PRACTICAL ISSUES - SEARCH, SEIZURE & SURVEY

Transcription

1 PRACTICAL ISSUES - SEARCH, SEIZURE & SURVEY Prashanth G S, FCA Chartered Accountant Bangalore Introduction 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 2 1

2 Introduction Search: 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 person by surprise 3 Introduction Three Stages of Search Under Section 132 Pre-search enquiries and authorization; Actual conduct of search; Post Search - Assessment of income 4 2

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

4 Board Guidelines Instruction No. 7/2003 dated : Searches shall be authorized only by DGIT (Inv.) and search to be carried out in cases where: substantial unaccounted income/ assets involved expected concealment is in excess of Rs. 1 crore Tax payers who are professionals of excellence should not be searched without there being compelling reasons 7 Pre-requisite Conditions to Authorize Search Competent Authority 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: 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) Where any person will not, if summoned or notice issued, comply with the same (refers to belief likely to take place) 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) 8 4

5 Information Information: Must be something more than just rumour or a gossip or a hunch; Some valid, definite information and not any imaginary or invalid information Must be authentic 9 Information Reason To Believe has been analysed 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 10 5

6 Information : 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 ] 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.)] 11 Information Mere information from CBI/Police that assessee possess money [refer Ajit Jain: 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.)] 12 6

7 Search Warrant Primary contents of a Search Warrant Refer Rule 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 Validity of search To challenge the validity To file writ petition challenging the validity of search proceedings. Appellate Authorities have power to adjudicate validity of the search proceedings C. Ramaiah Reddy V. ACIT: 339 ITR 210 Kar High Court 14 7

8 Validity of search Once search takes place, whether legal or illegal, evidence collected can be used - [refer Pooran Mal vs. DI : 93 ITR 505 (SC)] Search is assessee specific and not premises specific. 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 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)) 16 8

9 Powers - Contd 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 17 Taxpayer s 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)) Allow children to go to schools To seek medical help, if required. 18 9

10 Taxpayer s Charter Contd 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. 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 19 Taxpayer s Charter Contd 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 20 10

11 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 (P&H) 21 Seizure Contd Indiscriminate search and seizure of third party books / assets not permissible:- H.L. Sibal vs. CIT : 101 ITR 112 (P&H) S.R. Batliboi & Co. vs. DIT (Inv.): 224 CTR 369 (Del.) 22 11

12 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 23 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 Does not amount to deemed seizure Search concludes when prohibitory order is lifted and Panchnama is prepared therefor 24 12

13 Prohibitory Order Contd 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: 93 ITR 244 (P&H) Moti Lal: 80 ITR 418 (All) Sardar Praduman Singh Vs. UOI and Ors: 166 ITR 115 (Del.) 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 (P&H) 25 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 dated ] Jewellery declared in Wealth Tax ; 500 gms. per married lady ; 250 gms. per unmarried lady ; 100 gms. per male member 26 13

14 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 Such examination may be in respect of all matters relevant for investigation connected with any proceedings under the Act No obligation to make a surrender (Vide F.No. 286/ 2/ 2003 dated 10 th March, 2003 ) 27 Sec 132(4) 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 28 14

15 Conclusion of Search Right to obtain a copy of Panchnama Right to obtain photocopies of the various books of accounts and records seized by the search party Must ensure that it correctly states: Assessee subjected to search Premises searched Documents/ Books found and seized Jewellery/ Ornaments, etc 29 Post-Search Assessment Change in the procedure for assessment of search cases `Block Assessment under Chapter XIV-B applicable for searches after and up to Section 153A to section 153C applicable for searches on or after Block Assessment Introduced by the Finance Act, 1995 for searches on or after

16 Section 153A 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 31 Abate - Meaning Black s 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

17 Abate Meaning 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. 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. - Srinibas Jena vs. Janardan Jena, AIR 1981 Ori 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 34 17

18 Section 153C 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 35 Pre-requisite - 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.) 36 18

19 Pre - Requisite - Section 153C As per Black s Law Dictionary 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)] 37 Sections 153A to 153C Contd 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) 38 19

20 Sections 153A to 153C - Issues 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: 1 ITR (Trib) 484 -Del 39 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

21 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. 41 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 42 21

22 Section 132B Contd 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. 43 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: 233 ELT 157 (SC) K.T. M. S. Mohd. V. UOI: 197 ITR 196 (SC) 44 22

23 Conditions For Claiming Immunity [Section 271AAA (2)] Undisclosed income is admitted in statement u/s 132(4); and Manner of deriving undisclosed income specified and substantiated; and Tax along with interest is paid 45 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 46 23

24 Survey Section 133A contd.. 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 47 On Survey initiation Section of Search 133A Contd - the 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) 48 24

25 Impound Meaning Black s Law Dictionary defines `impound as under: 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. To take and retain possession of (something, such as a forged document to be produced as evidence) in preparation for a criminal prosecution 49 Others Time limitation for exit of the Survey Team N.K. Mohnot: 215 ITR 275 (Mad.) Evidentiary value for statement recorded 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.)] 50 25

26 Others 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 - Salecha: 256 ITR 730 (Raj.) CIT V. Mool Chand 51 Thank You prashanth@gspconsulting.co.in