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Income Tax Raid, Search and Seizure – Reasons, Effects and Prevention

Last Update Date : April 27, 2019
Estimated Read Time: 6 min

Income Tax Raids have been the most successful initiative taken by Indian Government to discourage hoarding of black money. This guide by H&R Block India will help you understand the reasons behind I-T raids and how can you prevent one.

income tax raid

What is an Income Tax Raid?

From income tax point of view, in common parlance search is referred to as ‘RAID’. However, there is no such term as raid anywhere in income tax law.

Search, according to normal dictionary meaning, means to look out, to seek or to find something the presence of which is suspected etc. Seize means to take possession of goods, contrary to the wishes of the owner or to take forcible possession.

What are the reasons for Raid (Search & Seizure)?

Search and Seizure is a very powerful weapon used by Income Tax Department to unearth any concealed income or valuables and thereby mitigating the generation of black money. It means the main reason behind raid is to keep an eye on black money so that one does not keep any unaccounted or undeclared money, jewellery or any kind of wealth.

Circumstances under which Search & Seizure can be Conducted

Raid is conducted under the following circumstances:

  1. Unexplained cash, shares, property transaction etc.
  2. Manipulation of books of account for tax evasion.
  3. Information received from Intelligence and Government Departments.
  4. Expense more than the disclosed income.
  5. Failed to produce proper books of accounts or other documents as required by summons.

Who are the Persons to be Searched?

The persons to be searched are persons:

  1. who have books of account or documents which have not been produced or are not likely to be produced in response to notices, or
  2. persons who are likely to be in possession of undisclosed income or property.

What is the Basis for the Raid?

The assessing officer must have a reason to believe that the person, whether or not a notice has been served on him, is not likely to produce his books, etc. in such a case, the basic is that the person will suppress books of account and other documents which may be useful and relevant to an income -tax proceedings.

Here the authorizing authority, if challenged, must prove the basis of belief. There must be information with the authorizing authority relating to two matters:

  1. The person should be in possession of money
  2. and such money represents either wholly or partly income or property which has not been disclosed.

Who has the powers to conduct raid?

Following have the powers to conduct search:

  • Director General of Income Tax, or
  • Director of Income Tax, or
  • Chief Commissioner of Income Tax, or
  • Commissioner of Income Tax, or
  • Any such Additional Director, Additional Commissioner, Joint Director, Joint Commissioner, Assistant Director, Assistant Commissioner, Deputy Director, Deputy Commissioner of Income Tax as empowered by the board.

The board can authorize any officer subordinate to him not below the rank of Income Tax Officer to conduct search. The officer so authorized is referred as “Authorized Officer”.

What Powers can Tax Authority choose to Conduct Income Tax Raid?

The authorized officer can use the following powers to carry out raid:

  • enter and search any building or place where he has reason to suspect that such books of account, other documents, money, bullion, jewellery or other valuable article or thing are kept;
  • break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by clause (1) where the keys thereof are not available;
  • seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such search;
  • place marks of identification on any books of account or other documents or make or cause to be made extracts or copies therefrom;
  • make a note or an inventory of any such money, bullion, jewellery or other valuable article or thing.

Procedure of Raid

Search operations are carried out by a team of members from investigation wing and carries a search warrant with it for verification. It is important to note that only an authority having jurisdiction over the assessee can do survey. The search team can enter the place of business during the business hours and in other places, only after sunrise and before sunset. The search team usually covers all the business and residential premises of the assessee and the residential premises of the important and close person of the assessee like partners of the assessee firm, directors of the company, close relatives, friends and business associates etc. Search team does not allow use of telephones and mobiles during raid. The search team usually checks cash, stock, jewellery, books of account, loose papers and other assets. Apart from checking of records the search team can question any person present at the searched premises which may include even visitors, customers and guests.

Duties, Rights and Obligations of Assessee during Search & Seizure

  • To allow free and unhindered entrance into the premises.
  • To identify all receptacles in which assets or books of account and documents are kept and to hand over keys to such receptacles to the authorized officer.
  • To identify and explain the ownership of the assets, books of account and documents found in the premises.
  • To identify every individual in the premises and to explain their relationship to the person being searched. He should not mislead by impersonation. And if he does so then it would be punishable offence.
  • Not to allow or encourage the entry of any un-authorized person into the premises.
  • Not to remove any article from Investigations place without notice or knowledge of the authorized officer.
  • Be legally bound to state the truth, if he makes false statement then he should be punishable under section 181 of the Indian Penal Code.
  • To ensure that peace is maintained throughout the duration of the search, and to co-operate with the Investigation officers in all respects so that the search action is concluded at the earliest and in a peaceful manner.
  • Similar co-operation should be extended even after the search action is over, to enable the authorized officer to complete necessary follow-up investigations at the earliest.
  • To affix his signature on the recorded statement.

Which Assets can be Seized?

The authorized officer can seize the following type of assets:

  • Undeclared cash, jewellery and other valuables such as FDs/RDs, share certificates, hundies, promissory notes.
  • Books of accounts, challan, diaries etc.
  • Computer chips and other data storage devices.
  • Documents related to property.

Which assets cannot be seized?

The authorized officer can seize the following type of assets:

  • Stock held in business.
  • Items disclosed in Income Tax and Wealth Tax Return.
  • Items appearing in books of account.
  • Cash, for which explanation can be given.
  • Jewellery mentioned in Wealth Tax Return.
  • Gold up to 500gm per married woman, 250gm per unmarried woman and 100gm per male member of the family.

Is the Assessee entitled to a Copy of Reasons Recorded for Issuing a Search Warrant?

Disclosure of the material or the information to the person against whom the action is taken u/s 132(1) is not mandatory, because such disclosure might affect or hamper the investigation (SOUTHERN HERBALS LTD v DIT (INVESTIGATIONS) (1994) 207 ITR 55 (KAR). Only the High Courts and the Supreme Court have the jurisdiction to call for and consider the reasons recorded to decide whether the issue of the search warrant was called for.

Can Search be Authorized other than Jurisdictional Authority?

The Chief Commissioner / Commissioner of Income Tax has the power to authorize a search of any building, place, vessel, vehicle or aircraft of a person which is under his jurisdiction and also in cases where such building, place, vessel, vehicle or aircraft is in his area of jurisdiction but he has no jurisdiction over the persons concerned, if he has reason to believe that any delay in obtaining authorization from the Commissioner having jurisdiction over the person would be prejudicial to the interests of revenue.

Where a search for any books of account or other documents or assets has been authorized by any authority who is competent to do so, and some other Chief Commissioner/Commissioner in consequence of information in his possession has reason to suspect that such books of account or other documents and assets etc., of the assessee are kept in any building, place, vessel or aircraft not specified in the search warrant issued by such authority, he may authorize the Authorized Officer to search such other building, place, vessel, vehicle or aircraft.

How to Avoid Income Tax Raid?

One can avoid a raid by not keeping any unaccounted or undisclosed money, property or income and by responding to the notices sent by the department. If such a disclosure is made before its detection by the Income Tax Department, then chances of being trapped in a tax raid are minimized. It is therefore important for a person who is in possession or in custody of someone else’s jewellery or other valuables, etc. to ensure that they are duly accounted for.

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Niteesh Singh
Niteesh is a Tax Researcher and Content Lead at H&R Block (India). He holds an MBA with a specialisation in BFSI domain. In his career spanning over six years, he has helped thousands of people understand taxes in a simple and effective manner. Outside work, Niteesh is an astronomy geek who is also involved in wildlife conservation activities.

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