1. What is Black MoneyBlack money is funds earned illegally on which income and other taxes have not been paid. The unaccounted money hoarded illegally and concealed from the tax authorities is also called black money. So, it is essential that one does not keep any unaccounted or undeclared money, jewellery or any kind of wealth. In the event of such non-declaration, the chances of the income tax authorities conducting a raid on the taxpayer will be quite high. Therefore, the taxpayer also needs to safeguard himself while possessing someone else’s money ensuring that those are accounted for.
2. When does a raid happen?An income tax raid, technically known as the process of Search and Seizure, is one of the crucial weapons that the Income-tax department possesses to check black money. It is a measure that is known to be constitutionally valid too. A raid gets triggered under any of the following circumstances:
- Credible information of tax evasion; for instance, any evasion coming out of reports received from the Intelligence Wing of the Income tax department
- Information coming from government departments
- Information procured from assessment records of taxpayers
- Information received with regard to spending being disproportionate to income of the taxpayer i.e. an instance of lavish spending without corresponding income to match the same
- Manipulation of books of accounts, vouchers, invoices etc.
- Illegal investment in real estate
- Unexplained cash credits, share transactions etc.
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3. Who can conduct a raid?According to Section 132(1) of the Income Tax Act, the :
- Principal Director General or Director-General or
- Principal Director or Director or
- Principal Chief Commissioner or Chief Commissioner or
- Principal Commissioner or Commissioner
- Additional Director or
- Additional Commissioner or
- Joint Director or
- Joint Commissioner or
- Assistant Director or
- Deputy Director or
- Assistant Commissioner or
- Deputy Commissioner or
- Income-tax Officer to conduct a tax raid. The authorizing officer will do so, if he has a “reason to believe” that :
- A taxpayer has failed to comply with any summons or notices sent to him by the Department or
- He has in his possession money and secondly, such money represents either wholly or partly income or property which has not been disclosed.
4. Powers of tax authorities during a raidThe officer authorized to carry out the raid can:
- Enter and search any building, place, etc. where he has a reason to suspect that the books of account, other documents, money, bullion, jewellery or other valuable article or thing representing undisclosed income is kept
- Break open the locks, where the keys are unavailable
- Carry out personal search of a person who is suspected to have secreted some item as mentioned in (1) above
- Seize the items as mentioned in (1) above
- Place marks of identification and take extracts or copies of the books of account and other documents
- Make a note or inventory of the valuables found during the search
5. Assets that can be seizedThe authorized officials can seize the following types of assets:
- Undeclared cash, jewellery
- Books of accounts, challan, diaries, etc.
- Computer chips and other data storage devices
- Documents relating to property, deed of conveyances, etc.
6. Assets that cannot be seizedThe authorized officials cannot seize the following types of assets:
- Stock-in-trade (except cash) of a business
- Assets or cash which are disclosed before the Income Tax and Wealth Tax Department
- Assets declared in books of account
- Cash which are duly explained
- Jewellery provided in wealth tax return
- Gold up to 500 gm for each married lady and 250 gm for each unmarried woman and 100gm per male member
7. Rights of a person during a tax raid
- To insist on personal search of ladies being taken only by a lady, with strict regard to decency
- To have at least two respectable and independent residents of the locality as witnesses
- A lady occupying an apartment being searched has a right to withdraw before the search party enters, if, according to custom, she does not appear in public
- To call a medical practitioner in case of emergency
- To allow the children to go to school, after checking their bags
- To have the facility of having meals, etc. at the normal time
- To inspect the seals placed on various receptacles, sealed in course of search and subsequently at the time of reopening of the seals
- To have a copy of the panchanama together with all the annexures
- To have a copy of any statement that is used against him by the Department
- To have inspection of the seized books of account, etc., or to take extracts therefrom in the presence of any of the authorised officers or any other person empowered by him
8. Rights of a person after a tax raidThe person from whose custody any books of account or other documents are seized may make copies thereof or take extracts therefrom in the presence of any of the authorized officers or any other person empowered by him. An aggrieved person can file a writ petition before the High Court challenging the raid, if he feels that the action of the department was unfair. He can also challenge the assessment and file an appeal before the Commissioner of Income Tax (Appeal).
9. Duties of a person during a raidi. To allow free and unhindered ingress into the premises
ii. 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 authorised officer
iii. To identify and explain the ownership of the assets, books of account and documents found in the premises
iv. To identify every individual in the premises and to explain their relationship to the person being searched. He should not mislead by impersonation. If he cheats by pretending to be some other person or knowingly substitutes one person for another, it is an offence punishable under section 416 of the Indian Penal Code.
v. Not to allow or encourage the entry of any unauthorised person into the premises.
vi. Not to remove any article from its place without notice or knowledge of the authorised officer. If he destroys any document with the intention of preventing the same from being produced or used as evidence before the court or public servant, he shall be punishable with imprisonment or fine or both, in accordance with section 204 of the Indian Penal Code.
vii. To answer all queries truthfully and to the best of his knowledge. He should not allow any third party to either interfere or prompt, while his statement is being recorded by the authorised officer. viii. Being legally bound by an oath or affirmation to state the truth. If he makes a false statement, he shall be punishable with imprisonment or fine or both under section 181 of the Indian Penal Code.
ix. Similarly, if he provides evidence which is false and which he knows or believes to be false, he is liable to be punished under section 191 of the Indian Penal Code.
x. To affix his signature on the recorded statement, inventories and the panchanama.
xi. To ensure that peace is maintained throughout the search process, and to cooperate with the search party in all respects so that the search action is concluded at the earliest and in a peaceful manner.
xii. Similar co-operation should be extended even after the search action is over, so as to enable the authorised officer to complete necessary follow-up investigations at the earliest.
10. How can one prevent raid?
One can lawfully avoid a tax raid by being compliant in terms of responding to summons and notices sent to him by the department and also refrain from keeping money, property undeclared.