) 
  • Evidence brought by confession, if successfully
    retracted, must be corroborated by independent
    and cogent evidences
  • Vinod Solanki 2009 (233) ELT 157 (SC)
  • K.T. M. S. Mohd. V. UOI 197 ITR 196 (SC) 

78
  • Retraction How, when, etc.
  • No specific form - Affidavit, letter, etc.
  • Earliest Opportunity minimum time gap
  • Reasons for retraction like knowledge of
    incorrect facts
  • Circumstances leading to retraction must be
    specified like inducement/ threat/ coercion, etc.
    with evidence
  • Documents/ Evidence in support of retraction like
    VDIS certificate, confirmations, etc.
  • Information to Higher Tax Authorities like CBDT,
    DGIT, DIT, etc.
  • Appropriate note/ disclosure in the return of
    income

79
  • Penalty in Search cases
  • Applicable Provisions-

Date of search Relevant Provisions Applicable Rate Immunity
1.01.1997 to 31.05.2003 158BFA (2) Upto 3 times of tax on undisclosed income (tax _at_ 60) Proviso to 158BFA (2)
1.06.2003 to 31.05.2007 271 (1)(c) Upto 3 times of normal tax on undisclosed income Explanation 5 to section 271 (1) (c)
1.06.2007 onwards 271AAA 271 (1)(c) 10 of undisclosed income for specified years upto 3 times of normal tax on undisclosed income 271AAA (2)
80
  • IMMUNITY FROM PENALTY
  • Eligible Undisclosed Income-
  • income not disclosed
  • expense found to be false
  • Eligible previous year
  • Year of search
  • Year preceeding the search, if-
  • (i) due date of filling of ROI u/s 139 (1) not
    expired and
  • (ii) ROI not filed by the assessee

81
  • Conditions for claiming immunity
  • section 271AAA (2)
  • (a) Undisclosed income is admitted in statement
    u/s 132(4) and
  • (b) Manner of deriving undisclosed income
    specified and substantiated and
  • (c) Tax along with interest is paid

82
  • SURVEY
  • SECTION 133A

83
SURVEY SECTION 133A
  • Survey can be conducted by jurisdictional
  • Commissioner
  • Director
  • Joint Commissioner
  • Joint Director
  • Deputy Director
  • Assistant Director
  • Assessing Officer
  • Tax Recovery Officer
  • Inspector (only for inspection of books)

After approval of Joint Director/ Commissioner
84
  • Survey can be conducted
  • Only at business premises and
  • Any other place where assessee states that books/
    cash/ stock/ valuable article or thing of
    business are or is kept
  • Survey team can enter
  • Business premises During business hours
  • Any other place After sunrise and before
    sunset

85
  • Survey team can
  • Inspect books/ other documents, place marks of
    identification and/ or make copies thereof
  • Impound, after recording reasons, such books/
    other documents for 10 days (excl. holidays)
    period can be extended by Chief Commissioner/
    Director General
  • Verify and make inventory of cash/ stock/ other
    valuable article/thing cannot remove them
  • Record statement of any person (not on oath)

86
  • IMPOUND MEANING
  •  Blacks Law Dictionary defines impound as
    under
  • impound, vb. 1. To place (something, such as a
    car or other personal property) in the custody of
    the police or the court, often with the
    understanding that it will be returned intact at
    the end of the proceeding.
  • 2. To take and retain possession of (something,
    such as a forged document to be produced as
    evidence) in preparation for a criminal
    prosecution

87
  • Issues
  • Whether any time limitation for exit of the
    Survey Team?
  • Ans. No.
  • refer N.K. Mohnot 215 ITR 275 (Mad.)
  • Whether statement recorded during has evidentiary
    value?
  • Ans. No
  • refer S. Kader Khan Sons 300 ITR 157 (Mad.)
  • Paul Mathews Sons 263 ITR 101 (Ker.)
  • Ashok Manilal Thakkar vs. ACIT 279 ITR 143
    (AT) (Ahd.)

88
  • Issues
  • Survey of premises of lawyer/ CA not permissible
    unless the client whose premises is surveyed
    states that his books of accounts/ documents and
    records are kept in office of lawyer/ CA
  • U.K. Mahapatra Co. 308 ITR 133 (Ori.)
  • Bar on removal of cash, stock or other valuable
    thing/ article under section 133A(4) is absolute
  • - CIT V. Mool Chand Salecha 256 ITR 730 (Raj.)

89
  • Issues
  • Whether records, documents pertaining to third
    parties (say A, B, C, etc) found in possession of
    X (another third party), who is subjected to
    search and seizure operation under section 132 in
    connection with search on Y (searched party) be
    seized by the Search Party?
  • Whether search/ survey can be carried out at the
    premises of Chartered Accountant/ Lawyer, etc.?
  • S.R. Batliboi Co. vs. DIT (Inv.) 224 CTR 369
    (Del.)
  •  

90
  • Penalty - Issue
  • Non-mentioning of manner of earning income is not
    fatal to claim of immunity. It is incumbent upon
    the Authorised officer to put a specific question
    with regard to the manner in which income has
    been derived and it is not expected from the
    person to suo-moto make a statement in this
    regard.
  • CIT v. Sri Radha Kishan Goel 200 CTR 300 (All.)
  • CIT vs Manmohan Goel 149 Taxman 578 (All.)
  • CIT vs Nem Kumar Jain 151 Taxman 187 (All.)
  • ACIT V. Smt. Lad Devi Kothari 97 TTJ 421
    (Jaipur)
  • DCIT V. Sunil Tolaram 90 TTJ 48 (Mum.)
  • Dy. CIT vs Sunder Lal 24 DTC 174 (Del.)

91
  • ORGANISATION PREPAREDNESS AND PRECAUTIONS
  •  
  • Mock Search
  • By independent third party, preferably
    professionals/ consultants
  • Suddenly without prior information
  • Across all business premises
  • Educate client and its staff
  • About basic provisions
  • Rights and Duties

92
  • ORGANISATION PREPAREDNESS AND PRECAUTIONS
  •  
  • Specific allocation of area in common premises to
    separate entities
  • Regular and timely filing of income tax and
    wealth tax return
  • Display charter of rights and duties of searched
    party at prominent place
  • Inculcate discipline in maintaining records in
  • Management
  • Employees
  • Business Associates
  • Make proper disclosure of all transactions to Tax
    Authorities
  • Due compliance of summons/ notices received from
    Tax Department

93
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