The Hindu Business Line : Making search and seizure less taxing

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.

The Government's clear-cut guidelines and new procedure should result in search and seizure operations being undertaken in a transparent manner.

THE GOVERNMENT has, over the years, given more 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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