By Dr. RAJ K. AGARWAL DR. RAKESH GUPTA Nature of Search provisions Q1. After the possible ...

28 Pages·2014·0.33 MB·English

SEMINAR ON DIRECT TAXES
Frequently Asked Questions (FAQs)

By
Dr. RAJ K. AGARWAL
FCA,FCS,AICWA,MBA,LLB,PhD
and
DR. RAKESH GUPTA
FCA,FCS,AICWA,MBA,LLB,PhD
EX-MEMBER, INCOME TAX APPELLATE TRIBUNAL

Nature of Search provisions

Q1. After the possible enactment of Direct Tax Code, how far the
provisions of income tax search and seizure as contained under
Income Tax Act, 1961 shall remain relevant?

Ans. Conceptually, the proposed provisions relating to income tax
search and seizure under Direct Tax Code Bill, 2010 are on the same
lines as the provisions contained under Income Tax Act, 1961.
Therefore, law relating to income tax search and seizure shall remain
equally useful and relevant even after the enactment of Direct Tax
Code.

Q2. What is the distinction between income tax search / income tax
raid and income tax survey?

Ans. Income tax search and income tax raid is one and the same
thing. Income tax survey is another tool in the hands of the tax
authorities for making investigation under the Income Tax Act.
Income tax survey is comparatively milder action and can be
undertaken only at business premises and no seizure of assets is
permitted in the case of survey.

Q3. Income tax search provisions are quite harsh in nature. Whether
similar power for making investigation is available to tax authorities
in other countries also?

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Ans. Yes. Powers of almost similar nature are available with the tax
authorities for making investigation and un-earthing black money in
other developed and developing countries. In other developed
countries, such powers are more transparent, system driven and
technology based than being discretionary in nature.

Q4. The provisions of income tax search and seizure are quite harsh
and it is often said that the powers given to tax authorities are
draconian in nature. Are there any checks and balances established
by the legislature so as to prevent misuse of such powers?

Ans. Yes, there are in-built safeguards provided within the
provisions of Section 132 itself so as to restrict misuse of the powers
of search and seizure with the tax authorities. There is no power of
arrest given to the income tax authorities in the case of search as is
the case with respect to the enforcement of other economic laws such
as excise duty, customs, enforcement directorate etc.

Authorization of Search

Q5. Whether non-compliance of summons issued by the Assistant
Director of Investigation under section 131(1A) can form the basis for
initiating search?

Ans. This is a controversial issue and there is no direct authority
available from any court on the above issue. As per literal
interpretation of section 132(1), it seems that search action cannot be
initiated for non-compliance of summons issued under section
131(1A) but if we go by purposive interpretation, such view is not
free from doubt.

Q6. Whether search can be initiated on the basis of information
regarding investment in immovable properties particularly when
existence of immovable property is a known fact and cannot be
subject matter of seizure?

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Ans. To take a view that search action cannot be initiated on the basis
of information regarding investment in immovable properties does
not seem to be the correct view. The underlying asset maybe
immovable property which is a visible asset and location of which
maybe in the knowledge of the department, but the test would lie
upon the fact that whether income representing such assets or the
assets itself, have been disclosed to the department or not.

Q7. Whether the identity of the informer, on the basis of whose
information, search action was initiated, can be discovered by the
person searched?

Ans. It is very difficult to know the identity of the informer since
such information is kept highly confidential in possession of senior
officers only. However, in case the informer is a professional
informer and claims reward from the Department at a later stage for
information supplied by him, assessee may lay hand at such details
of reward, though the same is also kept confidential. In case such
professional informers approach court for seeking a direction to the
tax department to give them the reward, their identity in that case
becomes exposed.

Q8. How much time does it take in preparing a case for taking search
action by the income tax department?

Ans. There is no time limit which can be prescribed for this purpose.
It depends upon the nature of information regarding existence of
undisclosed income and likelihood of seizure of assets, according to
which case maybe prepared for taking action of search. However, in
all cases search warrant by competent authority is required to be
issued before taking action of search.

In the case of property transaction, when there is information
available with the department regarding exchange of huge
unaccounted cash consideration, search maybe planned even in one
day. In yet another case, unless the information received is reliable
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and verified, search action may not be planned and remain pending
for months or sometimes years together.

Q9. Under what circumstances an action of survey under section
133A maybe converted into search under section 132?

Ans. It is not easy and is not at the whim and fancy of the survey
team to convert survey into search, though in practice it has been
observed that sometimes such pressure is exercised by the survey
team. It maybe possible only on the fulfillment of either of the
conditions prescribed under clauses (a), (b) or (c) of section 132(1)
and after obtaining the search warrant from the competent authority.
Survey is generally conducted by assessment wing of the department
whereas competent authority to authorize search in such a case
would normally be Commissioner of Income Tax. The Additional
Commissioner of Income Tax, who may be heading the survey team,
may not normally be the competent authority to authorize search and
he will have to obtain search warrant from CIT.

Q10. Whether assessee can get copy of search warrant authorizing
search action against him?

Ans. As per various judicial pronouncements, assessee does not have
legal right to get the copy of search warrant authorizing search
against him. Copy of search warrant is shown and signature of
assessee on search warrant is obtained by the authorized officer
before commencing action of search but the copy of search warrant is
not supplied to the assessee.

Q11. Whether assessee can get copy of reasons recorded by the
competent authority authorizing search?

Ans. The reasons recorded by the competent authority authorizing
search are kept in confidential folder and the same are not shown to
the assessee. The assessee cannot get the copy of the reasons;
moreover, he cannot even read the contents of the reasons recorded.
In a case when validity of search is challenged in writ petition before
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the high court and copy of reasons is summoned by the high court,
the reasons recorded are seen and read by their lordships themselves
and the contents are not made public or available to the assessee. In
certain judicial cases reported, it has been seen that the reason for
conducting search has been reproduced in the judicial orders.

Q12. Whether authorized officer can enter and search any of the
premises relating to the person searched in the course of search
action on the basis of suspicion that some kind of incriminating
material maybe available thereat?

Ans. Any premises relating to the person searched maybe searched
on the basis of suspicion but authorized officer is required to obtain
search warrant from the competent authority to enter and search
such premises. He cannot at his own enter and search any of the
premises relating to the person searched.

Q13. Whether consequential search warrant can be issued by the
competent authority in the name of some other person, say
consultant of the assessee, or employee of the assessee on the basis of
suspicion?

Ans. No search warrant can be issued by the competent authority in
the name of some other person merely on the basis of suspicion. For
issuing search warrant in the name of some other person, the
competent authority has to record “reasons to believe” in
consequence of information in his possession.

Q14. Whether search warrant can be issued in the name of minor /
non-resident Indian / foreign national residing in India / Legal heir
of the deceased person?

Ans. Yes, it is possible.

Q15. Whether blank search warrant signed by the competent
authority maybe filled and used by the authorized officer for
covering some other premises during search?
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Ans. No, use of search warrant in this manner is illegal.

Q16. Whether search can be conducted with respect to the person
who is in joint occupation with the person searched?

Ans. A person who is in joint occupation with the person searched
may also be searched by the authorized officer to find out any
incriminating material relating to the person searched available in his
possession. However, in case the premises are independent, separate
search warrant is required to enter and search such premises.
Independence of the premises is a matter of fact and will depend
upon particular case.

Q17. Whether search warrant can be issued in joint name?

Ans. Yes, search warrant can be issued in joint name and in such a
situation, each person covered in the search warrant can be searched
and would be liable to be assessed / re-assessed in accordance with
the provisions of section 153A. However, in such a case, “reason to
believe” is required to be recorded by the competent authority
separately for each person before including his or her name in the
search warrant.

Q18. In case of a search with respect to group of companies, if search
warrant is issued in the name of the employee of the company &
consequently, search is conducted at his residential premises,
whether legality of search can be challenged by such employee in the
high court for the reason that search in his case is invalid?

Ans. For conducting a valid search at the residential premises of the
employee, “reason to believe” should be recorded by the competent
authority with respect to such person in his individual capacity.
“Reason to believe” recorded for the group as a whole may not be
sufficient for issuing search warrant in his personal name &
conducting search at his residential premises and in such a case
search action maybe declared as invalid by the high court if it is
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found that reason to believe has not been recorded against him in his
individual capacity. However, search warrant can be issued in the
name of the company to conduct search at his residential premises in
case, there is suspicion that incriminating material relating to the
company is kept at his residential premises.

Q19. The person searched is generally tempted to challenge the
validity of search in the high court. Whether it is in his advantage to
do so?

Ans. It is not always advantageous to challenge the validity of the
search in the high court. The decision is required to be taken keeping
in view several factors and after weighing all the pros and cons.

Q20. Whether incriminating material found and seized during search
which is declared as illegal by the high court, maybe used by the
department against the assessee?

Ans. Yes, as per various judicial pronouncements, incriminating
material found and seized even in an illegal search action maybe
used by the income tax department against the assessee in
appropriate proceedings.

Q21. Whether validity of search can be challenged by the assessee
during appellate proceedings before CIT(A) / ITAT?

Ans. No, validity of search cannot be examined by CIT(A) / ITAT
during appellate proceedings. The validity of search can be examined
by high court in writ jurisdiction.

Q22. Whether failure to file the return of income or return of wealth
maybe a sufficient ground to issue search warrant?

Ans. No, non-filing of return of income / wealth cannot be a
sufficient ground for conducting search.

Conduct of Search
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Q23. Whether action of search can be initiated in the night?

Ans. There is no restriction provided under the Act with respect to
the timings for initiating action for search. Search action can be
initiated at any time depending upon the urgency of the matter.

Q24. Whether search can be conducted at the premises found locked
or at the premises where no person is available?

Ans. Yes, the authorized officer has the power to break open the lock
and enter the premises and make the search irrespective of whether
the occupant / owner or some other person is available at the
premises or not. The authorized officer may call upon two
independent witnesses and in the presence of such witnesses; he may
conduct the search proceedings.

Q25. Whether search can be conducted with respect to a person at the
premises not belonging to him but occupied by some other person?

Ans. Yes, search can be conducted at any premises for which search
warrant has been issued in consequence of information available
with the authorities that incriminating material belonging to the
target person is kept at such premises.

Q26. Whether deleted data from the laptop maybe restored and be
made use of by the department?

Ans. Yes, there are soft-wares available to restore the deleted data
and sometimes the department does make use of such technique. The
assessee cannot disown such data.

Q27. Whether a guest staying with the assessee may also be
searched?

Ans. Yes, any person staying in, coming out or going in the premises
maybe made subject of personal search.
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Q28. Whether assessee is duty bound to disclose password / soft
ware for operation of files in the computer?

Ans. Yes, assessee is duty bound to disclose password / soft ware for
operation of files in the computer. In case of non-cooperation in this
regard, assessee maybe prosecuted.

Q29. Whether the authorized officer has the power to break open the
locker, almirah, box etc. or tear the sofa or dig the wall / floor etc.?

Ans. Yes, in case of suspicion or non-cooperation from the assessee to
make available the keys, the authorized officer has power to take
such action.

Q30. Whether search can be temporarily suspended?

Ans. Search can be temporarily suspended by passing prohibitory
orders as prescribed under section 132(3) of the Act.

Q31. Whether it is mandatory to appoint two independent witnesses
before commencing conduct of search?

Ans. Yes, it is a mandatory requirement and the entire search
proceedings are conducted in the presence of two independent
witnesses.

Q32. Whether witnesses of his choice may be selected by the
assessee?

Ans. No, it is not the right of the assessee to select witnesses of his
choice. However, in practice, selection of witnesses is made by the
authorized officer with the consent of the assessee so that whole
proceedings may be carried out smoothly.

Q33. Whether authorized officer can forcibly require any person to
act as witness?
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Ans. No it is not possible to forcibly require any person to act as
witness. However, a person refusing to act as witness without any
justifiable cause, inspite of direction of the authorized officer may be
prosecuted for his denial.

Q34. Whether a person can ask for medical aid during the
proceedings of search?

Ans. Yes, a person under search can ask for medical aid in case he is
not feeling well and he requires medical aid. He can call his family
doctor to look after him and on the advice of doctor, if required he
may be admitted to hospital.

Q35. Whether assessee may insist for the presence of his counsel at
the time of search operation?

Ans. No, assessee does not have legal right to insist the presence of
his counsel at the time of search operations. Search proceedings are
the investigation proceedings and are conducted in the presence of
two independent witnesses.

Q36. Whether authorized officer has power to arrest or detain the
person during search?

Ans. No, income tax authorities in the course of income tax search
and seizure operation do not have any power to arrest or detain any
person.

Q37. Whether assessee has right to get copy of panchnaama and copy
of statement recorded during search?

Ans. Assessee has right to get copy of panchnaama along with all
annexures and generally it is handed over by the authorized officer to
the assessee at the time of conclusion of search. But copy of statement
recorded is not given to the assessee on the plea that the same shall
be given at the time when it is to be used against the assessee.
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