H. P. Ranina
Keeping in mind the human rights of the tax-paying citizens,
clear guidelines have been laid down for the tax authorities
while authorising a search. These guidelines should result in
search and seizure operations being undertaken in a transparent
manner and should also discourage evasion.
Yet, says H. P. Ranina, human nature being what it is,
many will continue to seek the forbidden fruit, knowing
that the tax administration is yet to put its house in order.
teeth to the search and seizure provision under
Section 132 of the Income-Tax Act, 1961.
At the same time, such operations are designed to
be more focussed. Keeping in mind the human rights
of the tax-paying citizens, clear-cut guidelines
have been laid down for the tax authorities to
consider while authorising a search.
The powers of search can be exercised only
when the authorising officer has reason to believe that
a) any person has omitted or failed to
produce books of account or documents as
required by any summons or notice issued,
b) any person when summoned to produce
the documents, etc., will not produce books
of account or documents, and
c) any person is in possession of money, bullion,
jewellery or other valuable article or thing representing,
income or property which has not been disclosed
or would not be disclosed for purposes of the IT Act.
The Central Board of Direct Taxes has issued
instruction No. 1916 dated May 11, 1994, laying
down guidelines for seizure of jewellery and ornaments
in the course of search. The guidelines — reported
in (1994) 120 Taxation (St.) 98 — are as under:
(i) In the case of a wealth-tax assessee, gold,
jewellery and ornaments found in excess of the
gross weight declared in the wealth-tax return only
need be seized.
(ii) In the case of a person not assessed to wealth-tax,
gold jewellery and ornaments to the extent of 500 gm per
married lady, 250 gm per unmarried lady and 100 gm per
male member of the family, need not be seized.
(iii) The authorised officer may, having regard to
the status of the family and the custom and
practices of the community to which the family
belongs and other circumstances of the case,
decide to exclude a larger quantity of jewellery
and ornaments from seizure. This should be
reported to the Director of Income-Tax/Commissioner
authorising the search at the time of furnishing the search report.
(iv) In all cases, a detailed inventory of the jewellery
and ornaments found must be prepared to be used
for assessment purposes.
A circular dated July 30, 2003, laid down the following
criteria to focus on high revenue yielding cases and
make optimum use of manpower:
(i) a search should be carried out only in cases where
there is 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;
(ii) a search operation will also be mounted when there
is 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;
(iii) tax-payers who are professionals of excellence
should not be searched without there being compelling
evidence and confirmation of substantial tax evasion.
Search operations are to be authorised only by the
DGIT (Investigation) concerned, who will be accountable
for the action initiated by the officers working under him.
He should also ensure that all the work relating to search
and seizure, such as post-search inquiries, preparation
of appraisal report and handing over
of seized books of account, should be completed
by the Investigation
Wing within a period of
60 days from the date on which the last
of the authorisations for search was executed.
The DGIT (Inv.) is required to ensure that officers
of competence and proven integrity are taken in
the Investigation Wing. The officers posted in the
Investigation Wing are to be trained in a special course.
By the Finance Act, 2003, a new scheme for assessment
in search cases was introduced by Sections 153-A, 153-B
and 153-C, in substitution of the block assessment
scheme prescribed by Chapter XIV-B.
The scheme provided for special assessment
procedure for search cases and generally applied
only to persons who have been searched under
section 132 or in whose case requisition has been
made under Section 132-A.
Section 153-C provides for assessment under the
special provisions of a person other than the person
searched if documents or assets belonging to such
other person are found during the course of search.
Under the existing provisions of Section 153-A,
where the Assessing Officer is satisfied that books
of account or documents or assets seized under
Section 132 or requisitioned under Section 132-A
belong to a person other than a person in whose case
search under Section 132 or requisition under
Section 132-A was made, he shall handover the same
to the Assessing Officer having jurisdiction over such
other person and that Assessing Officer shall proceed
against such other person under Section 153-A.
The second proviso to Section 153-A provides that
assessment or reassessment, if any, relating to any
assessment year falling within the period of six assessment
years which are pending on the date of initiation of the search
under Section 132 or on the date of making of requisition
under section 132-A will abate.
The Finance Bill, 2005, proposes to amend this
Section so as to provide that in case of such other
person, the reference to the date of initiation of the
search under Section 132 or making of requisition
under Section 132-A in the second proviso to Section
153-A will be construed as reference to the date of
receiving the books of account or documents seized
or requisitioned by the Assessing Officer having
jurisdiction over such other person.
The existing provisions of Section 153-B(1)(a)
confer power upon the Assessing Officer to make
an order of assessment or reassessment of total
income of six assessment years preceding the assessment
year relevant to the previous year in which search
under Section 132 is conducted or requisition
under Section 132-A is made.
Such order must be passed within a period of two years from
the end of the financial year in which the last of the
authorisations for search, or for requisition, was executed.
To remove certain anomalies, the Finance Bill, 2005,
has rationalised the provisions pertaining to assessment
procedure. It is proposed to insert a proviso to Section
153-B(1) to provide that in case of such other person,
the time limit for making assessment or reassessment
of total income of the six assessment years
will be either two years from the end of the financial
year in which the last of authorisations for search under
Section 132 or for requisition under Section 132-A was
executed or one year from the end of the financial year
in which books of account or documents or assets seized
or requisitioned are handed over under Section 153-C to
the Assessing Officer having jurisdiction over such
other person, whichever is later.
As the new scheme provides for special assessment
procedure, it also provides that all pending assessment
proceedings on the date of search will abate.
This is enacted to avoid jurisdictional issues as there
can only be one pending assessment proceeding and
a single assessment or reassessment order.
In the case of the other person, when his Assessing
Officer is not aware of the findings of search, it creates difficulties.
Therefore, it is proposed to insert a proviso in Section 153-C to
provide that all pending assessment proceedings in case of the
other person will abate on the date on which his
Assessing Officer receives intimation of findings of search.
The provisions have been given retrospective effect from June 1, 2003.
The aforesaid guidelines and the new procedure should
result in search and seizure operations being undertaken
in a transparent manner.
The new provision will result in tax being levied for each
of the six assessment years at the appropriate rate applicable,
and interest and penalties will be attracted.
Thus, the consequences of tax evasion will certainly
be severe. But human nature being what it is, many
will continue to find the forbidden fruit alluring knowing
that the tax administration has yet to put its house in order.
(The author is a Mumbai-based Advocate specialising in Direct Tax Laws.)
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