FREQUENTLY ASKED QUESTIONS ON SURVEY.
CA Sampat Jain
CA Nikita Kala
Q1. Whether notice is required to be issued to the assessee before initiating survey?
No, The section does not require prior notice of the survey to be given to the affected person - N.K. Mohnot v. Dy. CIT [1995] 215 ITR 275/83 Taxman 238 (Mad.).
Q2. Which are the authorities empowered to conduct a survey?
Section 133A of the Income-tax Act, 1961 empowers the following income-tax authorities to conduct a survey:—
(a) Commissioner of Income-tax,
(b) Joint Commissioner of Income-tax,
(c) Director of Income-tax,
(d) Joint Director of Income-tax,
(e) Assistant Director of Income-tax,
(f) Deputy Director of Income-tax,
(g) Assessing Officer,
(h) Tax Recovery Officer,and
(i) Inspector of Income-tax, if so authorized by above persons.
[For the purposes of section 133(5) and clause (i) of section 133(1), 133(3)].
Q3. Can survey be conducted by inspector?
Yes, to a limited extent, if authorized by higher authority, which is authorized for survey. Otherwise the survey is illegal. (Bombay Marble Industries V ITO (2006) 100 TTJ (JD) 927 (SMC).
Also Income Tax Authority includes Inspector of Income Tax for purposes of clause (i) of sub-section (1), clause (i) of sub-section (3) and sub-section (5).
Section 133A Sub Section (1)(i) states:
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 authorized 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,
Section 133A Sub Section (3)(i) states:
(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,
Section 133A Sub Section (5) states:
(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.
Q4. Which are the places where the Income Tax Authorities can enter to conduct survey?
Under section 133A, 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, [or]
(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.
Q5. Whether business/residential premises of third parties or residential premises of assessee could be entered for the purpose of making survey?
CBDT in Circular: No. 7-D(LXII-7) of 1967, dated 3-5-1967 has clarified as follows :
“The place which an Income-tax Officer or an Inspector, authorized 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, authorized 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 authorized under section 132 by the Commissioner of Income-tax/Director of Inspection, which will be governed by the provisions of that section.”
Q6. Can Income Tax Authorities enter into the premises of Chartered Accountant of the assessee?
CBDT in Circular: No. 7-D (LXII-7) of 1967, dated 3-5-1967 has clarified as follows:
“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, authorized by him in this behalf, to enter the office of a chartered accountant for the purpose of inspecting the books of his client.”
Q7. What can Income Tax Authorities require the concerned persons to do?
The income-tax authorities may 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 (hereinafter, referred to as concerned persons) :—
(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.
If the person so required either refuses or evades to do so, the relevant income-tax authorities shall have the powers under section 131(1) for enforcing compliance with the requirement made. Section 131(1) gives the same powers as are vested in a court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit in respect of the following matters, namely :—
(a) discovery and inspection;
(b) enforcing the attendance of any person, including any officer of a banking company and examining him on oath,
(c) compelling the production of books of account and other documents; and
(d) issuing commissions.
Q8. What are Income Tax Authorities not authorized to do?
An Inspector of Income-tax cannot be authorised for any purposes other than those mentioned earlier. He cannot require the concerned person,
(i) 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
(ii) 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.
He is also not empowered to :—
(i) make an inventory of any cash, stock or other valuable article or thing checked or verified by him,
(ii) record the statement of any person which may be useful for, or relevant to, any proceeding under the Income-tax Act.
It has been held in ITO v. Jewells Emporium [1994] 48 ITD 164
(Indore Bench) that if a inspector records statements on oath or
prepares cash or stock inventories, he acts beyond his powers.
Q9. Whether ACIT (TDS) can authorize a survey?
Yes, but the survey is restricted to TDS issues only. If TDS issue arises during the course of survey u/s 133A, a TDS survey can be conducted as was held valid in case of Reckitt & Colman of India Ltd. v. Asst. CIT(TDS) 251 ITR 306 (Calcutta HC) & Reckitt & Colman of India Ltd. v. Asst. CIT(TDS) 252 ITR 550 (Calcutta HC)
Q10. Whether ACIT authorizing survey can remain present in course of survey?
Yes, ACIT authorizing can remain present in course of a survey as held in N.K.Mohnot Vs DCIT 240 ITR 562 (Mad).
Q11. What are the powers of the Income Tax Authority in course of survey?
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 the Income-tax Act.
Q12. What is the evidentiary value of statement recorded in course of survey?
In Paul Mathews & Sons V CIT (2003) 129 Taxman 416 / 263 ITR 101 (Ker) it has been held that:
“Section 133A enables the income-tax authority only to record any statement of any person which may be useful but does not authorize for taking any sworn in statement. On the other hand, such power to examine a person on oath is specifically conferred on the authorized officer only under section 132(4) in the course of any search or seizure. Thus, the Act whenever it thought fit and necessary to confer such power to examine a person on oath, the same has been expressly provided whereas section 133A does not empower any ITO to examine any person on oath. In contradistinction to the power under section 133A, section 132(4) enables the authorized officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Act. On the other hand, whatever statement recorded under section 133A is not given any evidentiary value obviously for the reason that the officer is authorized to administer oath and to take any sworn in statement which alone has the evidentiary value as contemplated in the law. [Para 11].“
Q13.Whether books of accounts and other document can be impounded in course of survey?
Yes, however books of account or other documents cannot be impounded by an income-tax authority except after recording his reasons for so doing.
Q14.What are the points to be kept in mind with regard to statements recorded in course of survey?
Regarding statements recorded in course of survey, the following points may be noted:—
· Statements recorded under threat, coercion, inducement or promise are not valid but the person concerned should take care to retract such statement without delay - Ambalal v. Union of India [1983] 13 ELT 1321 (SC).
The person examined must be supplied with a copy of the statement before the same is relied upon by the Assessing Officer. If he asks for it and authorities do not supply it, the authorities cannot rely on it - Ambalal’s case (supra).
Q15.What cannot be removed from the place under survey?
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 cash, stock or other valuable article or thing.
Q16. Can the premises be sealed after or in course of survey?
No, premises cannot be sealed after or in course of survey. Section 133A or section 132 nowhere provides for sealing of the business premises before or subsequent to the survey or even if there is difficulty in making survey - Shyam Jewellers v. Chief Commissioner 1990 Tax LR 696 (All.).
Q17. Can officers on survey resort to inspection of the person present in course of survey?
No, because it is not search and seizure proceedings.
Q18. Can officers on survey resort to cross-examination of the person present in course of survey?
There is no provision for permitting cross-examination of the person whose statement is recorded during the survey -Rameshwar Lal Mali v. CIT [2002] 256 ITR 536 (Raj.).
Q19.Can a survey converted into search?
This is rare, but it is possible. If in course of survey information comes to the department that the conditions for authorizing search exist, the department can initiate search operation subject to fulfillment of procedure thereof. The conditions are as follows:
Where the Director General or Director or the Chief Commissioner or Commissioner or any such Joint Director or Joint Commissioner as may be empowered in this behalf by the Board, in consequence of information in his possession, has reason to believe that—
person to whom a summons under sub-section (1) of section37 of the Indian Income tax Act, 1922 (11 of 1922), or under sub-section (1) of section 131 of this Act, or a notice under sub-section (4) of section22 of the Indian Income tax Act, 1922, or under subsection (1) of section142 of this Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account or other documents as required by such summons or notice, or
person to whom a summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which will be useful for, or relevant to, any proceeding under the Indian Income tax Act, 1922 (11 of 1922), or under this Act, or
person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property [which has not been, or would not be, disclosed] for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act (hereinafter in this section referred to as the undisclosed income or property),
l If during the survey operation, information comes to the department which leads to formation of a reasonable belief that the conditions authorizing action u/s 132(1) exist, the department has right to take action u/s 132—Vinod Goel v. UOI [2001]252 ITR 29/118 Taxmann 690 (P&H)
However if the survey is converted into search without fulfillment of conditions precedent for initiating search or without application of mind or satisfaction by the higher authority eligible to initiate search then the search will be illegal ( Dr Nalini Mahajan vs DIT(Inv) (2002) 257 ITR 123)
Q20.How far materials found in course of survey can be used in block assessment?
In block assessment, material found during survey u/s 133A can be used only if it has some relation with the material seized during search, otherwise not. (GMS Technologies Ltd v Dy. CIT. (2005) 93 TTJ 218 (Del 'F')).
Q21.Can an assessee surrender income during survey?
An assessee can always ‘surrender his income’ (disclose his income) to the department. This he can do in course of a survey also. Whether penalty for concealment will be levied on such surrender or not depends on facts of each case.
Q22.Can penalty for concealment be imposed for disclosures made in course of survey?
It depends on the facts of the case. If disclosures are made in respect of the years for which returns are already furnished, then it can be inferred that there was concealment in the return filed and income was concealed. Therefore inspite of disclosures made in course of survey penalty for concealment may be levied. It may be noted that immunity from penalties provided in search cases if disclosures are made subject to certain conditions are not available in survey cases.
However, if the disclosure is made in respect of income of the current period or for a period for which return is not yet due and no return is filed, there is no case of concealment because concealment is made when the return is filed concealing the income. Such disclosed income if declared in the return income, no penalty for concealment can be imposed.
In Jt CIT vs Signature.[2004] 85 TTJ 117 (Del 'C'), income was surrendered by the assesee during survey . It was held that no penalty under s 271(1)(c) was imposable under s. 271(1)(c) in respect of income surrendered during survey and shown in return, and about which no satisfaction as to concealment was recorded by AO in order of assessment .
In SILVER PALACE V. ITO[1999] 68 ITD (PUNE) 550 subsequent to survey proceedings, declaration of additional income was made by assessee, though no discrepancy was found, allegedly on advice and assurance of officers conducting survey, that no penalty would be imposed . Circumstantial evidence showed tacit agreement between assessee and survey party, that no penalty be levied if return was revised. Moreover there was no material on record to prove addition made by Assessing Officer represented income of assessee for assessment year in question. On these facts it was held that penalty proceedings were wrongly initiated.
Q23.Does the assessee has the right to legal consultation in case of survey?
A person shall not be denied the right to consult and to be defended by a legal practitioner of his choice as per article 22(1) of the Constitution. As such, the counsel can be present during survey proceedings - Nandini Satpathi v. P.L. Dari AIR 1978 SC 1025.
Q24.What is the implication of excess/short stock found in course of survey?
The excess stock found in course of survey, may mean undisclosed investment in stock. Similarly short stock may be due to undisclosed sales. Assessee should at first try to reconcile the difference. Some of the reasons reasons for which there may be difference in stock found are as follows:
1. Goods sold, but invoice not issued and no entry made in stock register.
2. Goods received but invoice not received and no entry made in stock register.
3. Damaged stock not accounted for.
4. Value of the stock taken by department on lump sum basis.
5. Value of stock taken by department on incorrect basis.
6. Quantity calculated by department is erroneous.
7. Stock taken by department includes stock of third parties received on consignment basis.
8. Carriage inward and other costs forming part of closing stock not considered.
9. Totaling mistakes in the valuation sheet of the department.
10. Person supervising taking of the inventory by the department was not authorized for this purpose and was not competent resulting into variation.
11. Customers stock lying at the premises.
NOTE:
· If the department is taking stock on lump sum basis or ad hoc basis, this fact should be mentioned while signing the stock statement.
· If the person responsible for maintenance of inventory is not present and no other competent person is there, this fact should be mentioned in the stock statement.
· It can always be stated by the assessee that he will be in a position to explain the difference only after going through all the records and books and accounts.
Q25.What is the implication of short or excess cash found in course of survey?
Excess cash found may represent undisclosed cash. Short cash may point to anomalies in the book. Some of the reasons for excess cash found may be as follows:
1. Cash received from customer, not yet noted in cash book.
2. Cash of partner/proprietor lying in the cash box.
3. Cash sales made, cash memo issued but not yet recorded in cash book.
4. Cash received against good sold on approval, not yet accounted for.
5. Advance given by customer for purchase of goods not recorded in regular books because the deal is not yet finalized.
Q26.Can the surveys continue even after business hours?
The section provides that the authority may ‘enter’ only during 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 materials to be scrutinized is such as to require the survey being continued even after the business hours, the continued presence of the authority in the premises and the continuance of the survey cannot be regarded as ‘illegal’ - N.K. Mohnot v. Dy. CIT [1995] 215 ITR 275/83 Taxman 238 (Mad.).
Q27.Can a person be examined on oath during survey?
Section 133A enables the income-tax authority only to record any statement of any person which may be useful but does not authorize for taking any sworn in statement -Paul Mathews & Sons v. CIT [2003] 129 Taxman 416 (Ker.).
Q28.Are the Income Tax Officers authorized u/s133A to make surveys of marriages ceremonies and other ostentatious social functions and to detect use of unaccounted money?
Section 133A of the Income-tax Act, 1961, authorizes Income-tax Officers to make surveys of marriage ceremonies and other ostentatious social functions and to detect use of unaccounted money. So far, this provision has not been sufficiently used to make a visible impact on the curbing of wasteful expenditure.
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