Survey,search and seizure provisions ppt by sh r k gupta ccit mumbai

Overview of Survey and Search and Seizure Provisions Under Income Tax Act 1961 And Assessment Thereof

[in the National Direct Tax Seminar on 13TH July 2013 organized by Bhopal Branch Of CIRC at Bhopal]organized by Bhopal Branch Of CIRC at Bhopal]

Presented By

Ram Krishna Gupta

CCIT Mumbai

www.simpletaxindia.net

SCOPE oF DISCUSSION� Search provisions-legal Action-validity of action-release of

explained assets

� Presence of counsel -Quasi Judicial proceedings –meaning thereof-Nature of Enquiries –

Confession –Advantages and Disadvantages� Confession –Advantages and Disadvantages

� Confession -How to be made

� Ingredients of Retraction

� Post search Enquiry

� Post search action necessarily to be taken

� Assessment-how to determine income, etc

� Controversies –Judicial Pronouncement


SEARCH AND SEIZURE-S.132� SEARCH - WHEN POSSIBLE� WHO CAN AUTHORIZE [U/s 132(1)� Source of information� The information may come from a variety of sources: � Professional informers, business or professional rivals, � Professional informers, business or professional rivals,

disgruntled employees, unhappy wife, estranged brothers or a disgruntled son-in-law or a harassed daughter-in-law.

� The information collected during survey may also form the basis.

� The object is to get direct and clinching evidence regarding transactions, duplicate set of books, undisclosed, concealed income, wealth and assets.


Conditions for valid search� Prabhubhai Vastabhai Patel Vs R.P. Meena 226 ITR

781 (Guj) has summarised conditions laid down by various judgements

� Authority must have information � Authority must have information

� Reason to believe & not suspect

� It must be info & not rumour or gossip or hunch.

� Information must exist prior to authorisation.

� reason to believe must have reasonable bearing / connection to information.

� Existence of condition precedent is open to judicial scrutiny.

� But sufficiency of information is not open to judicial scrutiny.


SEARCH AND SEIZURE-S.132� VALIDITY OF SEARCH – WRIT JURISDICTION

� At assessment stage: Chitra Devi Soni 313 ITR 174(Raj.) in favour of assessee SLP dismissed.

� Paras Rice Mills 313 ITR 182(P&H);Gaya Prasad Pathak� Paras Rice Mills 313 ITR 182(P&H);Gaya Prasad Pathak290 ITR 128 (MP) against the assessee


Illegal Search – Consequences

� When a search is held as illegal by High Court :

� All assets seized to be returned

� Original copies of books of account or other documents to be released.documents to be released.

� No proceedings u/s. 153A or u/s. 153C t.

� No presumption u/s. 132(4A) / 292C

� Costs may be awarded

� However, department is not precluded from using the document [Pooranmal Vs. Director of Inspection (1974 ) 93 ITR 505 (SC).]


PRESENCE OF COUNSEL

QUASI JUDICIAL PROCEEDINGS-MEANING

A.Investigation and collection of incriminatingevidence and relevant facts and their verification,examination (Police inspector role-administrative)examination (Police inspector role-administrative)

B.Issuing of show cause notice to the assessee aftercharges are framed (ie prosecutor’s role - to filecharge sheet before the trial court- administrative )

C.Appreciation and evaluation of the evidencescollected by him and explanation and evidencesfiled by the assessee (Judge’s Role)


PRESENCE OF COUNSELNature of INature of I--T proceeding T proceeding � The Madras High Court, in the G. Giribabu & Anr. (2010)

326 ITR 575 Madras) case, decided that a person summoned cannot insist that he should be permitted to appear with his counsel during preliminary enquiry appear with his counsel during preliminary enquiry proceedings.. The case arose under the FEMA provisions.

� The petitioners' case before the high court was that the right to be represented by an advocate flows as the cross examination is justified as if before a court of law. The FEMA/I-T authorities have no jurisdiction or power to deny the presence of an advocate. The right of fair procedure is part of the requirement of article 21 of the Constitution of India.


PRESENCE OF COUNSELNature of Enquiry� There is great latitude allowed to an income-tax authority and the

procedure in an adversary system of proceedings cannot be applied to him. even at the stage of collection of information.

� The court held that the functions that the AOs under the IT Act and officers of the ED under FEMA perform are of an inquisitive and officers of the ED under FEMA perform are of an inquisitive nature seeking and collecting information-not that of deciding any issues.

� Basically, these are information gathering exercises. When the information gets collected through the machinery of these provisions and it is to be put to use in passing orders, the parties involved are to be given opportunity to have their say in accordance with the principle of natural justice and they get full opportunity for cross-examination and, at that stage, the assessee/party proceeded against, can be represented by his/her counsel-not at the enquiry stage.


STATEMENTS/CONFESSION� Statement on oath-Meaning thereof

� Sec.8 of INDIAN OATHS ACT, 1969: Persons giving evidence bound to state the truth: Every person giving evidence on any subject before any Court or any person evidence on any subject before any Court or any person authorized to administer oaths and affirmation shall be bound to state the truth on the subject.

� Name of Old act - The Indian Oaths Act, 1873


Binding nature of a statement

made on oath

� an admission in statement recorded on oath is an extremely important piece of evidence but it cannot be said that it is conclusive : Pullangode Rubber Products Co. Ltd. (91 ITR 18)(SC),Krishnan vs. Products Co. Ltd. (91 ITR 18)(SC),Krishnan vs. Kurushetra University (AIR 1976 SC 377) )(SC)

� a statement recorded u/s.132(4) at midnight cannot be considered a voluntary statement if it is subsequently retracted by the assessee and necessary evidence is laid contrary to such admission: Kailashben ManharlalChokshi (174 Taxmann 466)( Gujrat):


Statement made on oath� C.I.T. vs. Radhakishan Goyal (278 ITR 454)(

Allahabad) that it is a matter of common knowledge, which cannot be ignored that the search is being conducted with the complete team of the officers consisting of several officers with the police force. Usually consisting of several officers with the police force. Usually telephone and all other connections are disconnected and all ingress and egress are blocked. During the course of search person is so tortured ,harassed and put to a mental agony that he loses his normal mental state of mind and at that stage it cannot be expected from a person to pre-empt the statement required to be given in law as a part of his defence.


Statement made on oath

� VIOLATION OF HUMAN RIGHTS : Chief Commissioner of Income-tax (CCA) v. State of Bihar Through The Chief Secretary, [2012] 18 taxmann.com 70 (Pat.):Due regard to human dignity taxmann.com 70 (Pat.):Due regard to human dignity and value cannot be ignored.


ASPECTS RELATING TO SURRENDER OF UNDISCLOSED

INCOME

� Why to make surrender?

� To avoid penalty

� To mitigate rigors of search, To wrap up the search proceedings

Conditions of surrender under section 132(4) Conditions of surrender under section 132(4) r.w.s 271AAB

� State the manner how undisclosed income has been derived

� Substantiate the manner

� Pay the taxes before the specified date.


Retraction of Surrender� To be made at the earliest

� Department may view it adversely

� Ultimately nature of evidences will decide

� Challenging valuation, not retraction

� Challenging calculation, not retraction

� Conditional surrender- fulfilling conditions

� Consequences of retraction.

� In case of retraction burden of proof on assessee : KrishanLal Shiv Chand Rai v. CIT (1973) 88 ITR 293 (P&H).


Surrender- consideration

� Cover incriminating material found

� Creation of capital

� Generation of income v. Application in assets

� Set-off of losses

� Assets acquired prior to seven financial years� Assets acquired prior to seven financial years

� Current year income not recorded, advance tax not paid

� Conditional surrender

� Principle of Peak Balance

� No surrender for third party


SURRENDER OF UNDISCLOSED INCOME: How to be

made during the course of search

� A paragraph mentioning that the surrender letter submitted by the assessee is in the nature of statement of the assessee u/s.132(4).

� To mention that the declaration is subject to no penal � To mention that the declaration is subject to no penal consequences.

� To mention broad manner of earning undisclosed income and to substantiate it to the extent possible.

� Surrender letter to be signed by of the person/entity making the surrender. In case a person makes declaration on behalf of other person, he should be authorized to do so.


SURRENDER OF UNDISCLOSED INCOME:

� Surrender of undisclosed income to be made in the hands of theperson/entities against whom search warrant has been issued.

� To ensure that surrender letter is given prior to the date ofconclusion of search with respect to the concernedperson/entity.

� In case declaration is made amending or improving upon any� In case declaration is made amending or improving upon anyearlier declaration, this fact should be clearly mentioned.

� In case there is seizure of cash, assessee should state andrequest to treat the amount of cash seized as payment ofadvance tax in the hands of concerned person/entity.

� A line mentioning that surrender of undisclosed income is beingmade to buy peace and to settle the dispute.


Application of seized assets (Sec 132B)

The assets seized shall be dealt with in the following manner

i) Seized assets may be applied towards existing and future liability (sec 132B(1)(i)

ii) Release of seized asset after meeting existing liabilities in certain cases 132B(1)(ii)

iii) Money seized may be applied for discharging the liabilities (sec 132B(1)(ii)

iv) Assets other than money may also be applied to discharge liabilities (sec 132B (1)(iii) 132B (1)(iii)

Return of excess assets seized (section 132B(3)

� the interest shall be payable from the expiry of the period of 120 days from the execution of the last of the authorizations for search till the date of completion of assessment under section 153A or block assessment.


RELEASE OF ASSETSApplication for release of disclosed assets, if seized :

� The first and second proviso to section 132B(1)(i), provides :

� to make application to the Assessing Officer for release of asset within thirty daysfrom the end of the month in which the asset was seized. explaining source ofacquisition of the asset

� The amount of any existing liability referred to in clause (i) of section 132B(1) maybe recovered out of such asset.

� The remaining portion, if any, of the asset may be released with the prior approvalof the Chief Commissioner or the Commissioner.with-in a period of one hundredand twenty days from the date on which the last of the authorizations for search wasexecuted.

� Delay in release of assets – Remedies with the assesee

� Approach to the higher administrative authorities.

� Writ to the High Court claiming compensation for delay in release of the assets.

� File petition with the office of Ombudsman


POST SEARCH LETTERS� request to appropriate cash seized toward advance tax. Now not

possible from 1st June 2013� Application u/s.132B for release of disclosed assets if any seized

along with all the relevant evidences.(Refer 1st and 2nd proviso to 132B(1)(i)

� Letter requesting to give photocopies of all the documents, papers or books of account seized. Delay in supplying copies of seized material – Levy of interest not justified.[Refer Board order issued material – Levy of interest not justified.[Refer Board order issued u/s119(2)(a)] reported in 219 ITR 169 (ST)

� Letter for release by person/entity not covered in the search, in case any books of account or assets belonging to them have been seized.

� Letter with complete evidences regarding disclosure of jewellery or assets in case restraint order u/s.132(3) has been passed but assets have not yet been seized.

� Letter for release of jewellery against deposit of equivalent amount of cash /furnishing of bank guarantee.


Presumption as to ownership. S. 292 C

� [Inserted by Finance Act, 2008, w.r.e.f. 1/06/2002]. Presumption regarding

� Belongingness of book of account, other documents, money, bullion, jewellery, other valuable article or thing

� Truthfulness of the contents � regarding signature and handwriting and stamping and

execution or attestation.� regarding signature and handwriting and stamping and

execution or attestation.

� NOTE: This concept is in line with the principle given under Indian Evidence Act. Section 110 of Indian Evidence Act. 1872 reads as under :“ when the question is whether any person is owner of anything of which he is shown to be in possession, the burden of proving that he is not the owner is on the person who affirms that he is not the owner”.


HANDLING OF ASSESSMENT IN SEARCH CASES

� Systematically and chronically arrange all the seized documents entities wise and Assessment year wise . For that, get the transactions entered in excel sheet preferably in the following columns. Name of Entity, Date, amount ,narration of expenditure, narration of income, narration of investment and premise wise,and premise wise,

� Benefit of telescoping /peak credits

� Where any undisclosed income is offered in the return filed u/s 153A then the expenditure incurred to earn that income may also be claimed.

� Below the computation of income put the suitable and appropriate notes-provide flexibility , no allegation of non disclosure etc


RELEVANT ISSUES UNDER SECTION 153A / 153C (made after

31/5/03)

� Assessment for the preceding seventh year prior to the year of search can be reopened under section 148.Ramballabh Gupta v. Asstt. CIT(2007) 288 ITR 347 (MP).

� Fresh assessments to be framed for all the preceding six years whether assessment proceedings are abated or not.years whether assessment proceedings are abated or not.

� Notice under section 143(2) within time limit as prescribed is mandatory in case of proceedings under section 153A :Asstt. CIT v. Hotel Blue Moon (2010) 321 ITR 362 (SC).


RELEVANT ISSUES UNDER SECTION 153A / 153C

� Recording of satisfaction before invoking provision of section 153C :Manish Maheshwari v. Asstt. CIT (2007) 280 ITR 341 (SC).

� Jurisdiction under section 153C can be assumed when seized material belong or belongs to other person :Vijaybhai N. Chandrani v. Asstt. CIT (2010) 38 DTR (Guj.) 225.Reference to departmental valuation officers in search cases.� Reference to departmental valuation officers in search cases.

� Reference for special audit under section 142(2A).� Reliance on statement recorded by authorized officer during

search.� No addition for investment in jewellery upto specified limit

not required to be seized.� Assessment in the case of retraction surrender of

undisclosed income.


ASSESSMENT U/S.153A IN THE CASE OF CONCLUDED

ASSESSMENTS� ASSESSMENT U/S.153A HAS TO BE MADE ON THE BASIS OF

INCRIMINATING MATERIAL ONLY IN THE CASE OF CONCLUDED ASSESSMENTS

� All Cargo Global Logistics Ltd. vs. DIT, 2012-TIOL-391-ITAT-Mum-SB, i.e., on the basis of undisclosed income/property/books of accounts/ documents found during 132/132A operation.

� A.C.I.T. vs. Pratibha Industries Ltd., [2012] 28 taxmann.com 246 (Mum.) (Mum.)

� Jai Steel (India) vs. Assisstant Commissioner Of Income Tax (dt.24.05.2013)(Raj.) held

� (a) the assessments or reassessments, which stand abated in terms of II proviso to Section 153A of the Act, the AO acts under his original jurisdiction, for which, assessments have to be made; (b) regarding other cases, the addition to the income that has already been assessed, the assessment will be made on the basis of incriminating material and (c) in absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made.


Penalty Provisions� For earlier years U/s 271(1)(c)

� For specified years U/s 271AAA Introduction of Section 271AAB by Finance Act, 2012 w.e.f.1st july 2012

� Penalty for undisclosed income even for specified previous year in staggered manner:-previous year in staggered manner:-

� Declared during search in statement under section 132(4) – 10%

� Declared in the return of income filed under section 153A – 20%

� Not Declared, addition made during assessment – 30%-90%


Survey Under Income Tax Act,

1961� Jurisdiction Of Income tax authority for conducting

survey s. 133A (1)� Territorial Jurisdiction� Assessee specific Jurisdiction� Authorized Jurisdiction� The place of the business or profession shall include

any other place where the books of accounts or other any other place where the books of accounts or other documents or any part of the cash or stock or other valuable article is kept.(Business related material)

� Expln.to Sec.133A defines an Income Tax Authority : Director /Commissioner to Inspector level however If authorized by Joint/Addl. Director/ commissioner then Deputy / Assistant Director / Commissioner ITOs ,Tax Recovery Officer,Inspector of Income Tax (For certain Specific purpose)


Jurisdiction: � Residential premises can also be covered if the

assessee states that business/professional work/document/assets is there

� Survey is possible even to enquire about tax deducted at source : Reckitt and Colman of India Ltd. vs. ACIT [2001] 251 ITR 306 (Cal)..

� Business or residential premises of third parties, � Business or residential premises of third parties, including a Chartered Accountant, a pleader, or Income Tax Practitioner, of whom the assessee may be a client, are not places which could be entered into for the purpose of section 133A. (Circular no. 7- D dt3/5/1967),however if it is found that assessee’s books of accounts/documents are there than for that limited purpose it can also be covered.

� Note : Survey team has no power to break open any locked premises as power to break open any lock is not conferred u/s 133A as against specific provisions contained u/s 132.


APPLICATION TO SETTLEMENT COMMISSION

� Pre-requisite for Filing Application –� 1. An application before the Settlement Commission can be made only

if the additional income disclosed exceeds Rs 10 lakhs in normal case and in search case if disclosure exceeds 50 lakhs.

� 2. Application can be made only at the stage of the pendency of the original assessment proceedings before the assessing officer (AO).original assessment proceedings before the assessing officer (AO).

� 3. No application can be made when proceedings are initiated for assessment or reassessment under Section 148 of the Income-Tax Act, 1961

� 4. Proceedings for making fresh assessment when original assessment was set aside either by the Commissioner or by the Tribunal will also be outside the purview of the application for settlement.

� 5. An application can be made by an assessee for settlement before the Commission only once in a lifetime.

� Advantage: Order is conclusive and final. Waiver of penalty and prosecution under Income Tax Act can be given


There are two kinds of people, those whodo the work and those who take the credit, try to be in the first group, there is lesscompetition.

ThanksThanks

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Survey,search and seizure provisions ppt by sh r k gupta ccit mumbai