[Checklist] Issues relating to Handling of Search & Assessment of Search Cases

Table of content

1. Powers and Obligations of Authorised Officer During Search
2. Rights and Duties of Assessee During Search
3. Nature of Questions Usually Asked by the Authorised Officer During Recording of Statement in Search
4. Contents of Surrender Letter
5. Post Search Letters to the Authorised Officer/Assessing Officers on Various Aspects
6. Post Search Proceedings by the Authorised Officer
7. Preparation Prior to Assessment Proceedings
8. Desired Amendment/Clarification on Various Controversial Issues

Check out Taxmann's Law Relating to Search & Seizure which provides an in-depth analysis of various provisions of law relating to Search & Seizure and assessment of search cases with the help of FAQs, checklists, and a reckoner of leading Case Laws. This book is amended by the Finance Act 2023 & Case Laws are updated until March 2023.

1. Powers and Obligations of Authorised Officer During Search

1.1 Powers of Authorised Officer

• To enter forcibly into the premises if required.
• To search each and every part of the premises.
• To break open lock of locker, almirah, safe, box etc. in case keys are not available.
• To take extreme action e.g. tear sofa, dig floor/wall etc. in case of suspicion that incriminating material is kept therein.
• To conduct personal search of any person present or entering the premises.
• To seize books of account/documents.
• To seize undisclosed assets including cash or jewellery.
• To make list of stock or other assets not being seized.
• To place identification marks on the books of account not being seized.
• To put restraint order u/s 132(3) if deemed necessary.
• To record statement on oath u/s 132(4).
• To take services of police officers or other officers of the Central Government as required.
• To intimate to other Government authorities in case any violation of any other statute is found.

1.2 Obligations of Authorised Officer

• To show search warrant before commencing search and obtain signature of the person searched on search warrant.
• To prepare panchnama mentioning the proceedings of search and handover a copy to the assessee.
• To call for two witnesses in the presence of whom whole search operation is to be carried out.
• Seized articles to be kept in sealed packages bearing identification mark.
• To get signature of the person searched and that of the witnesses on seized packages, panchnama, statement recorded and put his signature also.
• To permit necessary telephone calls.
• To call the valuer for the valuation of jewellery.
• To inform and report expeditiously to controlling room and higher authorities on various significant development during search.
• Not to confine or put undue pressure on any person.

2. Rights and Duties of Assessee During Search

2.1 Rights of assessee during search

• To see copy of search warrant.
• To see evidence of identity of officers of search team.
• To make personal search of the members of search party.
• To get medical aid, if required.
• To have regular meals.
• Right to worship as per custom.
• Right of the children to go to school.
• Nobody can be confined.
• Permission to leave the premises in view of the urgency of matter.
• Withdrawal by pardanasin women.
• To remain present during search proceedings or in his absence, to authorize somebody else on his behalf.
• Right to ensure that the facts stated by person searched during recording of statement u/s 132(4) are correctly incorporated.

2.2 Duties of Assessee during Search

• To allow free and unhindered ingress into the premises to the search team.
• To make available keys of locker, almirah, safe, boxes, etc.
• To facilitate operation of computer/laptop or other devices in which data is stored in electronics form.
• To co-operate with the search team in discharging their functions.
• Not to remove any article from its place without notice or knowledge of the authorized officer.
• Not to secret or destroy any document or evidence.
• To affix his signature on the recorded statement, inventories and panchnama.

3. Nature of Questions Usually Asked by the Authorised Officer During Recording of Statement in Search

• The identity, PAN No., sources of income of the assessee and other family members.
• Capacity in which the premises under search is occupied i.e. whether as owner, employee, tenant or otherwise.
• Names and addresses of business concerns, factory, godown, and branches, associate business entities of which assessee or his family members are proprietor, partner, director or shareholder.
• Investment in immovable properties with address and year of acquisition and source of acquisition.
• Investment in movable assets such as shares, FDRs, Bonds, jewellery, cars, expensive household items and source thereof.
• Particulars of Income Tax and Wealth Tax assessment.
• Details of cash, jewellery or other valuables lying in the house or in the bank locker, to whom the same belongs and the source thereof.
• Particulars of bank lockers maintained by the assessee and other family members, contents therein and the location of the keys of the locker(s).
• Details of bank accounts maintained with the banks with account numbers.
• Details of household expenses incurred, marriage or functions celebrated, educational expenses of the children and the source of withdrawal for the same.
• Details of books of account, including stock registers, maintained and the place where these are kept, password and software used for obtaining data kept in computer or other electronic device.
• Details regarding any secret chamber, locker or false sealing in the premises, if any.
• Details of any kind of movable assets, books of account or documents of others kept with the assessee or relating to the assessee kept with somebody else.
• Details of loans and advances, gifts or other credits given or taken/accepted by the assessee.
• Details of foreign travel and source of such expense and copy of passport.
• Details relating to undisclosed financial transactions carried by the assessee with respect to which authorized officer has information and the modus operandi adopted by the assessee to earn income outside the books.
• To seek explanation regarding incriminating material found such as pocket diaries, loose papers containing financial transactions, duplicate set of books of account, unaccounted agreements and properties etc.
• Source of acquisition of assets found such as cash, jewellery, electronic gadgets, A.C., refrigerator, music system etc., stock in business in excess of the amount recorded in the books, investment in immovable properties not recorded in the books, investment made in asset in cash, loans or advances, gifts or any other credit given or taken in cash etc.
• Authorized officer may cause enquiry to decode the figures or financial transactions recorded by the assessee in some kind of coded form in the seized material.
• Enquiry is made regarding any deviation found by the authorized officer in the actual facts and evidences found during search and as stated by the assessee during his preliminary statement.

4. Contents of Surrender Letter

4.1 From the point of view of assessee

In case surrender of undisclosed income is made during the course of search and letter of surrender is submitted separately, it should normally contain the following details and under noted aspects may be taken care of:

• Break up of total amount of undisclosed income surrendered person-wise, entity-wise and year-wise.
• 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 consequences.
• To mention broad manner of earning undisclosed income and to substantiate it to the extent possible.
• To mention that tax applicable on surrendered income shall be paid in due course of time as and when due.
• 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 to be made in the hands of the person/entities against whom search warrant has been issued.
• To ensure that surrender letter is given prior to the date of conclusion of search with respect to the concerned person/entity.
• In case declaration is made amending or improving upon any earlier declaration, this fact should be clearly mentioned.
• In case there is seizure of cash, assessee should state and request to treat the amount of cash seized as payment of advance tax in the hands of concerned person/entity.
• A line mentioning that surrender of undisclosed income is being made to buy peace and to settle the dispute.
• Before making surrender of undisclosed income of the earlier year, all pros and cons to be weighed properly.

4.2 From the point of view of the department

• To ensure that the corresponding evidences relating to undisclosed income being surrendered are available.
• To obtain authority letter in case, surrender is made by a person on behalf of some other person/entity.
• A line stating that declaration of undisclosed income is over and above normal/regular income of the assessee.
• A line stating that the declaration is being made willingly by the assessee without any pressure or coercion or threat.
• To ensure that contents of surrender are covered in the statement of the assessee recorded u/s 132(4) and such statement is recorded on oath.

5. Post Search Letters to the Authorised Officer/Assessing Officers on Various Aspects

• Request to appropriate cash seized toward advance tax.
• Application u/s 132B for release of disclosed assets if any seized along with all the relevant evidences.
• Letter requesting to give photocopies of all the documents, papers or books of account seized.
• 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.
• In case of any irregularity or high handedness experienced during search, a letter explaining the actual facts to be brought to the notice of higher authorities.
• In case there is undue delay in lifting restraint order passed u/s 132(3), matter to be brought to the notice of higher authorities.
• In case any assessment/reassessment proceeding are pending before the Assessing Officer with respect to the person searched, a letter to the Assessing Officer regarding abatement of such proceedings.

6. Post Search Proceedings by the Authorised Officer

• Preparation of panchnama on completion of search.
• Lifting of restraint order passed u/s 132(3).
• To operate bank lockers and seizure of assets, if required.
• Recording of statement u/s 132(4) for seeking explaining of documents/undisclosed assets.
• To obtain break-up of surrendered income, if any.
• To collect records from different locations.
• To conduct third party inquiries/consequential survey if deemed appropriate.
• To send various reports to higher authorities.
• To prepare appraisal report.
• To prepare a suggestive questionnaire to be issued by Assessing Officer during assessment stage.
• To seek information/clarification from assessee on various issues.
• To institute prosecution in appropriate cases if deemed necessary.
• To recommend for the centralization of cases with appropriate jurisdiction.

7. Preparation Prior to Assessment Proceedings

After search and before receiving the notices for filing returns of income u/s 153A, assessee usually gets sufficient time which may be utilized for preparing himself for effective representation in assessment proceeding. For this purpose, the following points may be kept in mind:

• Filing the pending returns of income.
• Filing the objection for transfer of cases u/s 127.
• Organizing the books of account and other records relating to earlier six years properly.
• Ledgerization of transactions in case of individuals.
• Obtaining photocopies of seized documents.
• To prepare the explanation of the seized key documents.
• Filing pending returns of related persons.
• Going through the appraisal report, if possible.
• Proper accounting treatment and planning of surrendered income in the books of account.
• Payment of admitted taxes relating to the surrendered income if any.
• Filing of write to High Court, if required.

8. Desired Amendment/Clarification on Various Controversial Issues

8.1 Authorisation and conduct of search

• Presence of advocate/CA/consultant during search.
• Pressure not to be exercised by the departmental officers for surrender of undisclosed income.
• Non-seizure of jewellery even if mismatched but covered within overall quantum of jewellery disclosed.
• Opportunity to the assessee before issuing requisition u/s 132A.
• Supply of the copy of search warrant to the person searched.
• Furnishing of the copy of the statement recorded immediately/expeditiously.
• Uninterrupted business operations during search.
• Simplification of the provisions regarding authorization of search.
• Allowing photocopies of books of account seized by the authorized officer expeditiously.
• Revoking of restraint orders passed u/s 132(3) within 15-30 days instead of 60 days.
• Issue of summon u/s 131(1A) by the authorized officers to the person searched during post search enquiry.

8.2 Release of assets

• Immediate release of disclosed assets if seized during search.
• Release of seized assets against payment of cash or furnishing of bank guarantee.
• Adjustment of cash seized towards tax liability including advance tax.
• Payment of interest for delay in release of assets.

8.3 Assessment

• Recording of satisfaction by Assessing Officer of person searched as well as Assessing Officer of other person before assuming jurisdiction u/s 153C.
• No proceedings u/s 153C on the basis of seizure of disclosed assets/regular books of account of other person.
• Procedure for release of seized disclosed assets/regular books of account belonging to other person(s).
• No proceedings u/s 153C relating to the year(s) for which nothing has been seized.
• No proceedings u/s 153A relating to year(s) for which nothing has been seized.
• Prescribing the time limit for issuing notices u/s 153C.
• Rationalization of time barring assessment limit in case of proceedings u/s 153C/132A, when huge gap exists in intimation of action and conclusion of action/handing over the material.
• Nature of additions which can be made during assessment u/s 153A.
• Prescribing the time limit for issuing notices u/s 153A.

8.4 Penalty

• Levy of penalty for concealment of income etc. u/s 271(1)(c) instead of penalty u/s 271AAA relating to the “undisclosed income” of the “specified previous year” once the return of income has been filed for such “specified previous year”.
• For granting immunity from the levy of penalty for “undisclosed income” relating to “specified previous year” u/s 271AAA, the requirement of substantiating the manner is not practical.
• Some mechanism for declaration of “undisclosed income” relating to earlier years along with penalty for concealment of income but having deterrence effect.
• Levy of penalty u/s 271(1)(c) if return of income for earlier years could not be filed in time before the date of search for bona fide reasons.