Survey- Under Income Tax Act

 

According to Concise Oxford Dictionary, "survey" means general view, casting of eyes or mind over some things, inspection or investigation of the condition, amount, etc. of something, account given of result of this etc.

Survey has not been defined in the Income Tax Act 1961( In short “Act”). 'Survey' in context of the Income Tax Act means collection of data or information for the purposes of  detection of undisclosed income under the Income tax Act 1961.

 

1.      Objects of Survey under Income Tax Act 1961

Survey is an important weapon in the armory of the Income Tax Department to call for information of various kinds as may be found necessary for making proper assessment of income of any person, expenditure incurred or investments made. Survey is mainly conducted with the object of broadening tax base by discovering new  assessees   and /or to gather information about possible tax evasions by assessees, spot checking of available cash, stock , valuable article or things and to verify in a surprise and systematic manner, whether or not accounts are maintained properly and on day to day basis etc.

 

 

 

2.      Types of Survey

Survey may be of three types –

a)      Specific Survey under section 133A(1) - This is the survey on the business premises of a taxpayer.( Detail in subsequent paras)

b)     Survey of Expenditure on Marriages, Parties etc. under section 133A(5) - In involves collecting information regarding the nature and scale of expenditure incurred by a person on functions, ceremonies and events such as Marriages, Birthday Parties etc. This type of survey is usually conducted on very specific information in the case of big guns  or celebrities.

c)      Door to Door Survey under section 133B - The object of survey is to locate new assessees and thereby unearth black money. Persons who have been avoiding from coming into the tax net are brought into the mainstream through a shop to shop or house to house survey. For the last number of years Department has dispensed with this type of survey as large scale corruption found was found by the officials while discharging

 

3. Legal Provision  Section 133A. 

“(1) Notwithstanding anything contained in any other provision of this Act, an income-tax authority may enter – 

(a) any place within the limits of the area assigned to him, or 

(b) Any place occupied by any person in respect of whom he exercises jurisdiction,

(c) Any place in respect of which he is authorised for the purposes of this section by such income-tax authority, who is assigned the area within which such place is situated or who exercises jurisdiction in respect of any person occupying such place at which a business or profession is carried on, whether such place be the principal place or not of such business or profession, and require any proprietor, employee or any other person who may at that time and place be attending in any manner to, or helping in, the carrying on of such business or profession - 

(i) To afford him the necessary facility to inspect such books of account or other documents as he may require and which may be available at such place,

(ii) To afford him the necessary facility to check or verify the cash, stock or other valuable article or thing which may be found therein, and

(iii) To furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceeding under this Act.

 

Explanation : 1. For the purposes of this sub-section, a place where a business or profession is carried on shall also include any other place, whether any business or profession is carried on therein or not, in which the person carrying on the business or profession states that any of his books of account or other documents or any part of his cash or stock or other valuable article or thing relating to his business or profession are or is kept.

 

(2) An income-tax authority may enter any place of business or profession referred to in sub-section (1) only during the hours at which such place is open for the conduct of business or profession and, in the case of any other place, only after sunrise and before sunset.

(3) An income-tax authority acting under this section may, - 

(i) if he so deems necessary, place marks of identification on the books of account or other documents inspected by him and make or cause to be made extracts or copies therefrom,

 (ii) Make an inventory of any cash, stock or other valuable article or thing checked or verified by him, 

(iii) Record the statement of any person which may be useful for, or relevant to, any proceeding under this Act.

(4) An income-tax authority acting under this section shall, on no account, remove or cause to be removed from the place wherein he has entered, any books of account or other documents or any cash, stock or other valuable article or thing.

(5) Where, having regard to the nature, and scale of expenditure incurred by an assessee, in connection with any function, ceremony or event, the Income-tax authority is of the opinion that it is necessary or expedient so to do, he may, at any time after such function, ceremony or event, require the assessee by whom such expenditure has been incurred or any person who, in the opinion of the Income-tax authority, is likely to possess information as respects the expenditure incurred, to furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceeding under this Act and may have the statements of the assessee or any other person recorded and any statement so recorded may thereafter be used in evidence in any proceeding under this Act.

(6) If a person under this section is required to afford facility to the income-tax authority to inspect books of account or other documents or to check or verify any cash, stock or other valuable article or thing or to furnish any information or to have his statement recorded, either refuses or evades to do so, the income-tax authority shall have all the powers under [Sub-section (1) of section 131] for enforcing compliance with the requirement made.

 

Explanation : In this section, - (a) "income-tax authority" means Commissioner, Joint Commissioner, a Director, a Joint Director, or an Assistant Director or Deputy Director or an Assessing Officer, and for the purposes of clause (i) of sub-section (1), clause (i) of sub-section (3) and sub-section (5), includes an Inspector of Income-tax, if so authorised by any such authority; 

(b) "Proceeding" means any proceeding under this Act in respect of any year which may be pending on the date on which the powers under this section are exercised or which may have been completed on or before such date and includes also all proceedings under this Act which may be commenced after such date in respect of any year.”

 

4.       After carefully analyzing the provisions of section 133A of the Act, following issues emerges:

 

A.     WHO CAN CONDUCT SURVEY: POWER OF SURVEY

 The powers of survey under section 133A can be exercised by the following:-

(a)   Commissioner,

(b)   Joint Commissioner,

(c)    Director,

(d)   Joint Director,

(e)   Assistant Director,

(f)     Deputy Director,

(g)   Assessing Officer, and

(h)   Tax Recovery Officer

(i)     TPO

 

B.      The Income tax authorities mentioned in para 1 above enter :-

a.      any place within the limits of the area assigned to him, or

b.      any place occupied by any person in respect of whom he exercises jurisdiction,

c.       any place in respect of which he is authorized for the purposes of the survey.

 

It means authorities  having jurisdiction over the assessee must  accompany the survey party while entering for survey in the business premises otherwise survey is without jurisdiction. Persons below the rank of Income tax Inspector like TA’s , Data Operators etc. cann’t accompany the survey party as they are not  treated as Income tax Authorities under the provisions of Section 133A of the Act. Assessee’s are advised to see the notice for survey and the persons named therein should only be allowed to enter the premises. Entry of other persons is unauthorized & tantamount to trespassing for which necessary legal action under IPC(section 447) can be taken.

 

C.      Place of Survey

(i)           Survey at Business Places

The survey can be carried out at the  place where the business is carried on. The business place also includes such place where the books of account, any documents, any part of his cash or stock or any other valuable article or thing relating to the business are kept.

 

(ii)         Survey at Residential Premises

Normally, the power of survey does not confer a right to make survey of residential premises. If during the course of survey the income tax authority finds that some books of account or documents or the stocks are not available at the place of business and the assessee makes a statement that these are available at his residence, the income tax authority will assume jurisdiction to enter the residence for the purpose of inspecting such books of account, documents or the stock of the business. 

 

(iii)       Survey at CA’s Office & third party

Reference is invited to Circular No.7D dated 3-5-1967 which states that the place where entry can be made under section 133A must not be a place where the assessee does not carry on business. Residential or office premises of third parties including a Chartered Accountant, a pleader or income-tax practitioner of whom the assessee may be a client are not places which may be entered into for the purposes of section 133A.

Whether business/residential premises of third parties or residential premises of assessee are places which could be entered into for the purposes of conducting survey

The place which an Income-tax Officer or an Inspector, authorised by him in this behalf, may enter under the provisions of section 133A, must be either a place within the limits of the area under the jurisdiction of the Income-tax Officer or any place occupied by any person in respect of whom the Income-tax Officer exercises jurisdiction, at which a business or profession is carried on. The provisions of section 133A make it clear that, in either case, the place must be one where the business or profession of an assessee is carried on, although it is not necessary that it should be the principal place of business or profession. The place, where entry can be made under the section, must not be a place where the assessee does not carry on business. Business or residential premises of third parties, including a chartered accountant, a pleader or income-tax practitioner, of whom the assessee may be client, are not places which could be entered into for the purpose of section 133A. It would be improper for an Income-tax Officer or an Inspector, authorised by him in this behalf, to enter the office of a chartered accountant for the purpose of inspecting the books of his client. It is also necessary that the place entered should be the business premises and not residential premises of the assessee and the entry should be during business or office hours.

It may, however, be noted that the above restrictions do not apply to cases of search and seizure specifically authorised under section 132 by the Commissioner of Income-tax/Director of Inspection, which will be governed by the provisions of that section.

 But in the case of searches, premises of CA’s or Advocates can be searched if persons searched give statement that books or records are lying with the CA/advocate etc.

 

D. Conduct of  Survey when business premises are locked

There is no provision in Section 133A enabling the surveying authority to break   open any door or lock or windows to obtain ingress. Entry can be made only if the premises are open and that too during the normal business hours of the assessee.

 

E.      Whether business premises can be sealed

In Shyam Jewellers & Anr v. Chief Commissioner (Admn) U.P. & Ors. (1992) 196 ITR 243, Allahabad High Court observed that a business place cannot be sealed during the course of survey. The Court held that sealing of business place during survey or even in course of search under Section 132 is not permitted in view of the fundamental right to practice any profession or carry on any trade or business bestowed under Article 300A of Constitution of India and is also violation of Article 19(1)(g) relating to the fundamental rights of a citizen.

 

F.       Interrupt/ stoppage of business

The authorities cannot stop the business or the normal activities of a person.  The authorities do not have power to interrupt the ordinary business or peaceful life of citizen.  They should use the power given to them strictly within the four corners of large power.  Since the powers vested are large, even a millimeter departure there from is not allowed (Dr. Vijay Pahwa VS DCIT 250 ITR 354 (Cal) and L. R. Gupta 194 ITR 32).

 

G.     Timings of Survey

The survey can commence only when the business place is open for the conduct of the business.  In case of any other place, the income tax authority can enter only after sunrise and before the sunset. Once the survey commences then there is no time limit as to when it should conclude.

 

H.     Continuity of Survey

Sub-section (2) of section 133A provides that the authority may enter only during the business hours. After such entry, no further limitation is imposed by the section regarding the period for which he may remain in that premises. If the volume of material to be scrutinized is such as to require the survey being continued even after the business hours, the continued presence of the authorities in the premises and continuance of the survey cannot be regarded as “illegal”.  N.K. Mohnot v. Dy. CIT (1995) 215 ITR 275 ( Mad).

 

I.        Whether Police can accompany the survey party.

Income tax Authorities  mentioned under the Income tax Act 1961 have to discharge their duties by passing different types of Assessment / reassessment/Appellate orders, enquiries ,TEP, search & Seizure Operations, Revisionary orders u/s 263/264 etc. Except u/s 132(2)  of the Act ,there is no where mention of the services of Police Officer. Section 132(2) is reproduced as follows:

” The authorized officer may requisition the services of any police officer or of any officer of the central Govt. or of both, to assist him for all or any of the purposes specified u/ss (1)[or sub-section(1A) and it shall be the duty of every such officer to comply with such requisition. “

U/s 133A of the Act , there is no mention of the services / assistance of the police while conducting surveys . To my mind, Income tax Authorities can’t take the services of the Police for the purposes of survey until & unless there is law & order of problem.  In a civilized society, visit of the police to some one’s premises is treated as a social stigma and it seems that law makers have deliberately omitted it from the section 133A. I think it is wrong practice and no one has ever raised any objection to it. Trade Associations, Chambers and Bar Associations should take up this matter with the Police and income tax higher authorities and seek clarification on it.

 

J.        Powers during Survey

The Income Tax Authorities as mentioned in para 1  have been conferred the following powers under section 133A(3) –

• To enter the place of business during business hours and in other places only after sunrise and before sunset.

• To enter the place of business during business hours and in other places only after sunrise and before sunset.

• To enter the place, other than business premises, if the assessee states that his cash,

stocks, records and books of account relating to business are lying there.

• To place marks of identification on the books of accounts.

• To take extracts from such books of accounts and documents or records.

• To make an inventory of any cash, stocks and other valuables checked by him.

• To record the statement of any person.

• To collect information regarding nature and scale of expenditure incurred in connection with personal functions and events like birthday, marriages etc.

• To impound or retain in his custody books of accounts or other documents inspected by him after recording his reasons for doing so. It is further provided that such books of account or other documents shall not be retained for more than fifteen days without obtaining the approval of the Chief Commissioner of Income Tax or Director General or Commissioner or Director therefore. [As per amendment made by Finance Act, 2002 w.e.f 1-6-2002]

But they cannot evaluate the Building, Land etc. or call for the departmental valuer for valuation of the same, or detain any body, persons, employees, customers etc.VO/DVO’s are not authorities  as mentioned in the section 133A of the Act.

 

K.      Rights of Person Present in the Premises

• To verify the identity of the officials intending to carry out the survey.

• If the survey is proposed to be carried out by an Inspector of Income Tax, to verify the authorization and to check that the name and address of the premises and the name of the inspector are correctly mentioned.

• To ascertain that the officer who has authorized the survey has jurisdiction over the case or over the premises.

• To consult and be defended by a legal practitioner of his choice as per article 22(1) of the Constitution. The counsel may also b present during survey proceedings [Nandini Satpati vs. P.L. Dasi AIR 1978 SC 1025].

 

L.       Duties of Person Present in the premises

He should provide the Income Tax Authority following facilities –

• Facility to inspect books of accounts and documents.

• Facility to inspect cash, stock and other valuable articles.

• Facility to inspect books of accounts and documents.

• To furnish such information as may be required in any other matter, which may be useful in proceedings of the Income Tax Act.

• Offer clarifications that may be necessary.

 

 

 

M.   Physical search during the Survey not permitted

    The authorities conducting survey do not have right to taken physical search of any person.  There is a specific right gives for physical search in search & seizure provisions under section 132(1)(B)(iia).  Practically the survey party will request the persons surveyed to keep all their belonging in their pockets on the table and then they see the belongings.  If person denies to fulfill this request, then the survey party cannot take his physical search.

 

N.     Impounding of Books of accounts

The powers to impound any books of account can be exercised only after recording the reasons to do so. The books of accounts can be retained for a period of ten days ( excluding the holidays). For retaining the same beyond the period of ten days, the approval of the Chief Commissioner or Director General has to be obtained.

 

O.     Removal of assets

During the survey the income tax authority cannot remove any cash, stock or any other valuable things. CIT v. Mool Chand Salecha (2002) 124 Taxman 898/ 256 ITR 730 (Raj.)

 

P.      Consequences of non co-operation 

S.Section 6 of section 133A empowers  that authorized officer to invoke the provision of section 131 (1) in case of non-cooperation on the part of assessee. Alternatively, If an assessee who is being surveyed does not co-operate, either in respect of inspection or verification mentioned above in sub-section  (1) or does not supply or share the information with the surveying officer and if the officer feels that he is deliberately avoiding such an inspection or evades to furnish the information or to answer the question which are material, it is likely that the survey officer may approach his superiors for authorizing a search under section 132. All this will cause greater difficulties to him. Therefore the assessee should co-operate fully with the survey team in respect of all matters connected with the survey namely, inspection, verification, furnishing of information and answering the statements recorded by the survey party.

Q.     Surveys u/s 133A(5) of the Act

Survey at the time of functions and ceremonies -

To detect the unaccounted money being spent in extravaganza the income tax authority has the powers to call for the details of the expenditure incurred.  The information can be obtained after such function, ceremony or event from the assessee who has incurred the expenditure. The information can also be obtained from a person who is in possession of such information. The statement of the assessee or that of such other person can be recorded. The statement so recorded can be used in evidence in the proceeding  in the Act.

 

The concerned authority on the basis of the information gathered or the statement recorded by him may make addition under section 69C for unexplained expenditure. However in view of the above case, the onus of proving the incurring the above expenditure lies on the assessing officer and no addition can be sustained when made on estimated basis only. The wordings of sub section (5) empower the authority to verify the expenditure of an assessee, therefore it can be inferred that this sub-section does not apply to those who are not assessees.

 

R.      An Income Tax Inspector has the following  limited powers:-

a.       To inspect the books of account or other documents,

b.      To place marks of identification on the books or account or other documents inspected by him

c.       To enquire regarding the expenditure incurred in any function, ceremony or event and to record a statement.

The inspector of income tax can act only up to the extent of authority given to him by the authorized authority under section 133A and such empowered authority can authorize inspector only for limited purpose.  The inspector when authorized under section 133A, then he can require proprietor, employee or any other person who may at that time and place be attending to afford him the necessary facility to inspect such books of account or other documents as he may require and which may be available at such place.

S.      Powers cannot be given to Inspector

The Inspector can act and exercise the powers only to the extent he is authorized by the empowered authority.  The Inspector of income tax cannot be authorized to exercise following powers and purpose:

(i)     To make an inventory of any cash, stock or other valuable article or thing checked or verified by him and

(ii)   To record the statement of any person which may be useful, for, or relevant to any proceeding under this Act. [ITO vs. Jewells Emporium (1994)48 ITD 164 (Ind.)]

Further the Inspector cannot be authorized to require any proprietor, employee or any other person attending such place.

(i)     To afford him the necessary facility to check or verity the cash, stock or other valuable article or thing which may be found therein and

(ii)   To furnish such information as he may require as to any matter which may be useful for, or relevant to any proceedings under this Act.

 

T.      Statements recorded

It is commonly found that income tax authorities record the confessional statements and/or obtained admission from person surveyed.  [Polat Marmo Agglomerates Ltd vs. Union of India (1994) 73 ELT 536 (Raj.)].  [Ambalal vs. Union of India (1983)13 ELT 1321 (SC)].  [Orient Enterprises vs. Collector (1986) 23 ELT 507 (Tri)]. 

 

Section 133A only permits the income tax authority only to record a statement of any person which may be useful but does not authorize for taking any sworn in statement. Paul Mathew & Sons v. CIT (2003) 129 Taxman 416 (Ker).

 

The Hon’ble High Court of Madras in the case of Commissioner of Income tax vs. S. Khader Khan Son (2008) 214 CTR 589 has held that Section 133A does not empower any IT authority to examine any person on oath, hence, any such statement has no evidentiary value and any admission made during such statement cannot, by itself, be made the basis for addition. This view is clearly supported by CBDT Circular dated 10.03.2003.

Hon ’ble Delhi High Court in the case of  CIT Vs  M/s Dhingra Metal Works (2010TIOL693HC Del-IT) held as

1.      From a reading of Section 133A, it is apparent that it does not mandate that any statement recorded u/s 133A of the Act would have evidentiary value. In the High Court’s view, for a statement to have evidentiary value, the survey officer should have been authorised to administer oath and to record sworn statement. This would also be apparent from Section 132(4) of the Act. From the perusal of section 132(4), it is apparent that while Section 132(4) of the Act specifically authorizes an officer to examine a person on oath, Section 133A does not permit the same;

 

2.      Moreover, the word 'may' used in Section 133A(3)(iii) of the Act clarifies beyond doubt that the material collected and the statement recorded during the survey is not a conclusive piece of evidence by itself;

 

3.      In any event, it is settled law that though an admission is extremely important piece of evidence, it cannot be said to be conclusive and it is open to the person who has made the admission to show that it is incorrect;

Hon’ble Supreme Court of India, Different High Courts and Tribunal are having considerate view that in absence of corroborated evidence a confession/ admission by way of statement could not attain evidentiary value in the eyes of law. It is settled that if the department willing to use statement, department has to prove it with other evidences and assessee is free to prove it contrary/against the department. In my opinion statement gives only clue to prepare or made up case against the assessee for example a cup of tea required raw tea, milk and sugar but without fire all these things cannot cocked good tea. Raw tea can leave its flavor, and colour but not aroma with fresh water and will take long time and will not provide tea satisfaction. In the same way statement is a helping verb, which required verb (corroborative evidence) to complete sentence. Statement can utilize by the clever assessee in his favour because statement is interpretable.

 

U.   Legal assistance during survey

Law does not permit an assessee to insist the tax authorities not to conduct survey till arrival of the Tax Consultant irrespective of an Advocate, Chartered Accountant or a Tax Practitioner. However, an Assessee may request and if permitted may call for, to assist in proper conduct of the survey. Section 288(1) of the Act provides that any assessee, who is entitled or required to attend before any Income-tax authority or the Appellate Tribunal in connection with any proceeding under the Act, otherwise than when required under section 131 to attend personally for examination on oath or affirmation, may subject to the other provisions of section 288 attend by an authorized representative.

 

The said section does not entitle an authorized representative to attend the survey proceedings. The said section does not help in seeking personal presence in survey proceedings.   Practically it has been experienced that after persuasion the consultant is allowed to be present but he is not allowed to interfere in the proceedings.

 

V.     Chits/ slips found during survey:  

a.      When there chits /slips found during the survey the issue comes up is if these chits/ slips belong to the assessee. Second can these chits/ slips can be called as documents.  Third is the figures in these chits / slips without any narrations or details represents income the assessee.  These issues are answered in para 23 & 24 of 39 ITD 183 (Delhi) in the case of Ashwani Kumar V ITO.

b.      There is nothing in 133A unlike u/s 132(4A) which presumes that whatever is found is belonging to the assessee.  More over all things physically present inside the place of a person may not be in that person’s control & possession. For proving possession it is necessary to show that the person concerned had the intentio possessendi.        

c.        If the slips/chits can be called as documents is also an issue.  Document has been defined in section 3(18) of the General clauses Act to include any matter written, expressed or described upon any substance by means of letters figures or marks or by more than one of those means which is intended to be used or which may be used for the purposes or recording that matter.  If the slips/chits do not indicate whether the figures refers to quantities of money or quantities of goods and if so which side represents receipts and which side represents outgoing.  Where there is no narration the chits can be called, as dumb documents without indicating any meaning cannot be treated as document.  

 
W. Surrender of amounts during survey

It is a common experience of the assessee whose premises are surveyed under section 133A of the Income Tax Act, 1961, that irrespective of whether any apparent discrepancy in cash, stock or books of account is found or not, they are asked to make surrender towards concealed income. They do so by referring to section 132(4) and the Explanation 5 to section 271(1) (c) assuring him that if he so surrenders he will not be subjected to penalty, etc. But such is not the correct position of law. The immunity granted under the Explanation 5 to section 132 and not under section 133A. Delhi Tribunal in Amir Chand v. ITO – 49 ITD 606 held that penalty u/s 271(1)(c), Explanation 5 cannot be pressed into service while dealing with a case of survey u/s 133A but is applicable only in search proceedings u/s 132. The proper course for the assessee under such circumstances is to assure that he will reconcile the discrepancy noticed by the surveying authorities or he will return the amount representing the discrepancy as his income of the current year.

 

X.   Whether a computer containing books of accounts or data can be impounded?

As per section 2(12A) “books or books of account” includes ledgers, day books, cash books, account books and other books, whether kept in written form or as print out of data stored in floppy disc, tape or any other form of electro magnetic data storage device”. Therefore, it seems that the computer cannot be called as books of account or article. One may argue that computer cannot be impounded.

 

Y.     DISCREPANCY IN STOCK:

This is one of the most common and major problem faced by the assessee during survey and in subsequent assessment proceedings. It may be in the form of excess stock or shortage in stock.

Income Tax authority normally values excess stock at market value, instead of the actual cost, i.e. the amount invested/utilised to acquire such excess stock, for the purpose of determination of additional income. One needs to consider the accounting treatment of such excess stock, implications of provisions of section 40A(3) as such excess stock could represent purchases in cash out of undisclosed income and implications of section 69C with regard to disallowance of unexplained expenditure. Reasons for excess stock may be due to calculation of lower GP rate than as per records, certain purchases for which deliveries are received but bills are not received, certain sales are made but delivery is not dispatched.  Certain materials received for job work or on sale or return basis, Certain stock which is obsolete which may be overvalued by the authorities, goods received on consignment, difference in valuation.  Similarly shortage of stock may be due to consumption, samples sent to customers, pilferage, mis-appropriation, theft, non-delivery of goods purchased, goods send on consignment, difference in valuation.

 

If the reasons for discrepancies are brought on record at the time of survey, there may not be much difficulty during the course of assessment

 

In case of shortage, normally income tax authority treats it as undisclosed sales and the sale value is declared as income.  The assessee can content that only the profit element included in such sale should be taxed. The accounting treatment of this is very important as it can change the percentage GP, it may affect Sales Tax, Excise & other levy.

 

[51 TTJ (Del) 743, 28 TTJ(JP) 128, 201 ITR 608 (Cal), 100 CTR 204 All 258 ITR 654, 60 ITD 531 (Mad), 40 ITD 180 (JP), 66 TTJ 695 (Pune).]

 

Z.    DISCREPANCY IN CASH: -

This discrepancy arises due to difference in physical cash available and balance as per Books of Accounts. Excess cash may be due to cash sales yet to be recorded, assessee’s personal money lying in business premises, recovery from debtors, advances received or other receipts remaining to be recorded for the past few days, money received for safe keeping. Generally such excess cash, being unexplained, is treated as additional income.

 

Similarly shortage in cash may be due to withdrawal by partners/ proprietors, which is yet to be recorded, pending entries of payments made, advances given etc. Generally even in cases of shortages a declaration of income is obtained from the assessee.  30 Taxman 389, 27 TTJ ITO 170 (All).

 

AA.  INCOMPLETE BOOKS AND RECORDS AT THE TIME OF SURVEY

In many of the cases, at the time of survey, the books and records are incomplete or not written at all. By and large identification marks are placed by the income tax authority on the basic documents. However some documents might go unnoticed or may be received / obtained subsequently. In such cases the Assessing Officer raises an issue whether books of accounts produced by assessee are reliable for determining his correct income and thus may reject the same. The Assessing Officer cannot reject the  books prepared on basis of genuine documents merely on the ground that the books were incomplete on the date of survey.

 

AB. Treatment of undisclosed turnover     

During the course of survey some material may lead to existence of undisclosed turnover.  In such a case, it is important to keep in mind the fact that for every unaccounted sale there must be corresponding unaccounted purchase without which sale is not possible.  If the assessee is in a position to prove that purchase cost of goods sold has not been recorded in the regular books of account, the whole of sales proceeds cannot be treated as income but only the income component embedded in the unaccounted sales can be liable to tax. Again here proviso to section 69C is to be considered carefully.   [CIT v. S. M. Omer – 201 ITR 608 and  Ashok Kumar Rastogi v. CIT – 59 Taxman 82.]

 

AC. Treatment of income declared without specifying the nature thereof

When declaration of income is made without specifying the nature of income, then such income may be taxed, under the head ‘Income from other sources’.  It is advisable to specify the nature of income disclosed because if facts indicate that the income is generated in business, a case then can be made out to get it taxed as business income and benefits of depreciation and other deductions can be availed.

 

AD. Retraction of Statements

A statement made during survey operations is normally binding on the person who made the statement only if it is voluntary and without threat, undue influence, misrepresentation, coercion or misunderstanding. If that were so, it would not be binding on the person making the statement. However, if he claims that the statement is not voluntary, onus would be on him to prove the same and must show to the authority concerned the reasons leading to making the statement.

 

Besides, after the survey, when the person making declaration finds that the declaration is not substantiated with facts found, it should be retracted within a reasonable time. For instance when certain facts by nature take time to be available, then time taken for retraction in such cases may be held to be justified. On the other hand, when a declaration is made to buy peace and not retracted within a reasonable time, its retraction later on may not be efficacious.

 

Supreme Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala – 91 ITR 18 held that an admission though is an important piece of evidence cannot be said to be conclusive and it is open for the person making admission to show that it is incorrect.

 

Similarly, Mumbai Tribunal in Pushpa Vihar v. Assistant Commissioner of Income Tax – 48 TTJ 389 after considering its own judgment in Kishore A.Meswani (ITA  No.7161/B/87 dated 7.8.1990) as also the Supreme Court judgment in Krishna v. Kurushetra University – AIR 1976 SC 376 held as under:

 

“that merely on the basis of assessee’s offer for being taxed, the assessment cannot be sustained. The Apex Court in the case of Krishna v. Kurushetra University (supra) has held that any admission made in ignorance of legal rights or under duress cannot bind the maker of the admission. It is an accepted position that what is admitted by the party to be true, must be presumed to be true, unless the contrary is demonstrated. However, mere admission cannot be bedrock or foundation of an assessment. It is always open to the assessee who made the admission to show that what he admitted was not correct. Thus, it can be said that the admission made by a person is relevant in deciding the matter. But it is not always conclusive. The person who admitted the fact is at liberty to explain or clarify the circumstances and the nature of statement and also the correct facts. It is well settled that the effect of an alleged admission depends upon the circumstances in which it was made. Therefore, it can be said that an admission is the best evidence that Revenue can rely upon and though not conclusive, is decisive of the matter unless successfully withdrawn and proved erroneous.”

 

 AE. Precaution during Survey & after Survey

The Assessee should not be unduly influenced by the pressure tactics exerted by the survey team and must maintain his mental state cool and observe the following points:

 

(a)                        The assessee must satisfy himself about the identity and genuineness of the    person conducting the survey and for this he must ask for his identification or may contact his superior to find out the real facts.  He may also ask for the copy approval of the Joint Director or Joint Commissioner for verification and return.

 

(b)   The assessee and the concerned persons must co-operate with the official and try to give all the available facts. Any evasive tactics on   the part of the assessee may lead to search and seizure operations by the department.

 

(c) The assessee, in order to avoid the production of books of account or documents or stock or cash or any other asset, should not take up a plea that they are laying at residence. Such a statement may prove to be suicidal and invite the authorities at his residence because of his own foolishness.

 

(d)   If during the course of survey, discrepancies are found, as for instance the actual cash does not tally with the amount in the books of account, the assessee shouldn’t get panicky but should try to reconcile the difference and give appropriate explanation to the official to his satisfaction.

 

(e)   As the books of accounts and other documents and valuable things can be impounded only on non-cooperation by the assessee, he must cooperate with the income-tax authority conducting the survey.

 

(f)  Surrender of any income or asset as income in a statement recorded under section 133A should be avoided, as no immunity is available under Explanation 5 to Section 271(1)(c) as advocated by survey team. Even if pressed, the assessee should avoid surrendering of any income during the course of survey. Ultimately if any income is surrendered, the income so surrendered should be included in the current year's income to be returned.

 

(g)                        If the authorised representative is not present during survey operations, the assessee must keep and preserve copies of the inventories, statements etc. and to contact his Tax Advisor immediately on completion of survey. The Assessee would be running a great degree of risk if he hides or conceals such material aspects, which were detected by survey party in survey. If any of the statements are not available, they must be gathered from the Income Tax authorities as they are bound to be used against the person surveyed during the course of assessment by the concerned official.

 

(h)   The Assessee must disclose all the material facts to his Tax Advisor and act as per the best advice of his Tax Advisor and to do any other act or step which may be in the facts and after considering the prevalent circumstances.

 

(i)     If assessee feels that officials of the survey party exceeded their jurisdiction, send an e mail to the Chairman CBDT(chairman@incometaxindia.gov.in ) during the survey or immediately after the survey. It will help the assessee from the repercussion of the survey.

 

AF. Tax Authorities should refrain from doing the following acts:

·         To remove or seize cash, stock-in-trade and other valuable article or thing etc. found during the course of the survey.

·                     To harass and resort to coercion and related tactics.

·         To exert pressure on the assessee to declare and surrender exorbitant amount under the pretext that there would be no liability for interest, penalty etc. if the assessee surrendered as per the sweet will of the survey team.

·                     To collect cheque for tax applicable to amount of declaration.

·         To act in a manner which is against the provisions of law or travel beyond his jurisdiction?

·                     To interrupt incoming telephone calls or to deny usage of telephone etc.

·         To physically search person or the persons present at the place of survey and to stop ingress or exit of any person inside the place at the time of survey.

·                     Not allowing meals, rest, medical facility whenever required.

·                     Detaining of employees

·                     Not giving copies of statements.

·                     Breaking lock of any cupboard or room.

·                     Not to carry police with them.

·                     Not to accompany data operators & TA’s, Stenos & peons etc.

 

Important Case Laws and References

• CIT v. Manorajyam (1995) 54 ITD 116 (Coch-Trib)

It was observed that survey party is not empowered under Section 133 A, to draw inferences  and conclusion to support its report in addition to collection of the required information.

• Sugan Chand Vinod Kumar v. CIT (1989) 175 ITR 273(Raj)

It was held that where no reasons for impounding the books were recorded under section 131 (3),  the impounding would be in contravention of the legal provisions and therefore not justified.

• Dr. Vijay Pahwa v. Dy. CIT (1996) 84 Taxman 416(Cal)

The Calcutta High Court imposed a personal penalty on the leader of the survey party for arbitrary  exercise of power under section 133 A. As summons under Section 131 (1) can be served only in the case of obstruction by the person concerned or when some sort of hindrance is put up by him but in the instant case there was no pending adjudication where the summoning power can be used at all. Further, it can be said that the assessee's books were seized, without any apparent authority. The assessing Officer and authorities do not have any power to interrupt the ordinary peaceful citizens of the country in any manner they like by utilizing the large powers given to them without keeping themselves strictly in the four corners of those large powers.

• Rajkumar Jain v. Asstt. CIT (1994) 50 ITD 1(All-Trib)

 He relied on the decision of Hon'ble Punjab & Haryana High Court in case of M/s Kim Pharma (P) Ltd. V. CIT, ITA No.106 of 2011 (O&M) wherein the Court held that in case of surrendered income brought forward losses can not be set off under sections 70 & 71 of the Act against the surrendered income.

CIT Vs  M/s Dhingra Metal Works (2010TIOL693HC Del-IT)

1. From a reading of Section 133A, it is apparent that it does not mandate that any statement recorded u/s 133A of the Act would have evidentiary value. In the High Court’s view, for a statement to have evidentiary value, the survey officer should have been authorised to administer oath and to record sworn statement. This would also be apparent from Section 132(4) of the Act. From the perusal of section 132(4), it is apparent that while Section 132(4) of the Act specifically authorizes an officer to examine a person on oath, Section 133A does not permit the same;
2. Moreover, the word 'may' used in Section 133A(3)(iii) of the Act clarifies beyond doubt that the material collected and the statement recorded during the survey is not a conclusive piece of evidence by itself;
3. In any event, it is settled law that though an admission is extremely important piece of evidence, it cannot be said to be conclusive and it is open to the person who has made the admission to show that it is incorrect;

 CIT vs. Uttamchand Jain 320 ITR 554 (Bom),

 it was held the retracted confession can be relied only there is independent and cogent evidence to corroborate the statement.

Paul Mathews 263 ITR 101 (Ker) and Kader Khan 300 ITR 157 (Mad)

For a statement to have evidentiary value, the survey officer should have been authorised to administer oath and to record sworn statement as under s.132 (4). While s. 132(4) specifically authorizes an officer to examine a person on oath, s. 133A does not permit the same.

Vinod Solanki vs. UOI Civil Appeal No. 7407 of 2008  arising out of SLP (C) No. 3537of 2008 dated 18th December, 2008  UOI (233) ELT 157 (S.C.))
(i)   The retracted statement must be substantially corroborated by other independent and cogent evidences, which would lend adequate assurance to the court that it may seek to rely thereupon;
(ii)    The initial burden to prove that the confession was voluntary in nature would be on the Department.
(iii)    The burden is on the prosecution to show that the confession is voluntary in nature and not obtained as an outcome of threat, etc. if the same is to be relied upon solely for the purpose of  securing a conviction.
(iv)   With a view to arrive at a finding as regards the voluntary nature of statement or otherwise of a confession which has since been retracted, the Court must bear in mind the attending circumstances which would include the time of retraction, the nature thereof, the manner in which such retraction has been made and other relevant factors. Law does not say that the accused has to prove that retraction of confession made by him was because of threat, coercion, etc. but the requirement is that it may appear to the court as such.

Hon’able Supreme Court of India, Different High Courts and Tribunal are having considerate view that in absence of corroborated evidence a confession/ admission by way of statement could not attain evidentiary value in the eyes of law. It is settled that if the department willing to use statement, department has to prove it with other evidences and assessee is free to prove it contrary/against the department. In my opinion statement gives only clue to prepare or made up case against the assessee for example a cup of tea required raw tea, milk and sugar but without fire all these things cannot cocked good tea. Raw tea can leave its flavor, and colour but not aroma with fresh water and will take long time and will not provide tea satisfaction. In the same way statement is a helping verb, which required verb (corroborative evidence) to complete sentence. Statement can utilize by the clever assessee in his favour because statement is interpretable.