Investigation by Income Tax Department

These powers are basically enshrined in the Income Tax Act by way of powers of carrying out scrutiny of a return; calling for books of account and documents; summoning persons and recording their statements; collecting information from outside sources; conducting inquiries; carrying Out surveys; and conducting searches of residential and business premises.

The power to search and to survey, referred to as raid in common parlance, are the invasive powers of the department. It becomes necessary to resort to these powers and to enter somebody’s premises looking for evidence when it becomes clear that tax is being evaded in a big way and the evidence would not be produced before the income tax authorities in response to the notices issued for this purpose. The evidence gathered through the exercise of these powers is examined and evaluated for determining the extent of tax evasion. In other words, the income tax authorities investigate to detect and quantify tax evasion.

Investigation today has to match with the fast pace of technological developments and for this purpose, the investigation set-up in the Income Tax Department has been equipped with requisite hardware. They have been provided with internet and intra-net facilities, voice recorders, digital cameras, mobile memory card readers and other such equipment required for investigation in the present day e-scenario. Tax officials possess the necessary skills and software required for breaking passwords, retrieving data which has been deleted and accessing data stored in remote storage devices, etc. They are also continuously innovating and experimenting to develop their own software to facilitate investigation.

In the recent past, the methods of doing business have undergone a metamorphic change. With the advent of globalization and the exposure to world class goods and services, small businesses have given way to large multinational corporations. Stand alone cinema halls and retail shops have given way to multiplexes and malls. Local brands have been replaced by international brands. The corner pansari shops or cloth shops no longer exist. People like to visit stores like Zara, Aldo, Mango, Celio or Oliver. The youth like to buy shoes from Nike or Reebok or even Gucci rather than from Bata or Flex. E-commerce is on the rise. Goods and services are ordered online. International money transfers can be carried out on the Net and payments can be made by using websites like eBay, Paypal and Visa. Money can be withdrawn from any ATM in India from an overseas bank account. Debit and credit cards can also be linked to offshore bank accounts. In this changed environment, investigation for detecting tax evasion has become a far bigger challenge. Offenders are indulging in newer and newer methods of tax evasion, while the older ones have not been given up. While hawala transactions, bogus billings, benami bank accounts and the like continue to be resorted to, formation of dummy corporations, violations of arms length pricing, misuse of the concept of permanent establishment, dubious cross border transactions, etc., to evade taxes have also surfaced.