SEARCH, SEIZURE AND SURVEY

1
All India Chartered Accountants Society 6th
Annual Workshop on Direct Taxes
SEARCH, SEIZURE SURVEY
CA Rohit Jain Vaish Associates, Advocates
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SEARCH, SEIZURE AND SURVEYA WALKTHROUGH

• Search - Stages in search proceedings
• Stage 1 Authorization of search
• Stage 2 Actual conduct of Search Proceedings
  
• Stage 3 Post Search Proceedings/ Assessment
• Practical aspects of search
• Penalty in search cases
• Survey Proceedings

3

• SEARCH - AN INTRODUCTION
• Means to look for or seek out
• Mechanism for gathering evidence regarding
  evasion of tax and for unearthing black money
• Invading the personal/ office premises of any
  taxable person by surprise
• THREE STAGES OF SEARCH UNDER SECTION 132
• Pre-search enquiries and authorization
• Actual conduct of search
• Post Search - Assessment of income

4
Stage - I

• Pre search enquiries
• and authorization

5

• Pre-search enquiries/ information
• Summons u/s 131(1A)
• Annual Information u/s 285BA read with Rule 114E
  
• Private Sources/ Informers
• Pre- search investigations
• Authorization for search can be issued only
• by a Competent Authority and
• after satisfying prerequisite conditions
  prescribed under section 132

6

• Competent Authority

• Director General
• Director
• Chief Commissioner
• Commissioner

• Additional Director/ Commissioner
• Joint Director/ Commissioner

May Authorize
May Authorize

• Assistant Director/ Commissioner
• Deputy Director/ Commissioner
• Income Tax Officer

Note Addl. Director, Joint Director are also
empowered by CBDT to issue authorization u/s 132
(1) refer Proviso to section 132(1) read with
Notification No. SO 2879(E), dated 11-11-2009
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• Notes / Observations
• Additional Director/ Commissioner have been
  authorized by retrospective amendment in section
  132 w.r.e.f. 1.10.1998
• To overcome following judicial precedents holding
  that such authorities did not have authority to
  authorize search-
• Dr. Nalini Mahajan vs. DIT (E) 257 ITR 123
  (Del.)
• Pawan Kumar Garg 178 Taxman 491 (Del.)
• Capital Power Systems Ltd. 222 CTR 47 (Del.)
• Raghuraj Pratap Singh vs. ACIT 179 Taxman 73
  (All.)

8

• Notes / Observations
• Vide Instruction No. 7/2003 dated 30.07.2003,
  Board has issued following guidelines
• (a) Searches shall be authorized only by DGIT
  (Inv.) and search to be carried out in cases
  where
• (i) substantial unaccounted income/ assets
  involved
• (ii) expected concealment is in excess of Rs.
  1 crore
• (b) Tax payers who are professionals of
  excellence should not be searched without there
  being compelling reasons

9

• Pre-requisite Conditions to authorize search
• Competent Authority has,
• in consequence of information in his possession,
• reason to believe that either of the three
  conditions contained in clauses (a), (b) and(c)
  of section 132 are satisfied, which are
• (a) Where any person was summoned u/s 131 or
  was issued notice u/s 142(1) to produce books or
  other documents and has failed to do so (refers
  to facts which actually exist)
• (b) Where any person will not, if summoned or
  notice issued, comply with the same
  (refers to belief likely to take place)
• (c) Where any person is in possession of
  any money, bullion, jewellery or any other
  valuable article or thing which he has either
  failed to disclose or is not likely to be
  disclosed to the Income Tax Authorities (refers
  to undisclosed moveable property)

10

• Information
• Must be something more than just rumor or a
  gossip or a hunch
• Some valid, definite information and not any
  imaginary or invalid information
• Must be authentic
• Reason to believe has been analyzed in various
  decisions to mean-
• Belief of a reasonable man formed in good faith
  and must not be mere pretence
• There must be application of mind by the
  competent authority
• Nexus between information/ material or reason and
  belief formed

11

• Following have been held to be invalid basis
• Mere knowledge about huge investment in house or
  expenditure on lavish marriage/functions refer
  L.R. Gupta 194 ITR 32(Del.) SLP dismissed CA
  891/ 93 dated 10.8.98
• Report about roaring practice or charging high
  rates from customers and about standard of living
  refer Dr. Nand Lal Tahiliani 170 ITR 592 (All.)
  SLP dismissed 172 ITR 627 and 260 ITR 67 (Cal.)

12

• Following have been held to be invalid basis
• Mere information from CBI/Police that assessee
  possess money refer Ajit Jain 242 ITR 302 (Del)
  affirmed in 260 ITR 80 (SC)
• Post search material cannot justify search refer
  Dr. Anita Sahai 266 ITR 597 (All.), Smt. Kavita
  Aggarwal vs. DIT (E) 264 ITR 472 (All.)
• What are the primary contents of a Search
  Warrant?
• Ans. Refer Rule 112 - Form No. 45
• Specifies Person
• Specifies Premises
• Identifies the condition on the basis of which
  search is authorized
• Identifies the officers authorized to conduct
  search

13

• Issues
• What is the remedy if it is felt that search has
  not been properly authorized?
• Ans. To file writ petition challenging the
  validity of search proceedings. Appellate
  Authorities have no power to adjudicate validity
  of the search proceedings
• M.B. Lal V. CIT 279 ITR 298/ 199 CTR 571 (Del.)
• Gaya Prasad Pathak vs. ACIT 162 Taxman 307 (MP)
• C. Ramaiah Reddy V. ACIT 87 ITD 439 (Bang) (SB)
• Promain Ltd V. DCIT 95 ITD 489 (Del) (SB)
• Contra
• CIT vs. Smt. Chitra Devi Soni 313 ITR 174 (Raj.)
• Once search takes place, whether legal or
  illegal, evidence collected can be used -
  refer Pooran Mal vs. DI 93 ITR 505 (SC)

14

• Issues
• Whether search is assessee specific or premises
  specific?
• Ans. Search is assessee specific and not
  premises specific.
• Refer
• Nenmal Shankarlal Parmer V. CIT 195 ITR 582
  (Kar.)
• Mrs. Dhiraj Suri 98 ITD 187(Del.)
• Dr. Mrs. Surjit Tosaria V. JCIT 92 TTJ 338
  (Del.)

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STAGE 2

• ACTUAL CONDUCT
• OF
• SEARCH
• PROCEEDINGS

16

• Powers of authorized officer
• To enter and search the place (section 132(1)(i))
• To break open locks where key not available
  (section 132(1)(ii))
• Search any person who is to get in or to go out
  (section 132(1)(iia))
• To direct facility to inspect books or other
  documents (section 132(1)(iib))

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• Powers of authorized officer
• Make inventory and/or place marks of
  identification on books of account/ documents or
  make extracts or copies therefrom(section
  132(1)(iv) (v))
• Seek police assistance (section 132 (2))
• Record statement under sub-section (4)
• Seize any such books of accounts, documents,
  money, bullion, etc (section 132(1)(iii)).
• Pass a restraint order or prohibitory order
• w.e.f. 1.06.2003, stock in trade cannot be
  seized at the time of search.

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• RIGHTS OF SEARCHED PERSON
• To see warrant of authorization following
  particulars must be checked -
• Companies/ Directors named in the warrant
• Premises specified
• Designation of Competent Authority
• Reason for search
• Authorized Officers
• In case search warrant does not contain the
  requisite particulars, search can be resisted.
• Aforesaid facts must be recorded somewhere for
  future reference.
• Searched person has a right to continue business
  as usual
• L. R. Gupta 194 ITR 32 (Del.)

19

• Rights recognized by Taxpayers Charter issued by
  CBDT
• 208 ITR (St.) 5
• To see the warrant duly signed and stamped
• To verify the identity of each member search
  party
• To make personal search of all members of search
  party
• To insist on personal search of ladies by ladies
  only
• To have two witnesses (refer Rule 112 (6) and (7))

20

• Rights recognized by Taxpayers Charter issued by
  CBDT
• 208 ITR (St.) 5
• Allow children to go to schools
• To seek medical help, if required.
• To have the facility of having meals at the
  normal time.
• To have copy of Panchnama together with annexures
• To have copy of any statement used against the
  person

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• Duties of Person Searched recognized by
  Taxpayers Charter issued by CBDT - 208 ITR
  (St.) 5
• To allow free and unhindered entry to the search
  party
• To see the warrant and sign the same
• To identify and explain ownership of assets or
  books of account/ documents
• To identify every individual in the searched
  premises

22

• Duties of Person Searched recognized by
  Taxpayers Charter issued by CBDT - 208 ITR
  (St.) 5
• To answer queries to the best of his knowledge
• To affix his signatures on statements,
  inventories and Panchnama
• To ensure that peace is maintained through the
  duration of search
• Not to remove any article from its place without
  prior knowledge of the authorized officer

23

• SEIZURE
• Seizure means forcibly taking over possession
  from the owner or person who has possession and
  who is unwilling to part with possession refer
  Tarsem Kumar 161 ITR 505 (SC)
• Only an undisclosed asset could be subjected to
  seizure section 132(iii)
• Refer
• L.R. Gupta 194 ITR 32 (Del.)
• Om Prakash Jindal 104 ITR 389 (PH)
• Indiscriminate search and seizure of third party
  books/ assets not permissible-
• H.L. Sibal vs. CIT 101 ITR 112 (PH)
• S.R. Batliboi Co. vs. DIT (Inv.) 224 CTR 369
  (Del.)

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• Modes of Seizure
• Actual Seizure
• Deemed Seizure/Restraint order
• (second proviso to section 132(1))
• Due to physical attributes, possession of any
  valuable article or thing not possible or
  practicable then
• order served on the person in possession of such
  article or thing and
• person directed not to part/ deal with the
  article or thing
• Such action is termed as deemed seizure

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• PROHIBITORY ORDER (SECTION 132(3))
• Where its not practicable to seize any
• books of accounts/ others documents,
• money, bullion, jewellery,
• other valuable article or thing
• order served on person in possession of above
  and
• such person is directed not to part or otherwise
  deal with same

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• PROHIBITORY ORDER (SECTION 132(3))
• Does not amount to deemed seizure
• Search concludes when prohibitory order is lifted
  and Panchnama is prepared therefor
• Such order is valid for 60 days sub-section (8A)
  power to extend the period has been taken away,
  w.e.f. 1.06.2002

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• PROHIBITORY ORDERS
• Articles or things referred to in sub-section (3)
  of section 132 are those which the authorized
  officer was empowered to search for and seized
  and no other. An asset which is already known
  cannot be subject to search and seizure and
  consequently, cannot be subject of an order under
  section 132(3) of the Act
• Ramesh Chander vs. CIT ITR 244 (PH)
• Moti Lal 80 ITR 418 (All)
• Sardar Praduman Singh Vs. UOI and Ors 166 ITR
  115 (Del.)

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• PROHIBITORY ORDERS
• No order can be passed u/s 132(3) where
  authorized officer is in doubt whether the asset
  is disclosed or undisclosed
• Om Prakash Jindal Vs. UOI 104 ITR 389 (PH)

29

• Certain assets cannot be seized
• Stock-in-trade of the business cannot be
  seized
• Section 132(1) - 3rd Proviso
• Following Jewellery cannot be seized Instruction
  no. 1916 dated 11.05.94
• Jewellery declared in Wealth Tax
• 500 gms. per married lady
• 250 gms. per unmarried lady
• 100 gms. per male member

30

• STATEMENT DURING SEARCH - Section 132 (4)
• Authorized officer may examine any person on
  oath during course of search
• If such person is found to be in possession of
  books of accounts, documents, money, etc.
• Statement can be used as an evidence in any
  proceedings
• Recording of Statement
• Questions are normally put in order to gain
  further evidence to support the findings in the
  search
• Correct facts must be stated or time may be
  sought
• Such examination may be in respect of all matters
  relevant for investigation connected with any
  proceedings under the I.T. Act

31

• STATEMENT DURING SEARCH (contd.)
• No obligation to make a surrender (Vide F.No.
  286/ 2/ 2003 dated 10th March, 2003 Board has
  advised search teams not obtain confessions of
  surrenders)
• Statements must be availed as an opportunity to
• (a) explain disclosed assets to avoid seizure
• (b) avail benefits of immunity from penalty
• Right to ensure correct statement has been
  recorded

32

• STATEMENT DURING SEARCH (contd.)
• Post Recording
• Copy of statement not made available by the
  Department
• Record the contents/ statement for future
  reference
• To ensure correct statement has been recorded
  before signing the same

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• CONCLUSION OF SEARCH
• Right to obtain a copy of Panchnama
• Must ensure that it correctly states
• Company subjected to search
• Premises searched
• Documents/ Books found and seized
• Cash seized and balance Found, seized and balance
  handed over
• Jewellery/ Ornaments, etc

34

• CONCLUSION OF SEARCH
• Must ensure that it correctly states
• Factum of personal search of search party
• Factum of closure of search
• Names of persons of whom statements were recorded
• Factum of assessee claiming immunity from penalty
• Factum of prohibitory orders passed

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STAGE 3

• Post Search
• Assessment of income

36

• Section 132
• Right to obtain photocopies of the various books
  of accounts and records seized by the search
  party sub-section (9)
• Seized Assets to be handed over to AO having
  jurisdiction over the person within 60 days of
  last authorization refer sub-section (9A)
• Practically an Appraisal Report is prepared by
  Investigation Wing

37

• Section 132
• Seized books of accounts or other documents can
  be retained up to 30 days of the assessment order
  passed or upto 30 days of all the proceedings
• Earlier power to retain books up to 180 days from
  the date of seizure
• If the person legally entitled to the books of
  accounts and records, objects to the seizure, he
  may make an application to the Board for return
  of books of account and records sub-section
  (10)
• For release of disclosed assets, application for
  release to be filed with 30 days of seizure
  refer 132 B

38

• Post-Search Assessment
• Change in the procedure for assessment of search
  cases
• Block Assessment under Chapter XIV-B applicable
  for searches after 1.7.95 and up to 31.05.2003
• Section 153A to section 153C applicable for
  searches on or after 1.06.2003
• Block Assessment
• Introduced by the Finance Act, 1995 for searches
  on or after 1.07.95

39

• Block Assessment
• For the purpose of assessment, block period
  comprised of
• 10 years in the case where search is made before
  1.06.2001
• 6 years in the case where search is made after
  1.06.01 but upto 31.05.03
• (block period includes period upto the date of
  search of the relevant previous year)
• Example
• Search conducted on 8.10.2002
• Block Period A.Y.s 1997-98 to 2002-03 and
  partly A.Y. 2003-04
• ( 1.04.1996 to 31.03.2002 and 1.04.2002 to
  8.10.2002)

40

• Salient Features of Block Assessment
• Parallel Block and Regular Assessment
• Assessment of undisclosed income on the basis
  of evidence found as result of search
• Section 158BC Block Assessment of person
  searched
• Section 158BD/BC Block Assessment of any other
  person based on satisfaction of AO of person
  searched that any undisclosed income belong to
  that person

41

• Salient Features of Block Assessment
• Taxation at Special Rate of 60 u/s 113
• Separate provision for imposition of interest and
  penalty u/s 158BFA
• No penalty where income disclosed in block
  return and tax paid thereon

42

• Withdrawl of Block Assessment
• Block Assessment gave rise to numerous litigation
  on
• Whether two separate and parallel assessments can
  be done?
• Whether income was undisclosed income or not?
• Whether income to be assessed as normal income or
  undisclosed income?

43

• Block Assessment was dispensed with by the
  Finance Bill, 2003 for the following reasons
• Scheme failed in its objective of early
  resolution
• Procedure spawned fresh stream of litigation
• Scheme postulated two parallel assessment

44

• Section 153A to 153C
• Under the present scheme four sections have been
  inserted
• Section 153A
• Section 153B
• Section 153C
• Section 153D

45

• Section 153A Salient Features
• Overrides sections 139, 147, 148, 149, 151and 153
• AO shall issue notice to the person searched to
  file ROI for 6 assessment years preceding the
  year of search
• ROI filed is treated as return u/s 139
• AO to assess/ reassess total income for six
  assessment years
• Assessment/ reassessment in relation to any
  assessment year -
• falling within the period of such six assessment
  years
• pending on the date of initiation of search
• shall abate

46

• ABATE - Meaning
•  
• Blacks Law Dictionary defines the term as under
• To throw down, to beat down, destroy, quash. To
  do away with or nullify or lessen or diminish. To
  bring entirely down or demolish, to put an end,
  to do away with, to nullify, to make void.
•  

47

• ABATE - Meaning
•  K J Aiyars Judicial Dictionary, 12th Edition,
  defines the term abate as under
• Abate is a generic term derived from French
  word Abatre and signifies to quash, to beat
  down or destroy. Abate means to throw down, to
  beat down, destroy or quash (Blacks Law
  Dictionary, Fifty Ed.).
• To diminish or take away, to prostrate, to beat
  down remove or destroy also to let down or
  cheapen the price in buying or selling. Encyc.
  L., Stroud, p.5.
•  

48

• ABATE Meaning
• In civil law, an abatement of a suit is a
  complete termination of it. To abate a suit is to
  put an end to its existence. (refer Srinibas Jena
  vs. Janardan Jena, (1980) 50 Cut LT 337 (DB)).
•   

49

• EXAMPLE
• Date of Search 2.07.2010
• Assessments in progress A.Y. 2008-09 u/s
  143(3)
• A.Y. 2006-07 u/s 147
• Pending Appeals A.Y. 2005-06 ITAT
• A.Y. 2007-08 CIT(A)
•  
• Effect of Search
• Proceedings u/s 153A A.Y. 2005-06 to
  2010-11 6 yrs.
•  
• Abated Proceedings A.Y. 2006-07 and A.Y.
  2008-09
• Appellate Proceedings No effect
•  

50

• SECTION 153B
• Limitation for assessment u/s 153A and 153C

21 months from the end of the F.Y. in which last
authorization was executed
Searched Person
21 months from the end of the F.Y. in which last
authorization was executed
Others
Later of
9 months from the end of the F.Y. in which books
handed over u/s 153C
51

• Section 153C
• Assessment of income of any other person
• Overrides sections 139, 147, 148, 149, 151and 153
• Where AO of the person searched is satisfied that
  any money, bullion, jewellery or other valuable
  article or thing or books of accounts or
  documents seized belong to some other person
• AO shall hand over the aforesaid assets/
  documents to AO of such other person
• AO of such other person shall proceed u/s 153A
• Reference to date of search u/s153A construed as
  reference to date of receipt of aforesaid assets/
  documents

52

• PREREQUISITE OF SECTION 153C
• Seizure of books of account or documents or
  undisclosed asset belonging to assessee is sine
  qua non for assumption of valid jurisdiction
  under section 153C
• Vijaybhai N. Chandrani V. ACIT 231 CTR 474
  (Guj.)
• P. Srinivas Naik vs. ACIT 117 ITD 20 (Bang.)

53

• PRE - REQUISITE OF SECTION 153C
• Meaning of belonging to
• As per Compact Oxford Dictionary, the term
  belong means as under
• belong -
• be rightly put into a particular position or
  class.
• fit or be acceptable in a particular place or
  situation.
• (belong to) be a member of.
• (belong to) be the property of

54

• PRE - REQUISITE OF SECTION 153C
• As per Blacks Law Dictionary Sixth Edition,
  the term belong means as under
• Belong. To appertain to to be the property
  of to be a member of to be appropriate to be
  own
• Reference to the name of the assessee or casual
  connection in the seized documents does not mean
  that documents belong to the assessee refer
  Vijaybhai Chandrani (supra) and P. Srinivas Naik
  (supra)

55

• Sections 153A to 153C
• OTHER SALIENT FEATURES
•  
• Assessment to be completed as per normal
  provisions
• Taxation of income (including undisclosed income)
  at normal rates
•  
• Assessment to be completed with prior approval of
  Joint Commissioner section 153D
•  
• Abated proceedings revive if assessment u/s 153A
  is annulled section 153A(2)
•  
• Penalty governed by section 271AAA and 271(1)(c)
•  
•  
•  

56

• SECTION 153A TO 153C - Issue
• It is no longer required that addition/
  disallowance must be made only on the basis of
  any evidence found as a result of search as held
  in the following cases
• Harvey Heart Hospital Ltd. v. ACIT (2010) 36 DTR
  (Chennai) (Tri.) 201
• Shyam Lata Kaushik v. ACIT 114 TTJ 940 (Del)
• Shivnath Rai Harnarain (India) Ltd v. DCIT 117
  TTJ 480 (Del)
• Contra
• LMJ International Limited vs. DCIT (2008) 22 SOT
  315
• Anil Kumar Bhatia v. ACIT ITA No.
  2660-2665/D/2009

57

• Presumption regarding documents found during
  search
• Section 292C presumes that if books of accounts,
  documents or any other valuable assets is found
  from the possession or control of a person during
  the course of search or survey then
• such books or assets are presumed to belong to
  that person
• contents of such books or documents are presumed
  to be correct
• signature and contents purportedly in handwriting
  of a particular person are presumed to be so
• in any proceedings under the I.T. Act.

58

• Presumption regarding documents found during
  search
• Comments/ Observations
• Presumption is rebuttable presumption refer CIT
  V. SMS Investment Corporation 207 ITR 364
  (Raj.) and onus to dislodge same shall be on the
  person from whose possession such seized
  documents/valuables are found
• Section 292C was inserted to overcome Supreme
  Court decision in the case of P.R. Metrani vs.
  CIT 287 ITR 209 wherein the Court held that the
  identical presumptions in section 132(4A) are not
  applicable to regular assessment and are
  restricted to provisional assessment made earlier
  under section 132(5).
•  

59

• Section 132B
• Application of seized assets
• Seized assets to be dealt with as under
• Any Existing liability
• Liability determined on completion of the post
  search assessment
• Where any disclosed asset has been seized
• Application must be filed within 30 days of
  seizure for release explaining the same

60

• Section 132B
• Application of seized assets
• On such application such asset is to be released
  within 180 days of execution of last
  authorization
• Any assets or proceeds thereof which remain
  after meeting the aforesaid liabilities shall be
  handed over to the person from whose custody the
  assets were seized.

61

• PRACTICAL ASPECTS
• OF
• SEARCH SEIZURE

62

• Difficulties faced during Search
• Lack of awareness about legal provisions/exemption
  s
• Lack of awareness about legal rights and duties
• Lack of awareness about practical dos and dont
• Improper accounts and/ or accounting system
• Non availability of important documents

63

• Important aspects of a Search
• Covers all the business premises (all offices,
  factories, etc.)
• Also covers residential premises of key persons
  like partners, directors, finance heads and key
  employees
• In case of individual/ firm - May also cover
  residential premises of close relatives, friends,
  business associates, etc.
• Search operations may commence on any day
  including Sundays/ holidays
• Search may continue for days

64

• On initiation of Search - the assessee should
• Maintain cool and remain composed
• Check the following facts stated in search
  warrant-
• Searched Person named in the warrant (i.e.
  Individual/ Companies/ Directors, etc)
• Premises specified
• Designation of Competent Authority
• Reason for search
• Authorized Officers
• Date of Authorization
• Whether warrant completely filled up
• Aforesaid facts must be recorded for future
  reference

65

• On initiation of Search - the assessee should
• In case Authorization is found to be illegal -
  Search should be resisted
• Verify identity of Search Party and Witnesses
• Avoid discussing irrelevant issues.

66

• What does the Search Party Generally Look out
  for?
• Loose Papers including diaries, note books/ pads
• Any Documents containing financial data
• Emails, including Provisional Financial Data, MIS
  Reports, etc.
• Account books
• Discrepancy in Cash
• Discrepancy in Stock

67

• What does the Search Party Generally Look out
  for?
• Production and/or Sales Records
• Investments
• Expenditure, particularly commission
• Discrepancy in Jewellery
• Details of household expenses
• Lockers

68

• Loose papers/ Documents
• Third Party papers
• Must be clarified during statement or otherwise
• Particulars of the such third party may be given
• Provisional/ Rough Documents
• Factum of Provisional data must be clarified
• Nature of noting must be clarified

69

• Precautions
• Document/ Paper must contain appropriate
  indication of its nature like Provisional,
  Estimate, Rough, Projections, etc.
• Working Notes/ Provisional Data should be
  periodically reviewed
• Periodical review and cleansing of irrelevant
  papers/ documents
• Irrelevant emails should be deleted from the
  system
• Data on digital diaries, pen drives, etc., should
  be reviewed periodically
• Loose sheets or papers should be dispensed with
• Unnecessary working papers/ documents should not
  be retained

70

• Account Books and Cash in Hand
• Books of accounts should be updated regularly
• Nature/ Sources of unrecorded transaction should
  be explained like investment, gift, personal
  transaction, etc.
• Old Books should be updated with final audited
  accounts
• Proper reconciliation of cash found should be
  given to avoid seizure
• Nature of un-reconciled cash should be stated
  like Third Party, Advances, etc.

71

• Stock in trade
• Initially assessee asked to furnish details of
  Stock like shares, etc.
• Item wise physical verification is carried out
• Inventory of Stock in trade is prepared
• Exemption from the seizure
• (a) Irrespective of nature of business
• (b) Even if unexplained
• Precautions
• Periodical physical verification of stock and
  reconciliation with the books
• Identification of Stock in trade to avoid seizure
  

72

• Stock in trade
• Precautions
• Carefully oversee/ watch procedure followed by
  Search Party to ensure that
• Stock found is normally valued on the basis of
  the purchase bills produced.
• Method of valuation
• Quantity
• Rates applied for valuation
• Arithmetical accuracy
• Error must be immediately brought to the notice
  of the Search Party

73

• Jewellery
• Weighment and Valuation usually by accompanying
  Valuers
• Carefully oversee/ watch procedure followed by
  Search Party
• Precautions
• Following Jewellery must be identified to the
  Search party
• Stock in trade
• Disclosed in the wealth tax return
• Wealth tax return disclosing jewellery should be
  readily available
• Copies of bills and source of purchases should be
  readily available

74

• Jewellery
• Precautions
• Critically check the report prepared by the
  valuer
• Jewellery received as gift on occasions must be
  specified
• Request for exemption of following jewellery
  where wealth tax return not filed
• 500 gms. per married lady
• 250 gms. per unmarried lady and
• 100 gms. per male member of the family

75

• Statement u/s 132(4)
• Statement Whose, When and Why?
• Whose - All key persons like proprietor, partner,
  director, finance employees
• When On commencement, during search and before
  conclusion
• Why To gather further evidence
• Precautions
• Remain cool and composed during statement
• Insist on choice of language if not comfortable
  in English

76

• Statement u/s 132(4)
• Precautions
• Request for assistance of consultant
• Avoid wrong answers - seek time, if required
• Opportunity to explain disclosed assets to avoid
  seizure
• Before signing the statement
• Check its correctness
• Mention date and time

77

• Retraction of Statement 
• Assessee entitled to retract from admission and
  explain the incorrect statement made
• Pullangode Rubber Produce Co. Ltd V. State of
  Kerala 91 ITR 18 (SC)
• K.T. M. S. Mohd. V. UOI 197 ITR 196 (SC) 
• Evidence brought by confession, if successfully
  retracted, must be corroborated by independent
  and cogent evidences
• Vinod Solanki 2009 (233) ELT 157 (SC)
• K.T. M. S. Mohd. V. UOI 197 ITR 196 (SC) 

78

• Retraction How, when, etc.
• No specific form - Affidavit, letter, etc.
• Earliest Opportunity minimum time gap
• Reasons for retraction like knowledge of
  incorrect facts
• Circumstances leading to retraction must be
  specified like inducement/ threat/ coercion, etc.
  with evidence
• Documents/ Evidence in support of retraction like
  VDIS certificate, confirmations, etc.
• Information to Higher Tax Authorities like CBDT,
  DGIT, DIT, etc.
• Appropriate note/ disclosure in the return of
  income

79

• Penalty in Search cases
• Applicable Provisions-

Date of search Relevant Provisions Applicable Rate Immunity
1.01.1997 to 31.05.2003 158BFA (2) Upto 3 times of tax on undisclosed income (tax _at_ 60) Proviso to 158BFA (2)
1.06.2003 to 31.05.2007 271 (1)(c) Upto 3 times of normal tax on undisclosed income Explanation 5 to section 271 (1) (c)
1.06.2007 onwards 271AAA 271 (1)(c) 10 of undisclosed income for specified years upto 3 times of normal tax on undisclosed income 271AAA (2)
80

• IMMUNITY FROM PENALTY
• Eligible Undisclosed Income-
• income not disclosed
• expense found to be false
• Eligible previous year
• Year of search
• Year preceeding the search, if-
• (i) due date of filling of ROI u/s 139 (1) not
  expired and
• (ii) ROI not filed by the assessee

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• Conditions for claiming immunity
• section 271AAA (2)
• (a) Undisclosed income is admitted in statement
  u/s 132(4) and
• (b) Manner of deriving undisclosed income
  specified and substantiated and
• (c) Tax along with interest is paid

82

• SURVEY
• SECTION 133A

83
SURVEY SECTION 133A

• Survey can be conducted by jurisdictional
• Commissioner
• Director
• Joint Commissioner
• Joint Director
• Deputy Director
• Assistant Director
• Assessing Officer
• Tax Recovery Officer
• Inspector (only for inspection of books)

After approval of Joint Director/ Commissioner
84

• Survey can be conducted
• Only at business premises and
• Any other place where assessee states that books/
  cash/ stock/ valuable article or thing of
  business are or is kept
• Survey team can enter
• Business premises During business hours
• Any other place After sunrise and before
  sunset

85

• Survey team can
• Inspect books/ other documents, place marks of
  identification and/ or make copies thereof
• Impound, after recording reasons, such books/
  other documents for 10 days (excl. holidays)
  period can be extended by Chief Commissioner/
  Director General
• Verify and make inventory of cash/ stock/ other
  valuable article/thing cannot remove them
• Record statement of any person (not on oath)

86

• IMPOUND MEANING
•  Blacks Law Dictionary defines impound as
  under
• impound, vb. 1. To place (something, such as a
  car or other personal property) in the custody of
  the police or the court, often with the
  understanding that it will be returned intact at
  the end of the proceeding.
• 2. To take and retain possession of (something,
  such as a forged document to be produced as
  evidence) in preparation for a criminal
  prosecution

87

• Issues
• Whether any time limitation for exit of the
  Survey Team?
• Ans. No.
• refer N.K. Mohnot 215 ITR 275 (Mad.)
• Whether statement recorded during has evidentiary
  value?
• Ans. No
• refer S. Kader Khan Sons 300 ITR 157 (Mad.)
• Paul Mathews Sons 263 ITR 101 (Ker.)
• Ashok Manilal Thakkar vs. ACIT 279 ITR 143
  (AT) (Ahd.)

88

• Issues
• Survey of premises of lawyer/ CA not permissible
  unless the client whose premises is surveyed
  states that his books of accounts/ documents and
  records are kept in office of lawyer/ CA
• U.K. Mahapatra Co. 308 ITR 133 (Ori.)
• Bar on removal of cash, stock or other valuable
  thing/ article under section 133A(4) is absolute
• - CIT V. Mool Chand Salecha 256 ITR 730 (Raj.)

89

• Issues
• Whether records, documents pertaining to third
  parties (say A, B, C, etc) found in possession of
  X (another third party), who is subjected to
  search and seizure operation under section 132 in
  connection with search on Y (searched party) be
  seized by the Search Party?
• Whether search/ survey can be carried out at the
  premises of Chartered Accountant/ Lawyer, etc.?
• S.R. Batliboi Co. vs. DIT (Inv.) 224 CTR 369
  (Del.)
•  

90

• Penalty - Issue
• Non-mentioning of manner of earning income is not
  fatal to claim of immunity. It is incumbent upon
  the Authorised officer to put a specific question
  with regard to the manner in which income has
  been derived and it is not expected from the
  person to suo-moto make a statement in this
  regard.
• CIT v. Sri Radha Kishan Goel 200 CTR 300 (All.)
• CIT vs Manmohan Goel 149 Taxman 578 (All.)
• CIT vs Nem Kumar Jain 151 Taxman 187 (All.)
• ACIT V. Smt. Lad Devi Kothari 97 TTJ 421
  (Jaipur)
• DCIT V. Sunil Tolaram 90 TTJ 48 (Mum.)
• Dy. CIT vs Sunder Lal 24 DTC 174 (Del.)

91

• ORGANISATION PREPAREDNESS AND PRECAUTIONS
•  
• Mock Search
• By independent third party, preferably
  professionals/ consultants
• Suddenly without prior information
• Across all business premises
• Educate client and its staff
• About basic provisions
• Rights and Duties

92

• ORGANISATION PREPAREDNESS AND PRECAUTIONS
•  
• Specific allocation of area in common premises to
  separate entities
• Regular and timely filing of income tax and
  wealth tax return
• Display charter of rights and duties of searched
  party at prominent place
• Inculcate discipline in maintaining records in
• Management
• Employees
• Business Associates
• Make proper disclosure of all transactions to Tax
  Authorities
• Due compliance of summons/ notices received from
  Tax Department

93
THANK YOU