As per Section-132 of Income Tax Act, 1961, an Income Tax raid is referred to as a “search and seize operation”. Raids take place when there is suspicion regarding books of accounts or any valuable documents regarding the tax proceedings and suspicion occurs when a person doesn’t respond to the notices of the Income Tax Department.

What is an Income Tax Raid?

An income tax raid is conducted by the Income Tax Department to uncover the hidden incomes, assets, or evidence of tax evasion and to ensure the adhere to the Income Tax Act, 1961. Income tax raids take place when there is suspicion regarding tax evasion. An income tax raid plays a significant role in increasing government revenue, ensuring fairness and equality for all the citizens and encouraging the people to follow laws.

The persons authorized to execute an income tax raid are Additional Director, Additional Commissioner, Joint Director, Assistant Commissioner, Assistant Director, Dy Director, or Asstt. Commissioner.

Can the Income Tax Department Seal Assets or Property?

While an Income Tax raid, the Income Tax Department has the authority to:
● Inspect the property, books of accounts, documents and various other valuable documents of the assessee, and even confiscate it.
● Forbid the person under suspicion from dealing or selling the property suspected to represent undisclosed income.
● Retain the assets or subject the assets to a legal restraint where immediate seizure cannot be effectively carried out.

Procedure followed after seizure during an Income Tax Raid

The assets which are taken into possession by the Income Tax Department is required to act in accordance with a statutory procedure:-

1. Initial Processing and Documentation
As soon as the assets are seized, these are recorded in an inventory list in front of the witnesses. A list of the seized assets is provided to the assessee.

2. Analysis of the seized material
The Income Tax Department examines the seized assets or cash, books of accounts and other documents to assess whether they are linked to undisclosed income.

3. Assessment Proceedings
An opportunity is given to the assessee for justifying the sources of the seized assets, documents and books of accounts such as income tax returns, bank statements etc.

4. Adjustment of Tax Liability
If it is discovered that any of the tax or penalty is pending on the part of the assessee, then it may be adjusted with the seized assets.

5. Release of Assets
If the assessee successfully explains that the seized assets were acquired legally, then there is a possibility of the assets seized. 

Legal authority behind seizure of assets

Under Section-132 of Income Tax Act, 1961, the search can happen when there is enough evidence to suspect the assessee. During a search or an investigation, the department has the authority to seize assets like jewellery, bullion, and other valuables. But it is pertinent to note that the power provided to the investigators is not limited. They are anticipated to work within the expected limits. A prescribed procedure followed by law must be abided by the authorized officers.

Can the assessee recover the seized property?

The person in suspicion can recover their seized property or assets only if they are successful in proving that the seized assets were legally obtained, and there is no such pending tax or penalties. If any tax is pending, then before restoring the seized items, the assessee must pay off the outstanding dues primarily. 

What are the legal rights of the assessee during and after the Income Tax Raid?

These are the legal rights available to a taxpayer or an assessee during and after the Income Tax raid:-
● The assessee has the right to be treated fairly and equally, there shouldn’t be any personal bias.
● T.he assessee has the authority to conduct inquiry and ensure the identity of the official investigators.
● The investigating officers must have a search warrant against the assessee’s property.
● As and when any assets, documents or property is seized, the assessee must necessarily be provided a copy of the seizure list(panchnama).
● If the assessee proves that seized items are legally acquired, he is entitled to explain with sufficient evidence and retain the asset if the assessee is found to be innocent.
● The assessee can seek assistance from a legal or a tax professional.

Conclusion

From the foregoing, it can be concluded that the Income Tax Department is authorized to work within the permissible limits. If the authorized officers exceed their statutory power, possible appropriate action must be taken against them. In the event that the competent authority seizes any documents, assets or property, the assessee or the taxpayer has the right to regain the possession of the seized items but only if they are able to prove that the assets or property were acquired legally.