Income tax raids (also known as assessment raids) and tax filing are the two forms of activities undertaken by the Income Tax Department to detect instances of tax evasion.
The Income Tax Department conducts ‘search and survey operations’ commonly known as raids when they detect an individual or corporation of concealing unlawful funds. The Indian government has taken legal action against corruption! The government of India has repeatedly taken steps to deter the accumulation of black money. Income tax raids have shown to be the most effective method of reducing unlawful riches.
The Income Tax Department of India (ITD) is indeed the primary executive department in charge of direct tax collection. It reports to the Ministry of Finance’s Department of Revenue and is led by the Central Board of Direct Taxes (CBDT). ITD’s major role is to collect income tax and enforce different direct tax regulations, such as the Benami Transactions (Prohibition Act) Act of 1988 and the Black Money Act of 2015.
Countering evasion and tax avoidance is one of the primary procedures carried out on a regular schedule by the ITD. The ITD’s official search operation is referred to as an income tax raid. An income tax raid represents the most successful means of containing and seizing unlawful wealth/black money that has been stockpiled by a company or an individual.
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Purpose of Income Tax Raid
The income tax raid is intended to seize and control unlawful wealth/black money. The term “black money” or “unaccounted money” refers to unlawful income that has not been taxed. Income hoarded unlawfully or hidden from tax authorities is also included. As a result, it is critical to avoid accumulating any quantity of black money. If one possesses black money, the odds of the raid at their, home or office are high.
Black money is money earned illegally and not subject to income or other taxes. Black money refers to unexplained money held unlawfully and hidden from tax officials. As a result, it is critical that no undocumented or unreported money, jewellery, or another kind of wealth be kept.
In the instance of all such non-declaration, the income tax department is likely to perform a raid on the taxpayer. As a result, while having someone else’s money, the taxpayer must likewise protect himself by ensuring that it is properly accounted for.
When is the Income Tax Raid Triggered?
An income tax raid is one of the most important tools in the Income-tax Department’s arsenal for combating black money. It is also a measure that is constitutionally valid. A raid is triggered by any of the following conditions:
- Credible information about tax evasion; for example, any evasion based on data received from the Income Tax Department’s Intelligence Wing.
- Information obtained from government agencies.
- Information obtained from taxpayer assessment records.
- Information obtained regarding spending that is disproportionate to the taxpayer’s income, i.e., extravagant spending without corresponding revenue.
- Manipulation of accounting books, vouchers, invoices, and so forth.
- Illegal real estate investment.
- Unexplained share transactions, cash credits etc.
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When Income Tax Raid Can be Conducted?
An income tax raid can be performed under the Income Tax Act if the Officer has any information that leads him to suspect any of the following to be true:
- A notice to appear in the Jurisdictional Tax Officer (JTO) has been issued, but the assessee to whom the notice was granted has not complied with the requirements of the document and hence has failed to appear.
- The assessee has been served with a notice under Section 142(1) requiring the production of accounting records or other documentation. However, the notification was unsuccessful or failed to provide or compel the production of the accounting records or other papers needed by the JTO.
- A person has possession of money, bullion, jewels, or another valuable item or possession and conceals all or part of his or her income or possessions. The asset has not been revealed or will not be revealed because of the concealment.
As a result, if a person has not appropriately provided accounting records or has not responded to notifications and summons, an Authorised Officer would also have reasonable grounds to conduct a search. Alternatively, the Investigator has reasonable grounds to suspect the individual is in possession of concealed income or property.
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Powers of an Authorised Officer while Conducting Search
An Authorised Officer has the following authorities while undertaking a seizure and search operation:
- Enter and search any structure, place, vessel, vehicle, or aircraft where there is reason to suspect the concealment of accounting records, any documents, money, bullion, jewellery, or any other valuable commodity or thing.
- Break the lock of any doorway, box, locker, safe, almirah, or other receptacles when the keys are not available in order to exercise the functions granted by the Act.
- If the authorised officer has grounds to suspect that any such person has hidden any accounting records, other paperwork, money, bullion, jewellery, or other precious objects on his person, he may search any individual who has exited, is about to exit, or is in the premises, place, vessel, vehicle, or aircraft.
- Any person who is recognised to be in possession or in charge of any accounting books or other documents stored in the format of electronic records must provide the authorised officer with the mandatory facility to review all books of accounts and other relevant documents.
- Seize any such accounting records, other documentation, money, bullion, jewels, or other valuable items discovered during the search. However, the authorised person will have no power to confiscate any bullion, jewels, or other precious objects that are in the nature of the business’s stock-in-trade discovered during the search. The officer shall keep a record or stock of such firm stock-in-trade.
- Make identification marks on any books of accounts or other documents.
- Make copies or extracts from books and some other documents.
- Keep a record or an inventory of the entire amount of money, bullion, jewels, or other valuable items.
Rights of a Person After a Tax Raid
When books of account or documents are seized, the individual in custody of these items can duplicate them or extract information in the presence of authorised officers or their delegates. If the person feels unfairly targeted by the tax department, they can file a writ petition in the High Court to contest the raid. Additionally, they have the right to challenge the tax assessment and lodge an appeal with the Commissioner of Income Tax (Appeal) for further recourse. These legal avenues provide safeguards against perceived unjust actions by tax authorities.
Duties of a Person During a Raid
- Allow unrestricted access to the premises to facilitate the search process
- Identify and provide access to all containers where assets, books of account, or documents are stored, including handing over keys to authorised officers
- Clarify ownership details of assets, books of account, and documents found on the premises
- Identify and disclose the identity and relationship of every individual present during the search. Impersonation or misleading representation is punishable under Section 416 of the Indian Penal Code
- Prevent unauthorised individuals from entering the premises during the search
- Do not move any item without the knowledge or consent of the authorised officer. Destruction of documents to prevent their use as evidence is punishable under Section 204 of the Indian Penal Code
- Respond truthfully and comprehensively to all queries during statement recording, without interference or prompting by third parties
- Swear or affirm to testify truthfully; making false statements can lead to imprisonment or fines under Section 181 of the Indian Penal Code
- Providing false evidence knowingly is punishable under Section 191 of the Indian Penal Code
- Sign all recorded statements, inventories, and panchanama documents
- Maintain peace throughout the search process and cooperate fully with the search party to facilitate a prompt and peaceful conclusion of the search operation
- Continue to cooperate even after the search concludes to assist authorised officers in conducting necessary follow-up investigations promptly.
Procedure for Assessees Who Have Been Raided Wrongly
If a taxpayer believes a raid conducted by the Income Tax Department is unjust or erroneous, they can contest it by filing a writ petition in the High Court. Alternatively, they can appeal the raid or assessment made by the authorities before the Commissioner of Income Tax (Appeals) if they feel unfairly targeted. During a raid, the Income Tax Department may seize all relevant documents or undisclosed assets under suspicion and has the authority to conduct reassessment for up to six years from the conclusion of the raid, based on valid reasons deemed necessary.
How Can one Prevent a Raid?
To legally avoid a tax raid, individuals should adhere to compliance by promptly responding to summonses and notices from the tax department. They should also ensure full disclosure of income, assets, and property to prevent any undisclosed wealth. By maintaining transparency and promptly addressing official communications, individuals can mitigate the risk of facing a tax raid.
Income Tax Agents Cannot Size the Following Assets
- A company’s stock
- Assets/cash reported to the ITD
- Assets recorded in the books of account
- Cash which is explained in detail.
- Jewelry was included in the wealth tax return.
- Up to 500 grams of gold for each married lady, 250 grams for each unmarried woman, and 100 grams for each male member.
Who Can Conduct a Raid?
- An authorisation may be granted by the
- Principal Director General or Director-General, or
- the Principal Director or Director, or
- the Principal Chief Commissioner or Chief Commissioner, or
- the Principal Commissioner or Commissioner,
- to the Additional Director, or
- Additional Commissioner, or
- Joint Director, or
- Joint Commissioner, or
- Assistant Director, or
- Deputy Director, or
- Assistant Commissioner, or
- Deputy Commissioner, or
- Income-tax Officer, or
- Income-tax Officer to conduct a tax raid.
The authorising authority will do so if he has “reason to believe” that it is necessary.
A taxpayer has refused to comply with any notice or letters issued by the Department, or he has money in his possession, and this money reflects either entirely or partially income or property that has not been revealed.
Note: Various courts have ruled that the person being searched has no right to obtain the material on which the search was begun by the department since doing so would jeopardise the department’s investigation process. Only the High Courts and the Supreme Court have this authority.
Conclusion
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