Income tax search and seizure is a drastic measure, which is held to be constitutionally valid on the ground that it aimed at fighting the social evil of tax evasion. The Hon’ble Supreme court in the case of M.P.Satishchandra AIR 1954 SC 300-306 held that the power of search and seizure in any system of jurisprudence is an overriding power of the state for the protection of social security and that power is necessarily regulated by law.
Hence, Powerful instrument in the hands of the Income Tax Department is, the power of search and seizure by conducting a raid. This process is associated with endless tension and inconvenience. When the Tax men unexpectedly visits your house/business premises, it is incredulous to encounter with IT sleuths which leads to chaos and vacuity and raises your blood pressure & heart beats.
The Income tax sleuths come with armed police and surround inside and outside your house/Business premises. It raises anxiety and browbeats with your neighbors and your business associates and you will experience considerable panic and discomfort.
The sole purpose of the Income Tax Raid is to unearth Tax evasion and tax avoidance and unearthen the accumulation of Black money. It is the process which authorizes IT department to search any residential / business premises, vehicles and bank lockers etc. and seize the Cash, jewellery, Documents, accounts, stocks and valuables.
Therefore it is better to familiarize with the subject, so that, the situation can be faced with confidence and serenity. You should be aware of your legal rights and responsibilities which not only give you moral strength but also protects you and Your Rights and responsibilities.
What prompts income tax raids, searches and seizures
- Credible evidence to indicate substantial unaccounted income/assets in relation to the tax normally paid by the assessee or where the expected concealment is more than Rs. 1 crore;
- Evidence of hidden unaccounted assets arising out of a conspiracy to cause public harm, terrorism, smuggling, narcotics, fraud, gangsterism, fake currency, fake stamp papers and such other manifestations;
- Verified rumors of Lavish Expenses in marriage
- Credible Information on Tax evasion which must be more than gossip, Rumour or Hunch
- Tax evasion reports received from Ministry of finance & Investigation report by Intelligence wing of the department.
- Report about seizure of cash by police dept & other law enforcement agencies of state and central government.
- Information given to the Commissioner in confidence by the “Informer” consisting of Individuals, Agencies, Associations, organizations etc and verified by the commissioner. Informers may be professional informers who supply information for benefitting rewards from the dept or other informers generally are un faithfull, un devoted, disgruntled employee, jealous neighbor, quarreled neighbor, neighbor with litigation, Unfaithful, selfish & humiliated director, Wife or husband or inlaws in litigation or any other person who intends to take revenge. As a matter of rule, Identity of such informers is kept secret and closely guarded. The identity of the informer will never be known to anyone inside and outside the department.
- Information culled out of Income tax Assessment records, files further verified.
- Information given by the persons or family members or employees of businessman, business associates, intimately connected with the affairs of the assessee and supplemented by independent enquiries.
- Manipulation of Books of accounts, Bills, Invoices, vouchers, records & Documents.
- Evidence of Duplicate sets of Books of accounts.
- Possession of Large amounts of Un accounted cash, Un disclosed income at Banks, Home, Business premises, Lockers, Held in the houses of family members, employees, Business associates.
- On arrival at the Domestic & International Airports of Persons in possession of large amounts of cash, Gold jewellery, indiscriminate documents of financial dealings.
- Possession of a substantial sum from a person showng and returning low income consistently.
- Information contrary to the facts on record.
- Specific & Tangible information’s.
- Suspicious business activity, Suspicious transactions, suspicious movement from place to place and country to country.
- Illegal financial & Business activity found from Websites & Social media, Television and Radio news, News papers, Magazines & periodicals
- Information from Government departments.
- Assets, Investments, Jewellery, shares, Cash, Bank balance not reflected in Balance sheets & statement of affairs.
- Illegal investments in Real estate & properties.
- Hawala transactions mixed up with regular business activities.
- Investing in realestate and properties in benami names.
- Unexplained cash credits, deposits, Investments in Banks in the names of self, family members, relatives & employees.
- Unexplained Share transactions, demat accounts in the names of self, family members, relatives & employees.
- Non disclosure, omission, difference found in large turnovers declared to Sales tax, VAT, CST, Service tax, Excise authorities.
- Purchase of large amounts of machinery/ assets from companies that does not exist.
- Huge amounts of Sundry creditors found year after year, where there is no such Individual/firm/company existed.
- Discrepancy of Physical stocks, Inventory of stock is not submitted and quantitative reconciliation of stock, production sales etc. is not filed.
- Discrepancy in Cash, Debtors & Creditors & personal accounts. Sundry Creditors in the balance sheet appear continuously or where there are huge loans or cash credits repeating, year after year.
- Cases where assessments are made Ex-parte under section 144, year after year.
- Income Tax returns not filed even after one year and Income tax returns not filed for number of years.
- Same persons holding multiple PANs in multiple cities, filing multiple returns declaring large income.
- Number of other reasons, which are too numerous to be named, processed by the department on customized, case specific, having interstate tax evasion cases, which are confidential in nature.
Some Useful Case laws in respect of above answers :
Supreme court decisions :
- M.P.Satishchandra AIR 1954 SC 300-306 (SC)
- CIT vs. Hindustan Housing & Land development trust ltd. 161ITR524 (SC)
- UOI vs. Tarachand Gupta & Bros AIR 1971 SC 1558
- Pooranmal vs. Director of Inspection (1974) 93 ITR 505 (SC)
- Tarsem kumar (1986) 161 ITR 505 (SC)
High court decisions :
- L.R.Guptha vs. Union of India (1991) 194ITR 32 (Delhi)
- Lajpatrai & others vs. CIT 215 ITR 608 (All)
- H.L.Sibal vs. CIT (1975) 101 ITR 112 (Punj & Har)
- Omprakash jindal vs. Union of India (1976) 104 ITR 389 (Punj & Har)
- Dr.Nandlal Tahiliani vs CIT (1988) 170 ITR 592 (All)
- Naraindas Vs. CIT (1984) 148 ITR 567 (MP)
- Gangaprasad Maheshwari vs. CIT (1983) 139 ITR 1043 (All)
- Jain & Jain vs. Union of India (1982) 134 ITR 655 (Bom)
- Subir Roy vs S.K.Chattapadhyay (1986) 158 ITR 472 (Cal)
- Lit light & co vs. CIT (1982) 136 ITR 513 (All)
- Mamchand & co. CIT (1970) 76 ITR 217 (Cal)
- Orient (Goa) ltd and others vs. Union of india (1994) 210 ITR 896 (Bom)
- Balwant singh vs. R.D.Shah, Director of Inspection (1969) 71 ITR 550 (Delhi)
- Hazarilal soni vs. Union of India (1993) 70 Taxman 383 (Raj)