New Delhi, February 2, 2017

Govt intends to amend I-T Act to give more power to assessing officer in cases of search and seizure

Proposed changes in the procedural rules involving search and seizure operations by income-tax authorities has had the effect of setting the cat among pigeons, making India Inc jittery.

As per Finance Bill 2017, the government proposes to amend the Income-Tax Act to give more powers to the assessing officer in cases of search and seizures. The tax officer is not required to give any reason to the taxpayer or the appellate authorities the grounds under which the search was undertaken. This has been done to maintain confidentiality and sensitivity of the search proceedings, coming into play with retrospective effect from April 1, 1962.

Further, there is a proposal to extend the scope of search and seizures operations beyond business establishment to charitable institutions.

Earlier the power to call for search and seizures rested at the level of the Principal Commissioner. What the Finance Bill, 2017 has done is to delegate this power to the Assessing Officer, who is three to four levels down the hierarchy.  Also, if disputed assets worth Rs 50 lakh are found in a search, the tax authorities could now open up for assessments going back 10 years. This was earlier restricted to six previous years.

Another proposed amendment in the Income-Tax Act allows the assessing officer to provisionally attach any property belonging to the assessee for six months, albeit with prior approval of senior officers.  The tax authorities can now avail the services of a valuation officer to determine the fair market value of a property.

“The amendments effectively provide the tax authorities with sweeping powers to provisionally attach, and thereby debar a taxpayer from disposing of any investment or immovable property that he owns,” said Rakesh Nangia, managing partner, Nangia & Co.

Tax experts note that these are fairly extensive powers and have the potential of being abused. “While this has been done with the intent to give more flexibility to the tax authorities in investigation cases, some checks and balances are required,” said Shefali Goradia, partner, BMR & Associates.

Both tax experts and taxpayers are wary of the additional powers to the assessing officer. “Sweeping powers have been given to the assessing officer. This needs to be balanced,” says Dinesh Kanabar, CEO, Dhruva Advisors.

Tax lawyers point out that the powers of tax officers in search and seizure cases are generally highly discretionary. “Now with proposed attachment of assets we can expect wider authority,” said Riaz Thingna, Director, Grant Thornton Advisory.

Tax lawyers say there have been legal dispute over the issue whether the taxpayer and the appellate authorities have the right to call for the reasons why a search was undertaken.  Judicial rulings have held that any “reason to believe or reason to suspect” needs to be shared with the taxpayer and appellate authorities. However based on such disclosure of reasons, in many dispute cases taxpayers have contested that the search itself was void. “If a search is termed void, the outcome of the search also does not stand in the court of the law,” noted a legal expert.

The Finance Bill 2017 seeks to address the challenge that the taxpayers mount with regards to the “reason to believe or the reason to suspect” and mandates with retrospective effect that authorities cannot be made to disclose to any person, or any authority such reasons.  

[The Business Standard]