Download - PRACTICAL ISSUES - SEARCH SEIZURE SURVEY
ICAI B'lore- Study Circle
May 16, 2012
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
ICAI B'lore- Study Circle
May 16, 2012
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
ICAI B'lore- Study Circle
May 16, 2012
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 132
6
ICAI B'lore- Study Circle
May 16, 2012
4
Board Guidelines
Instruction No. 7/2003 dated 30.07.2003:
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
ICAI B'lore- Study Circle
May 16, 2012
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
ICAI B'lore- Study Circle
May 16, 2012
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 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.)]
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
ICAI B'lore- Study Circle
May 16, 2012
7
Search Warrant
Primary contents of a Search Warrant
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
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
ICAI B'lore- Study Circle
May 16, 2012
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
ICAI B'lore- Study Circle
May 16, 2012
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
ICAI B'lore- Study Circle
May 16, 2012
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
ICAI B'lore- Study Circle
May 16, 2012
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
ICAI B'lore- Study Circle
May 16, 2012
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
ICAI B'lore- Study Circle
May 16, 2012
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.
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
26
ICAI B'lore- Study Circle
May 16, 2012
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 10th 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
ICAI B'lore- Study Circle
May 16, 2012
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
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
Post-Search Assessment
30
ICAI B'lore- Study Circle
May 16, 2012
16
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’
Section 153A
31
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.”
Abate - Meaning
32
ICAI B'lore- Study Circle
May 16, 2012
17
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 1.
Abate – Meaning
33
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
Section 153C
34
ICAI B'lore- Study Circle
May 16, 2012
18
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
Section 153C
35
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.)
Pre-requisite - Section 153C
36
ICAI B'lore- Study Circle
May 16, 2012
19
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)]
Pre - Requisite - Section 153C
37
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)
Sections 153A to 153C Contd…
38
ICAI B'lore- Study Circle
May 16, 2012
20
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
Sections 153A to 153C - Issues
39
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.
Presumption regarding documents found during search
40
ICAI B'lore- Study Circle
May 16, 2012
21
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 .
Presumption Regarding Documents Found During Search
41
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
Section 132B
42
ICAI B'lore- Study Circle
May 16, 2012
22
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.
Section 132B Contd…
43
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)
Retraction of Statement
44
ICAI B'lore- Study Circle
May 16, 2012
23
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
Conditions For Claiming Immunity [Section 271AAA (2)]
45
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
Survey – Section 133A
46
ICAI B'lore- Study Circle
May 16, 2012
24
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
Survey – Section 133A contd..
47
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)
On initiation of Search - the Survey – Section 133A Contd…
48
ICAI B'lore- Study Circle
May 16, 2012
25
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”
‘Impound’ – Meaning
49
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.)]
Others
50
ICAI B'lore- Study Circle
May 16, 2012
26
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.)
Others
51
Thank You
+91-98454-80269
52