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March 13, 2000

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When the tax sleuths conduct a 'raid'

Larissa Fernand

Having the tax boys ransack your home and turn it upside down can be a harrowing experience. Thus, it would make matters a lot easier if you are aware of your rights and duties when faced with such an eventuality.

Decoding the legalese

  • Assessment: Income tax authorities looking at a filed income tax return.
  • Scrutiny: When they decide to conduct a detailed and in-depth review of the return.
  • Survey: Could be routine (often conducted in an area from time to time) or acting on specific information. A factory showing a low turnover may have the authorities snooping around checking stocks. A restaurant showing losses may have them sitting there a couple of hours, or maybe the entire day, to check how business is doing. Don't ask them for a warrant, they don't need one, anyway. But then they cannot walk away with any of your possessions, either. Don't worry about them coming home. A survey is only done on commercial premises.
  • Search & Seizure: In plain English, it is a raid. And it can be done on commercial or residential premises, need not be preceded by a survey and they can walk away with whatever they feel is undisclosed. This time around, however, they do need a warrant.
  • Panchnama: A document, detailing the entire 'Search & Seizure' operation, which has to be signed by you and two witnesses.
What sets the ball rolling

Information has various ways of reaching the Income Tax Department. It could come from other government departments, newspapers, magazines and publications, or from informers. Did you know that informers are awarded 10 per cent of the tax on unaccounted money if the lead proves to be a genuine case of tax evasion?

However, before you convince yourself that this is a lucrative way to earn a few extra bucks, think again. Informers are liable to be prosecuted under Section 182 of the Indian Penal Code if the allegations prove to be false.

Once the Income Tax Department is satisfied that they have a genuine case of tax evasion, the information is passed on to the Director of Investigation who can then authorise a search.

In the course of a raid, if officials discover illegal foreign exchange or ascertain that money has been siphoned off into overseas banks, the relevant information is passed onto the Foreign Exchange Regulation Act (FERA) officials. Incidentally, raids can be conducted under various Acts. The most common being the Income Tax Act, the Central Excise and Salt Act, and FERA. The only difference is that while you can't be arrested during a raid under the Income Tax Act, you enjoy no such advantage in the other two.

What the process entails

It starts as a wake-up call with the tax sleuths knocking at your door as early as 6:00 am so that they have the luxury of spending the entire day at your place. Not a great way to start the day. For you, i.e. Also, you certainly can't tell them to come back later or refuse to let them in, lest you want to land up in jail.

Now that you are forced to greet them (they never come alone), have the presence of mind to ask for a warrant of authorisation and check to see if it is actually issued in your name: for, maybe it is your neighbour they are actually after. Convinced that it is you they have set their sights on, check out the credentials of the search party and then introduce them to each and every one at your house. If you have guests, they too have to be introduced. And don't try packing them off because nobody is allowed to leave once the tax authorities come calling. After the introductions, ask two witnesses over. Make sure they are not the gossipy folks next door or else the entire neighbourhood will hear of your plight by that evening.

Then starts the grilling. Don't try to use the line: "I won't talk without my lawyer present." The law does not require your lawyer to be present. Try to be as honest as possible. Questions will vary from how much you earn, what your monthly expenditure is, how many people you support, how much of money is currently on the premises, do you have any gold or valuables at home, and do you possess a bank locker. If you are not sure of an answer, say so.

Then comes the crucial part when they may just decide to tear your house apart. Here, you can't do a thing except watch. And when you see them rip your Shyam Ahuja furnishings in the hope of finding dollars stashed in the mattress, or tear down the wall-paper in a bid to find a hollow in the wall, you can cry your heart out. Of course, you have the option of ignoring them and going right ahead with your day. Do you need to eat? No one can stop you, though chances are you would have lost your appetite by then. Their's, nonetheless, is whetted. They may follow you into the kitchen and check jars, bottles and cupboards to see if anything interests them, and they wouldn't be looking for food. There is no room in the house that is not accessible to the raid party.

Since all your statements will be recorded along with the entire proceedings in what is called a 'panchnama,' read them carefully before you and the independent witnesses sign it. If the authorities want to seize any 'evidence', you can't stop them. But they can only take books and belongings of the person named in the warrant. They will make a list of these articles which will have to be signed by you and the two witnesses.

Whew! They've finally gone. Now get on the phone and call your lawyer and chartered accountant. Then write to the officer who authorised the search requesting for a copy of the warrant as well as reasons and the statements recorded.

And, if the tax boys found nothing incriminating, you can challenge the action of the department and file a writ petition to get the raid declared null and void. However, in case you were thinking of nailing down any particular officer, forget it. The income tax officials have immunity under Section 293 that states that they cannot be sued if nothing is found during a raid.

Your rights and duties

Your duty: You cannot stop them from entering your house.
Your right: Check for a sealed warrant of authorisation in your name and with your address signed by the commissioner or senior commissioner.

Your duty: Introduce everyone in your house.
Your right: Ask the members of the search party to introduce themselves. The person heading the team should be of the rank of officer or inspector. Frisk them before the search to ensure that they don't plant any 'evidence' when they are raiding your premises.

Your duty: Refrain from making any calls to anybody, including your lawyer. A call is only permitted to your doctor or for an ambulance, in case you end up getting a heart attack during the proceedings.
Your right: You can call two independent witnesses to be present during the proceedings and when statements are being recorded.

Your duty: Allow them to seize account books, cash, jewellery, ornaments, antiques, property papers, documents, bullion, valuables and any other article which they feel is incriminating. They can also keep them in a cupboard and seal it.
Your right: All documents, books and belongings taken by the authorities will have to be returned within 180 days, except for a specifically recorded reason that has the approval of the commissioner.

Your duty: Answer each and every question put forth to you.
Your right: To get a copy of any statement before it is used against you in prosecution proceedings.

What happens then

Now you have to file a special return for search proceedings. A notice estimating your undisclosed income will be served and tax at the rate of 60 per cent will be imposed. The notice will specify when you have to pay up (15 to 45 days) with an interest of 2 per cent per month imposed on delayed payments. If you state that you have an undisclosed amount of Rs 10,00,000 but the tax authorities figure it out to be Rs 20,00,000, then you pay a penalty that could be as high as three times the difference of Rs 10,00,000. Failure to furnish such a return can you three months imprisonment under Section 276 CC of the Income Tax Act.

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