Improving quality of the Appraisal Report - Income Tax - F.No. 286/76/2007-IT(Inv.II)

F.No. 286/76/2007-IT(Inv.II) Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes Room No. 254, North Block, New Delhi Dated : 26th September, 2007. To The Director General of Income Tax (Investigation) The Director General of Income Tax (Intelligence) Sir/Madam, Sub : Improving quality of the Appraisal Report- Guidelines Many instances have come to notice that the quality of Appraisal Reports is not up to the mark. In order to make the Appraisal Report an effective guide for the Assessing Officer, the following procedure should be strictly adhered to: (i) After completion of the search, the processing DDIT (Inv.)/ADIT(lnv.) should prepare a Post Search Action Plan identifying the enquiries that are necessary to finalize the Appraisal Report. This should include all major activities including hot pursuit enquiries, opening of sealed premises/lockers etc., examination/verification of seized records, identification of Core Documents recording of statements of key witnesses/persons and the expected time for completion of these enquiries/actions. The Plan should be prepared in consultation with Addl./Joint DIT(Inv.) and should be approved by DIT (Inv.) as early as possible. However, in cases where on account of subsequent developments, certain additional enquiries/verifications not mentioned in the Action Plan become necessary, then prior approval of the DIT (Inv.) must be taken. (ii) (a) After examination of the seized records, the Authorised Officers Report and information gathered during the searches as well as in post-search investigations, the processing DDIT(Inv.)/ADIT(Inv.) should identify and frame main issues in the Appraisal Report. (b) The Appraisal Report should discuss each of these issues in detail outlining all evidence (including digital evidence) in respect of the issue(s) so framed mentioning relevant records seized from different premises, the statements recorded u/s 132(4) or thereafter, the material gathered during post-search enquiries, as also the version of the assessees and the reasons for not accepting or accepting the same. The discussions in respect of each of such issues should be self-contained, cogent and narrative, duly supported by reference to the seized records and other evidence gathered during the search or thereafter. (iii) It is noticed that the persons searched admitted undisclosed income at the time of search, but they retract the admission at the time of assessment. In order to prevent this, whenever the person admits any undisclosed income, the details of such amount including corroborative evidences e.g. books of account, documents, investment, expenditure, wrong/ excessive claim of deductions, etc. are gathered during the search or post search enquiries. Inadequate disclosure u/s 132 (4) is sometimes employed as a strategy by the assessee to induce a sense of complacency so as to preclude further inquiry into actual amount of concealment. Proper inquiries, therefore, should continue irrespective of disclosure. (iv) Search is a tool for deterrence against Tax Evasion. Hence, the Appraisal Report must indicate the prosecution potential on the issues on the basis of evidence gathered during Search or Post Search enquiry, clearly mentioning the nature of offence and breach of prosecution provisions under the I.T. Act. The processing DDIT(Inv.)/ADIT(lnv.) should initiate file prosecution within a month of sending Appraisal Report in cases u/s 275 A, 275B, 277, 277A of the I.T. Act where filing prosecution for violations of the said provisions does not require completion of Assessment Proceedings. (v) Whenever during the search or post search enquiry, evidence has been gathered relating to tax evasion by other parties, the Appraisal Report should clearly mention such transactions and evidences gathered relating to such persons and suggest course of action to be taken by the Assessing Officers concerned. (vi) If any evidence relating to infraction of other Laws is found during the course of Search or Post Search enquiry, then the same must be mentioned in the Appraisal Report and the processing Addl./Joint DIT(lnv.) should inform the authorities responsible for administration of such laws, immediately after finalisation of the Appraisal Report. (vii) If the Appraisal Report mentions that further enquiry is still continuing in a case or in related cases; a time frame for such collateral enquiry is indicated in the Appraisal Report and a supplementary report, containing the findings and statements etc. are sent to the A.O. concerned within a week of completion of enquiry. (viii) After completion of the Appraisal Report the processing Addl.DIT(Inv.)/ JDlT(Inv.) will sum up of the major findings of the search indicating the prosecution potential of the case and the relevant prosecution provisions and put up along with the Appraisal Report before the DIT (Inv.) concerned for approval. (ix) The DIT(lnv.) while granting approval should ensure that all main issues have been properly framed in the Appraisal Report with corroborative evidences, nature of offence detected and provisions of prosecution against such offence and enquiry as per Post Search Action Plan has been completed. (x) The Director General of Income Tax (Inv.) on receipt of the Appraisal Report, should examine the issues raised in Appraisal Report, identification of core documents, admission of undisclosed income and evidences gathered corroborating the admission, Post Search Action Plan and its outcome. He may consider for sending his comments within a month of receipt of Appraisal Report indicating the short comings, if any and may direct the DIT (Inv.) in appropriate cases, to conduct further enquiry, if considered necessary. (xi) The DGIT (Inv.) should maintain a register containing the important points of tax evasion, brought out in each Appraisal Report and identify such areas or such other persons involved in similar trade for further monitoring by the Investigation Wing. (xii) The DGIT (Inv.) should not routinely grant extension of time for completion of Appraisal Report. He should ensure its completion within a reasonable time. The cases where Appraisal Report is not finalised within 120 days from the execution of first warrant, he should mention such cases in D.O. letter to the Member (Inv.), along with the reasons. 2. The aforesaid guidelines should be brought to the notice of all the officers of your charge. Yours faithfully, Sd/- (AARSI PRASAD) Under Secretary (Inv.II III)