Income Tax RAID – understanding Survey Vs. Search

Often termed as Raid by laymen, income tax survey and search are becoming increasingly common as businesses continue to grow. Apparently, there is no word called “raid” in the Income Tax Act. The two important tools which the department uses are survey and search and when one or both of these two operations get initiated, people term it as “raid”. Most people including savvy professionals intermingle the terms – survey, search & scrutiny. Although scrutiny is carried out only during the time of on-going assessment and stands on a completely different trajectory, search and survey are the mechanisms that may be used by the department independent to the assessment proceedings. This article explains the basics of survey & search and highlights the crucial differences between the two.

Before understanding how the two are separate from each other, it is important to understand what actually leads to a search or a survey and the very basis of these two investigations. A search is generally carried out when there is a continuous non-compliance on part of the assessee to attend to the summons received from the department or showing negligence towards the I.T. notices or where the authorities have a clue as to undisclosed income including possession of cash, bullion, jewellery or such other valuable articles. A survey on the other hand is meant to discover assessees, who could have been in the limelight but have been managing to avoid so, by performing an on-site investigation so as to gather on-spot information including conducting inspection of stock and cash.

Following are the differences between the two:

1. In a survey, the income tax authorities have a right to enter only those places which are deemed to be your place of business or profession, whereas in a search operation, they can search any place including your residential premises, vehicle, or any other place, without any restrictions of whatsoever nature, which they believe is required to be searched.

2. During a survey, the authorities can only impound your books of accounts whereas in a search operation, the power of seizure can be exercised to seize not only the books of accounts but also money, bullion, jewellery or other valuable articles (there are some exceptions to it one of which is stock-in-trade)

3. It should be noted a person cannot be physically searched during the course of a survey although physical inspection of all the members present at the premises, including the ones who are about to leave or about to enter, is permitted in a search

4. The right of recording the statements made by the assessee is given to the officers in a survey In both the operations, the officers are authorized to record the statement of an assessee or any other relevant person; however, in the case of a search operation a statement made by the assessee can also be taken on oath which has severe implications. It may happen that even where the assessee has done something transparently and genuinely, his inadvertent remarks can create a situation for his own-self; therefore it is extremely advisable that the assessee acts in a bona fide manner and makes his statements consciously.

If you are a party to a survey or search investigation, you must know the following:

• Material conducted in a survey or search investigation is valid for other kinds of investigation even if it is subsequently proved that the department had conducted a bogus investigation. So even if you, as a victim, are capable of proving that the investigation was not demanded, still the material once gathered is legally usable by the department for other proceedings in your case. This sounds strange but it is true!

• The investigation can only be commenced during normal working hours of the business although once commenced it can go round the clock

• You are entitled to call a Doctor if you need one. The officers cannot deny this right under any circumstances. Also, children are allowed to go to school. The woman of the house shall be inspected by a lady officer only and in certain religions where it is customary for women to not appear in front of public, i.e. in front of an unknown third person, then such women even where a search is on-going can legally walk away from that place. This is a special privilege because in normal circumstances people are neither allowed to enter nor allowed to leave the place till the time the entire investigation is completed

• Try to attack the problem, and not the departmental officer. Always, keep yourself cool and conscious

• Never give inaccurate details. If you don’t know something that belongs to previous years, you can always say let me verify before answering it to you. Take help of the books of account and other documents and give all the possible information, which is readily available

• Assessee may insist that he will give answer only once he is in a mental state of mind fit enough to provide the information required. Investigations generally go round the clock, and it is common to find officers and accountants spending 24-36 hours together at a stretch at the business premises. Take rest.

• If stock verification is being conducted by the department, or if counting of cash or jewellery is being done, always verify the details once the exercise is complete. You should check the particulars recorded and ensure that the method adopted is appropriate; price / rates considered are in line with the market, and finally arithmetical accuracy. Errors, if any, should be immediately brought to the notice of the personnel.

• The owner of the premise need not be present for an investigation to begin. Some people have an apprehension that without me being personally present, who will answer and what if someone gives a wrong answer. But such an excuse is not tenable in the eyes of law and irrespective of which corner of the world you are sitting in, the process will still continue the way it should.

• In a survey, the departmental personnel are not authorized to break open any lock or door

• If anything unaccounted for is identified during the investigation, remember your taxability will be at a flat rate of 30%, over and above which a handsome penalty can also be levied depending on further facts of the case

• Last but not the least; never keep “irrelevant” data on your computer hard-disk. This is an advice better received sooner than later. In the author’s experience, it is not uncommon to find clients regretting the fact that some Sensitive data got confiscated along with the financial data. Remember, once the confiscation process starts, it is not permissible to ask the income tax officer to delete the client’s personal data and keep only official data on the hard disk taken under custody.

The powers and actions in a survey action are far milder than that in the course of a search operation. Many a times a survey is being converted, ex tempore, into a search operation. Thus, where a normal survey is being initiated, and if something fishy is found, or where the assessee doesn’t cooperate in good faith, then the income tax personnel may refer the case on the spot to the officers of the search department, thereby making the situation more difficult. Although it is the assessee himself who is accountable to the authorities for providing all the information as asked for, you are always permitted to call your tax professional which may make your task simple. An experienced consultant is what you may need!

[No content given herein should be construed as a professional advice as each case requires a tailor made solution. Author does not solicit work by publishing this article. Should you wish to contact the author, you may do so via www.rkdoshi.com. Direct email address has not been given to avoid mail spam]

Republished with Amendments made by Team Taxguru