Search and seizure under Income Tax Act, and its assessment: A brief outlook

1. People get scared of the search and seizure operation of the Income tax department. I have been dealing with the search and seizure operations conducted by the department from 1991 onwards. If the concepts pertaining to the same are clear, then the assessee will have no reasons to get perturbed by this operation. The search takes place by a warrant by the designated authority over the reasons to believe (Which in the era of digitalization, is very specific. In the next article, we shall be talking about the same) only on the three grounds:

Where the Designated officer feels the following:

i.           If summons are issued under section 131, in which the assessee is required to produce certain books of accounts, or other documents, and if they are not  produced, then a warrant for search can be issued by the designated authority.

ii.         Or a summon is issued and the designated officer feels that the assessee shall not appear or produce those papers or books, then a search can be conducted. 

iii.      Or any person is in possession of any money, bullion, jeweler, or other valuable article, which has not been disclosed in his accounts, then

2. A search and seizure operation can take place, only for the purpose of this. During the course of search they can take those incriminating documents and the valuables with them, duly inventoried. The search team can take the documents and valuables, but they do not have the power to release the same.

3. There after the wing conducting search has to prepare an appraisal for the assessing officer, stating the reasons for conducting the search and what they found in the operation so conducted.

4. A statement is recorded, by the officer before and after the search, not only to explain the facts but also to locate the corroborative evidences. The statement in itself cannot become a basis of addition. From this the corroborative evidence have to be gathered, and if no corroborative evidences come out, then the statement cannot become the basis of evidence and as per the Evidence Act, a person cannot be forced to depose against himself.

5. The Income tax department is not concerned about the legality of the income. It is not within their purview. If they find anything illegal, then they can inform or share the information with, who has the authority to take actions.

6. Each person has a unique way of wealth creation and each person has different priority and different ways to hold the same.

7. Reason for the search is not disclosed even during the time of search, or even after the same. Information held by the department is also kept confidential.

8. The income of a person is either his investment or his expenditure. The result of the search means the total investment made by the assessee plus the total expenditure so recorded by him in the incriminating documents found minus the total investments already declared in the returns filed before the date of search in the regular ways. This is just a brief.

9. In course of search, there are many documents and materials found which look to be incriminating in the eyes of the Authorized officer, which they seize. Thereafter they prepare a unique appraisal report for the assessing officer in the sealed cover, stating the reason for conducting the search, identifying the persons and relevant entities over whom the warrants were issued, and the persons on whom the survey was conducted. Thereafter they state the reasons for the search and the incriminating materials found during the course of search are summarized so that immediately the notices for assessments are issued.

10.             This report becomes very much relevant for the issuance of notice under section 153A which is the assessment proceeding.  The notice needs to be prepared in light of the same and it should not be on the standard format.

11.             Search assessment means, the adjudication of the result of search by the assessing officer. Search is just like a FIR or police investigation, (put in a simple manner), whereas Appraisal report is like the charge sheet, in simple manner, whose adjudication is done at courts, in the criminal manner. This shall give a layman understand the concept of search.

12.             The changes brought in the statute, for the assessment of search cases are as under:

a.  Initially, after the search was conducted, the assessments used to be done under section 143(3) and reopening of the cases were done under section 148, for which lots of legal issues came up and the matter looked complicated thereafter.

b. In 1993, a new procedure was brought in, where a block year concept emerged, and the assessments were made for the undisclosed income over the materials found during the course of search. This also raised certain legal issues.

c.  Then finally the search assessments now are done under a new system, for each year, but over the materials found during the course of search operations.

13.             Officially, the assessee is not aware of the reasons so conducted by the department, but the assessing officer has the due appraisal from the Investigation wing. Instead of assessing the income as a result of search, by issuing unique notices, a standard notice is issued asking for the details, as they are being asked in the regular assessments, defeating the purpose of the entire Search conducted. To keep a check, the Central Circles are under the same Director General, and as per the internal guidelines of the department, the assessment proceedings are monitored by him. In the Guidelines it is mentioned that the Additional Directors and Addl. Commissioners, would be conducting meetings every month, to ensure the development of each case and in the case of difference of opinion, would take a note of the same and get approvals for the higher Authorities.

14.             Now that the information are collected through the artificial intelligence, and the search is conducted by the investigation team on that basis, where the materials are available, then in order to keep the transparency, if the incriminating documents are uploaded in the systems, which can be, as most of the evidences are in electronic form only, then the search assessments can become less cumbersome and can be completed objectively. When the plethora of decided cases have ascertained many issues, and when the government intends to keep the adjudication faceless, then at this stage, the search assessments should also be conducted with the objectivity in mind.

15.             Where the investigation is conducted without the objectivity in the mind, then the result is very well demonstrated in the matter of Sushant Singh Rajput. The case started with the issue as to whether the death of Rajput was a murder or suicide. The investigation ended stating that the bollywood is full of consuming drugs, for which an actress and a few others were arrested. Still after such hue and cry nobody knows of the reason for the death of Sushant Singh Rajput. Likewise, if the reasons for search and the appraisal report becomes the body of the notice for assessments, then the assessments in search case can be very easily done in faceless regime.

16.             I have stated this in common man’s understandable language, without much of legal language to make this topic understandable to all. This has been my area of practice since 1991, where I have represented hundreds of cases, starting from the point of investigations, till the Hon’ble High courts. Many of such cases are reported ones too.