Provisions relating to Section 133A.

1. Power Of Survey.

Survey means to inspect or in a wider sense to scrutinize. The object of a survey is to find out, gather information, verify and collate information so as to apprehend a tax dodger or a tax evader. Survey is basically a surprise inspection carried out by the officers of the Income-tax department to verify co-related information, check the cash balance with the books, verify the position of stocks as compared to the position thereof in the books etc.

The Power of Survey emerge from the provision of S. 133A of the Income-tax Act, and the sections starts with the words“ Notwithstanding anything contained in any other provision of this Act”. Accordingly the provisions are independent and to the exclusion of the other provision of the Income-tax Act.

2. Who can Survey? The powers of survey can be exercised by an Income-tax authority – meaning

1. a Commissioner,
2. a Joint Commissioner,
3. a Director,
4. a Joint Director,
5. an Assistant Director
6. a Deputy Director
7. an Assessing Officer,
8. a Tax Recovery Officer
9. an Inspector of Income-tax.

3. What are the powers of the Income-tax authority?

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, 1or (c) any place in respect of which he is authorised 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,

4. Where can a survey be conducted?

The powers of the income-tax authority extend only to an entry to a business premises or place of profession. It is not necessary that the place which the survey is carried on is a principal place of business.

Business premises would also include a place where from business need not be carried on by the assessee if books of account, documents, cash stock, valuable article or thing is kept.

The survey action has to be initiated during the business or working hours i.e. say after the sunrise and before the sunset, but once properly initiated, it can carry on through the night. There is no time limit provided for concluding or exit from the business premises

215 ITR 275 (Mad) N. K. Mohnot v. CIT

Since survey is restricted to business premises, a survey cannot be conducted on days when the business is closed e.g. festive occasion, Sundays etc.

5. Residential premises.

It may be noted that a survey can also be carried out at a residential premises in case the same is shown as the business address. If the books of account, stock or cash of business is stated to be kept at the residence, or the business address for Sales tax purpose is showns s the residence, an income-tax authority cane conduct a survey at such a residential premises.

6. Powers of Officers during survey.

An income-tax authority can 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 to:-

(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.

7. Scope of powers.

The scope of the survey action includes the following functions

a)      To inspect books of account and other documents.

b)      To place marks of identification on the books of account or other documents and make extracts or copies there from.

c)      To make inventory, check or verify cash, stock or other valuable articles or thing.

d)      To call upon the proprietor, employee or other person to furnish information relevant to any proceedings under the Act.

e)      To record the statement of any person, which may be useful for or relevant to any proceedings under the Act.

f)        Apparently, No powers seems to have been granted to an income-tax authority cannot take a personal search of a person during survey.

g) W.e.f 1-6-2002, however an income-tax authority can impound books or documents inspected by him after recoding reasons for the same. Such impounded books can be retained in his custody for 10 days after which he is required to take the approval of the Chief Commissioner of Director General.

h)      Where accounts are maintained on a computer, the income-tax authority would be within his powers to take a backup of the same on a CD, floppy etc. Besides this copies of incriminating ledger accounts are also printed out and the assessee is asked to put marks of identification under his signature so that later on the evidence can be used against him.

i) No power has been granted for seizure of cash, stock or other valuable article or thing during survey.

The scope o f the enquiry is very wide. However, it does not give the authority to seize any valuables (Shyam Jewellers Vs. Chief Commissioner [1990] 196 ITR 243 (All.)]

8. Survey by TDS Officers.

In recent times the TDS Officers have also embarked upon the survey trail in as much as they verify the details of payments made and check whether tax has been properly deducted and paid by the assessee.

9. Powers of an Inspector of Income-tax.

A question arises whether the inspector of the Income Tax can be authorized to carry on a survey action. In the case of Income-tax Officer Vs. Jewels Emporium [1974 SOT 939 (Ind.) it was held that the Inspector, even if authorized, cannot exercise any other power u/s. 133A and any act beyond the specified powers would be illegal.

Thus, an inspector of Income tax can carry out survey only if he is authorized by any Income Tax authority and the Inspector, on being so authorized, can exercise only following powers:

a)      To inspect books of accounts and other documents,

b)      To place marks of identification on books of accounts or documents examined,

c)      To make extracts or copies of books of accounts or documents,

d)      To seek information regarding expenses as specified in sub-section (5) of section 133A.

10. Enquiry relating to expenditure.

An income-tax authority under 133A(5) is empowered to record a statement of any person who in his opinion is likely to possess information relating to the nature and scale of expenditure incurred by an assessee in connection with a function, ceremony or event. The term “incurred” shows that such an inquiry can be conducted only after the function, ceremony or event is over. However spot enquiries are often undertaken after the function though it is not unknown that very many times Inspectors of the Income-tax department are present during weddings. They are authorized to record the statement of any person such as the manager of the hotel, the caterer, the card printer etc. and such statement may be used in evidence in any proceeding under the Act. The powers u/s 133A(5) are different from the powers u/s 133B.

11. Failure to co-operate.

If any person fails to co-operate with the income-tax authority or does not afford facility to inspect the books of account or other documents, or to check or verify the cash, stock, etc, then such income-tax authority can invoke the powers u/s 131(1) of the Act and enforce compliance.

12. Presence of an Advocate, Chartered Accountant or an Authorized Representative.

An Advocate, Chartered Accountant or an Authorised Representative can be permitted to be present during a survey. In fact his presence can be of great assistance to the income-tax authority since he is in the full knowledge of most of the affairs of the assessee. However this does not constitute a right because except for affording assistance, the authorized representative has no role to play. He is in reality a silent spectator to the process and in case of any interference by him could make him leave the premises.

13. Can an Advocate or a Chartered Accountant be surveyed?

Tax professional stand in a fiduciary capacity vis-à-vis their clients and as such he is not to be visited by an income-tax authority. This stood clarified by the CBDT vide Circular dated 3/5/1967. However in view of Explanation to S. 133A(1), w.e.f. 1-7-1995, if the books of account, documents, or any part of the cash or stock or any other valuable article or thing of an assessee is stated by be kept in any place other than the place of business or profession, the income-tax  authority can survey such a place, but same may be for a limited purpose for obtaining information relating only in respect of that assessee.

14. Statement recorded in survey.

It is frequently seen that the income-tax authority conducting a survey normally does not leave unless a confessional statement is recorded. Such statement is given by the assessee many a times to get rid of the officer and to bring an end to the proceedings. Later on the assessee files a declaration that the statement is taken under undue pressure and the facts stated therein are incorrect. As such the statement is retracted.

A statement recorded under section 133A(3)(iii) is not a statement on oath and hence does not have evidentiary value.

The Kerala High Court in 263 ITR 101 (Ker) in the case of Paul Mathew & sons has held that the Assessing Officer has no jurisdiction to record a statement on oath u/s 133A during the course of survey and such a statement has no evidentiary value since the Officer is not empowered u/s 133A to administer oath.

A similar view has been taken by the Cochin Tribunal in 2 SOT 402 in the case of Kurrunen Vehil Financiers P. Ltd.

Accordingly, when ever there is some incriminating material found during a survey, the income-tax authority immediately issue a summons under section 131 of the Act and records a statement since a statement recorded by this process is on oath and has the force of law. However for the exercise of a power under section 131(1), the Assistant Director, Deputy Director, Assessing Officer, Tax recovery Officer or the Inspector of Income-tax needs to take the approval of the Director or Joint Commissioner as the case may be.

In order to avoid such embarrassments, the CBDT vide instruction dated 10^th March 2003, has instructed the subordinate officers to focus and concentrate on collecting evidence of income which is not disclosed or is not likely to be disclosed rather than record an unsubstantiated statement. The instruction is reproduced hereunder:-

Instruction dated 10^th March, 2003 vide No. F No. 286/2/2003/IT (Inv):

“To

All Chief Commissioner of Income Tax (Cadre Contra) &

All Directors General of Income Tax Inc.

Subject: Confession of additional Income during the course of search & seizure and survey operation regarding.

Instances have come to the notice of the Board where assessee have claimed what they have been forced to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In there circumstances, on confessions during the course of search & seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income Tax Department. Similarly, while recording statement during the course of search & seizure survey operations no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely.

Further, in respect of pending assessment proceedings also, assessing officers should rely upon the evidence/materials gathered during the course of search/seizure operations or thereafter while framing the relevant assessment orders.

Yours Faithfully,

Sd/-

(S. R. Mahapatra)

Under Secretary (Inv. II)

15. Copies of statements recorded during survey.

It is settled law that copy of only that material which is being used against the assessee is to be provided. Accordingly even though the statement of the assessee is recorded during the course of survey, no copy is provided to him and it is for the assessee to then apply to this concerned officer for the same who would provide the copy in case he intends to use it against the assessee.

16. Conversion to Search.

There are times when the income-tax authority may during the course of a survey find huge unaccounted cash or stocks. There may be sufficient material which would warrant seizure. Since he does not have the power to seize, the income-tax authority then informs his counterpart being the Investigation wing who come with a search warrant and take over the proceedings from there. The survey then ends and search begins.

17. Consequences of a confessional statement.

Very often it is seen that in a survey, the income-tax authority determine the closing stock by estimating gross profit. The normal practice is to take the Opening stock, add to it the purchases up to the date of survey, deduct sales as recorded in the books of account and the average estimated gross profit. This working generally leads to an incorrect result and thus excess stock is worked out as compared to what is physically found. The assessee makes a declaration and then afterwards realizes the folly and files a retraction. The reasons for the difference could be many such as:-

i)   The rate of GP has been taken to be a lower figure that the one which can be proved from the records.

ii)   Certain purchases for which the deliveries were received have not been debited but since the bills were not received and therefore purchases to that extent are under stated.

iii) Certain sales have been made but the goods have not yet been delivered. Therefore, these items were included in stock as well as sales;

iv) Certain materials were received either for job work or on returnable basis and therefore did not belong to the assessee;

v)  The physical stock taken by the department was not correct.

18. Precaution to be taken before making a statement.

Before making a confessional statement or any declaration, the assessee should keep the following issues in minds:-

1. Whether any evidence of has been found which would lead to an inference of concealment of income.
2. Whether there is in fact any discrepancies between the stock as and the stock as per books.
3. In case of disclosure of excess stock it may be advisable to admit discrepancies in the stock rather than unaccounted purchases.
4. The provisions of sales tax and excise duty besides provisions like dis-allowance u/s. 40- A(3), 269-SS, 269-T etc should be kept in mind before making any confession?
5. Whether it would be safer to disclose income under the head “other sources” or “business”.
6. Would it be desirable to declare the entire amount as current year’s income or spread over income for many years since any spread over may result in liability to interest and penalty for concealment.
7. Whether it is possible to capitalise the disclosed mount.
8. Care should be taken to ensure that the disclosure takes care to covers the discrepancies found during the survey and also those that may be unearthed at a later stage.

19. Presumptive taxation.

There are some provisions of the Act which permit some types of assessee having a restrictive turnover to pay tax on an assumed income. If during the course of a survey of such an assessee it is found that books of account are maintained, the income-tax authority would be very much within his powers to impound such books and thus make the assessee liable to income based on the entries in such books of account.

20. Interest and Penalty.

It is very important to consider the consequences of a disclosure made during the course of the survey.

If the income detected during the course of survey relates to the current year, then the assessee would be liable only to interest under section 234C if any and there would be no reason to levy a penalty since the return of income was not yet due and hence concealment is not established. However where the income detected during the course of survey relates to any assessment year for which the return of income has already been filed, it is presumed that the intention of the assessee was to conceal such income and as such the assessee will not be spared from the liability of interest and penalty as per law.

Santram Parmanad Vs. ACIT [2004] (1 SOT 312) (Del.)

21. Some case laws of interest.

POWERS OF INSPECTOR OF INCOME-TAX

[2005] 3 SOT 277 (MUM.)

Harshad L. Thakker v. Assistant Commissioner of Income-tax, Circle-18(2)

It was held that an Income-tax Inspector is not an income-tax authority for purpose of recording statement of any person in course of survey proceedings under section 133A of the Act. However the assessee would still be liable to explain discrepancy in stock inventory prepared in course of survey even though statement recorded was non est because incriminating material found in course of illegal search is an admissible evidence.

[1998] 62 TTJ (JP.) 527/[1999] 104 TAXMAN 79 (JP.) (MAG.)

Kamal & Co. v. Assistant Commissioner of Income-tax

It was held that an Inspector is not empowered to record statement or to prepare stock inventory at time of survey and, therefore, additions made on basis of survey made by Inspector must be deleted

[1994] 48 ITD 164 (Indore)

Income-tax Officer v. Jewels Emporium

It was held that by recording of a statement of firm’s partner on oath and preparing inventory of stock during survey operations under section 133A, the Inspector of Income-tax has acted beyond the purview of his powers which was illegal

RETRACTION OF A STATEMENT GIVEN DURING SURVEY.

[2005] 3 SOT 277 (MUM.)

Harshad L. Thakker v. Assistant Commissioner of Income-tax, Circle-18(2)

It was held that if assessee can demonstrate that valuation of stock adopted by survey party during survey proceedings under section 133A was wrong with reference to material on record, then addition under section 69 on account of unexplained investment in excess stock could not be justified merely on ground that said addition was offered by assessee during survey proceedings

[1992] 40 ITD 180 (Jp.)

Income-tax Officer v. B.D. Dal & Oil Ind.

Where during a survey an assessee himself concedes that the stocks are short and agrees to the extent of shortage, it was held that unless it can be established that such consent or agreement was given or arrived at under threat coercion, undue influence, misrepresentation or wrong understanding of facts or law, the assessee cannot be allowed to retract from whatever it had stated or agreed to at time of survey.

Provisions relating to Section 133B.

POWER TO COLLECT INFORMATION.

1. Who can survey?

The provisions of section 133B relate to the powers granted to an income-tax authority being a Joint Commissioner, an Assistant Director, a Deputy Director or an Assessing Officer, and including an Inspector of Income-tax who has been authorised by the Assessing Officer to exercise the powers of gathering information.

2. What are the powers of the Income-tax authority?

An income-tax authority can for the purpose of gathering information, enter –

(a)   any building or place within the limits of the area assigned to such authority, or

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

3. Where can a survey be conducted?

A survey u/.s 133B can be at a place from where business or profession is carried on, whether such place be the principal place or not. Accordingly residential premises do not fall within the purview unless the place of business or profession is shown to be the residential premises.

4. Powers of Officers during survey.

An income-tax authority can 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 to furnish information. He can enter such a place only during office hours and obtain information but he does not have the power to remove or cause from the building or place wherein he has entered, any books of account or other documents or any cash, stock or other valuable article or thing.

The information is to be collected in form No. 45D and the same can be taken as material for assessment proceedings.

When income declared in survey on advice of survey officers that no penalty would be levied, – No case for penalty.

68 ITD 550 (Pune) Silver Palace

94 TTJ 156 (Jd) – Narendra Kumar

Discrepancy found in stock in survey. Held only GP is to be added And not entire discrepancy in stock

34 BCAJ Sept2002 Roop Niketan 3196/Mum/1993 29-11-2001.

No presumption of concealment – No penalty u/s. 271(1)(c) for declaration in survey proceedings

49 ITD 606 (Dli) – Amirchand.

Revised return filed after Survey – ITAT Held no concealment

250 ITR 852 (Karn) – V Narashima Prasad see 250 ITR 528 (Bom) Sudhir Kumar Chottubhai

Declaration in survey is not a case of penalty as no concealment is detected and adv. Tax is paid as per return filed.

2996/M/01 Sushil H Gupta “A’ 23-12-2004 copy in file

Assessing Officer cannot remove books from Premises 77 Taxman 278 (Del) – Hans Raj Chhabra

Inspector is not authorised to record statement in survey 104 TM 79 (Jp-T) – Kamal & Co.

Mere declaration in survey – no discrepancy found – no material on record to prove addition  is income of year – No penalty

68 ITD 550 (Pune) – Silver Palace

Information gathered in Survey cannot be made basis for Block Asst. 83 TTJ 473 (All) Fertilizer Traders

94 TTJ 885 (Vis) – Smt. Bommana Swarna Rekha

95 TTJ 288 (Bang) Gauthamchand Bhandari

Shortage of stock found in survey cannot be assessee in Block 73 ITD 444 (Nag) – Prakash Tulsidas

93 TTJ 218 (Del) GMS Technologies Ltd.