Time and again, the Indian government has taken initiatives to discourage hoarding of black money. Out of all the viable ways to curb illegal wealth, Income tax raids have been the most successful one.

 What is Black Money

Black money is funds earned illegally on which income and other taxes have not been paid. The unaccounted money that is concealed from the tax authorities is also called black money. Therefore it is essential that one does not keep any unaccounted or undeclared money, jewellery or any kind of wealth, commonly known as black money. 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.

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 and is a measure that is known to be constitutionally valid too. A raid gets triggered under any of the following circumstances:

I. Credible information of tax evasion; for instance, any evasion coming out of reports received from the Intelligence Wing of the Income tax department

II. Information coming from government departments

III. Information procured from assessment records of taxpayers

IV. 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

V. Manipulation of books of accounts, vouchers, invoices etc

VI. Illegal investment in real estate

VII. Unexplained cash credits, share transactions etc

Who can conduct a raid?

According to Section 132(1) of the Income Tax Act, the :

I. Principal Director General or Director General or

II. Principal Director or Director or

III. Principal Chief Commissioner or Chief Commissioner or

IV. Principal Commissioner or Commissioner

may authorize an

a. Additional Director or

b. Additional Commissioner or

c. Joint Director or

d. Joint Commissioner or

e. Assistant Director or

f. Deputy Director or

g. Assistant Commissioner or

h. Deputy Commissioner  or

i. Income-tax Officer  

to conduct a tax raid. The authorizing officer will do so if he has a ” reason to believe” that :

1. A taxpayer has failed to comply with any summons or notices sent to him by the Department or

2. He has in his possession money and secondly such money represents either wholly or partly income or property which has not been disclosed.

Powers of tax authorities during a raid

The officer authorized to carry out the raid can:

1. 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

2. Break open the locks, where the keys are unavailable

3. Carry out personal search of a person who is suspected to have secreted some item as mentioned in (1) above

4. Seize the items as mentioned in (1) above

5. Place marks of identification and take extracts or copies of the books of account and other documents

6. Make a note or inventory of the valuables found during the search

Assets that can be seized

The authorized officials can seize the following types of assets –

1. Undeclared cash, jewellery

2. Books of accounts, challan, diaries, etc.;

3. Computer chips and other data storage devices;

4. Documents relating to property, deed of conveyances, etc.

Assets that cannot be seized

The authorized officials cannot seize the following types of assets –

1. Stock-in-trade (except cash) of a business.

2. Assets or cash which are disclosed before the Income Tax and Wealth Tax Department

3. Assets declared in books of account;

4. Cash which are duly explained

5. Jewellery provided in wealth tax return

6. Gold up to 500 gm for each married lady and 250 gm for each unmarried woman and 100gm per male member

Rights of a person during a tax raid

i. To insist on personal search of ladies being taken only by a lady, with strict regard to decency

ii. To have at least two respectable and independent residents of the locality as witnesses

iii. 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

iv. To call a medical practitioner in case of emergency

v. To allow the children to go to school, after checking their bags

vi. To have the facility of having meals, etc., at the normal time

vii. To inspect the seals placed on various receptacles, sealed in course of search and subsequently at the time of reopening of the seals

viii. To have a copy of the panchanama together with all the annexures

ix. To have a copy of any statement that is used against him by the Department

x. 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

Rights of a person after a tax raid

The person from whose custody any books of account or other documents are seized may make copies thereof, or take extracts there from 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).

Duties of a person during a raid

i. 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

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.