DIRECT TAXES

Important issues regarding Income Tax Survey

Narayan Jain, Advocate & CA Dilip Loyalka

1.  Introduction: In practical life, we occasionally find that survey is conducted by Income Tax Department. It is desirable that the taxpayers should know about the rights of I.T. officials during survey. A survey may be conducted either u/s 133A or u/s 133B. Section 133A has been termed as “Power of survey” while section 133B has been termed as “Power to collect certain information”. Basically survey conducted u/s 133A is specific, while u/s 133B it is general survey. The I.T. officials may conduct survey u/s 133A to take the inventory of stock, verify cash and to see whether books of account are properly maintained or not and also for the purpose verifying the compliance of TDS/TCS provisions and recovery of taxes. I.T. authority is empowered w.e.f. 1.6.2002 to impound and retain books of accounts or other documents inspected by him during the survey for 15 days (exclusive of holidays). Section 133A has been amended w.e.f. 1.4.2017 to include for the purpose of survey, a place where any activity for charitable purpose is carried on. The Finance (No.2) Act, 2014 had also inserted section 133C to empower prescribed Income Tax Authorities to call for information for the purpose of verification. Sec. 133C provides w.e.f. June 1, 2016 that the information and documents so obtained by the prescribed income-tax authority may be processed and the outcome of such processing may be made available to the Assessing Officer for necessary action). After marriage and other functions also, the Income-tax Department is empowered to send notice to collect information u/s 133A(5) and now-a-days such notices are usually sent. The pertinent issues are discussed in this article. Some important and recent decisions are mentioned in Para 16 of this Article. The guidelines for compulsory scrutiny have been issued by the CBDT on 24th May 2023, which includes cases in which survey under section 133A was conducted. The same is discussed in para 30 of this Article.

2.  The persons empowered to conduct survey u/s 133A are Commissioner, Joint Commissioner, Director, Additional Commissioner, Additional Director, Joint Director, Assistant Director, Deputy Director, Assessing Officer. Inspector of Income Tax, if authorised by any of the above persons, may also conduct income tax survey. As per amendment made by the Finance Act, 2020, w.e.f. 1.4.2020, a survey under sec. 133A(1) in a case where the information has been received from prescribed authority can be conducted after obtaining the approval of the Joint Director or the Joint Commissioner. In any other case, the approval of the Director or the Commissioner is required.

3. CBDT ORDER DATED 19.10.2020 REGARDING POWER OF SURVEY:

The Board in pursuance of the Taxation & Other Laws (Relaxation & Amendment of Certain Provisions) Act 2020 & in supersession of order under section 119 of Income-tax Act dated 18th Sept 2020 has issued following directions for the “Income-tax Authority” for exercising the power of survey under section 133A of the Act.

  1. TDS Charges: Any verification or survey u/s 133A of the Act by the TDS charge shall be conducted by its own officers. Where the TDS charge is headed by the Pr. CCIT of the region or by the CCIT (TDS), the verification or survey action shall be approved by the Pr. CCIT of the region or the CCIT (TDS), as the case may be and shall be conducted by the officers of the TDS charge.
  2. Central Charges: Any survey action u/s 133A of the Act by a Central Charge which reports to DGIT (lnv.) shall be approved by the DGIT (lnv.) and shall be conducted by the officers of the Investigation Wing by including the officers of the Central charge in the team. However, any survey action u/s 133A of the Act by the Central charge headed by the CCIT (Central) shall be conducted after the approval of a collegium consisting of CCIT(Central) concerned, as one member of the collegium and the DGIT (Inv.) of the region as the other member of the collegium and shall be conducted by the officers of the Investigation Wing after including the officers of the Central charge in the team.
  3. International Taxation Division: The TDS surveys by the International Taxation Division shall henceforth be approved by the collegium of Pr.CCIT (IT&TP)/ CCIT(IT&TP) as one member of the collegium and CCIT (TDS) or the Pr.CCIT of the region where there is no CCIT(TDS), as the case may be, as the other member of the collegium. The survey shall be conducted by the officers of TDS charge by including officers of IT&TP Division in the team. For any other survey by the International Taxation Division, the same is to be approved by the collegium of Pr.CCIT(IT&TP)/ CCIT(IT&TP) and DOlT (Inv.). Such surveys shall be conducted by the officers of the Investigation Wing by including officers of IT&TP Division in the team.
  4. NeAC/NFAC Units: If for any reason, action u/s 133A of the Act IS required by the National e-Assessment Centre or the National Faceless Appeal Center, they may, through the PCIT (Verification Unit) concerned, make such request to DGlT (Inv.) concerned and the survey shall be conducted by the Investigation Wing after including the officers of the Verification Unit from which the reference has been received. In such circumstances, the survey shall be approved by a collegium consisting of the CCIT (ReAC) concerned as one member of the collegium and the DGIT (Inv.) as the other member.
  5. Exemption Charge: If for any reason, any survey action u/s 133A of the Act is required by the Exemption Charge, the same shall be approved by the collegium consisting of Pr.CCIT (Exemption) as one member and DGlT (Inv.) as the other member. Such action shall be carried out by the officers of the Investigation Wing after including officers of the exemption charge in the team. Verification of trusts for registration u/s 12A/80G/10 (23C) shall be done through electronic means by the officer of Exemption charge. If for any reason, presence of the applicant is required, then the same shall be with the approval of Pr.CCIT (Exemption).
  6. I&CI Charges: Any verification by the I&CI charge for enforcement of various compliances of Section 285BA of the Act and related rules shall be done only through the electronic means by the officers of I&CI charge. If the presence of the ‘Person’ defined u/s 285BA of the Act is required for such verification, then same shall be done with the approval of DGlT (I&CI). If at all there is a requirement of any survey u/s 133A of the Act by the I&CI charge, same shall be conducted after the approval of a collegium consisting of DGlT (I&CI) as one member of the collegium and the DGlT (Inv.) of the region as the other member of the collegium, and shall be conducted by the officers of the Investigation Wing after including the officers of the I&CI charge in the team.

2.  It is clarified the recovery surveys shall, henceforth be conducted as per the order u/s 119 of the Act issued vide F.No.275/29/2020-IT (B) dated 16th October, 2020.

3.  It is further directed that the collegium shall consist of two officers of the level of Pr.CCIT/CCIT/DOlT and shall operate only where more than one officer as discussed above are available to take the decision regarding the surveys. The means and mechanism w.r.t details like meeting and sitting of the collegium shall be decided by the senior officer of the collegium.

4.  Further, it is reiterated that as per the amended section 133A of the Act, the surveys can be conducted only by the officers of the Investigation Wing or the TDS charge and any such action shall be taken only as a last resort when all the other means of verification/ obtaining details online/recovery are exhausted.

5.  The PrCIT/CIT/PDIT/DIT of the TDS charge or the Investigation Wing should monitor and ensure that the survey does not go beyond the scope as approved by the collegium of the concerned Pr.CCIT/ CCIT (TDS)/DGIT(lnv.), as the case may be as discussed above.

6.  The TDS charge or the Investigation Wing officer shall prepare the survey report and upload the same on ITBA as per the Survey Module and extant instructions in this regard and shall also send a copy of the survey report to the officer from where the survey request was received.

7.  It is further clarified that all the surveys u/s 133A of the Act conducted by the Investigation Wing independently shall henceforth be approved by the DGsIT (Inv.).

8.  In the event of any disagreement between the officers of the collegium, the issue would be resolved by the Pr.CCIT of the region.

4.  Powers of I.T. authorities with regard to survey operation u/s 133A: The I.T. authorities (other than Inspector of Income-tax) has the following powers with regard to survey operation:

  1. To inspect books of account or other documents which may be available at the place of survey. They may place marks of identification and make extracts and copies therefrom.
  2. They may check or verify the cash, stock or other valuable articles or things which may be found at the place of survey. They may make inventory of such assets.
  3. W.e.f. 1.6.2003, they are not authorised to retain in custody any such books of account or other documents for a period exceeding ten days (exclusive of holidays) without obtaining the approval of the Chief Commissioner or Director General therefore, as the case may be.
  4. They may obtain such information which may be useful or relevant for income-tax proceedings, which might have been finalised or which may be pending or may be initiated after the date of survey.
  5. They may record statement of any person which may be useful or relevant to such proceedings under the Income-tax Act.
  6. Having regard to the nature and scale of expenditure incurred by an assessee in connection with any function, ceremony or event, the I.T. authority may call for relevant information. They can also record statement of the assessee or any person in this respect, but these powers can be exercised only after the performance of function, ceremony or event.

The Inspector has power only in respect of (i) and (vi) above. Thus in case an inspector records statement on oath or prepares cash or stock inventories, he acts beyond his power and is illegal. (ITO v. Jewells Emporium 48 ITD 164 Indore ITAT).

It may be noted that the I.T. authorities have no power to remove any cash, stock or other valuable articles or things during the course of survey. Such powers are available only during the course of search and seizure.

5. Survey in premises of a charitable organization, School, college, university or medical institution etc.: With effect from asst. year 2017-18, a place, where an activity for charitable purpose, education, medical and other similar activities are carried on, may also be surveyed by an income tax authority. Prior to the amendment, the survey could have been conducted at business premises only.

6. Impounding of books of account and other documents in course of survey: As per clause (ia) to section 133A(3) inserted w.e.f. 1.6.2002, the Income-tax Authority other than the inspector, are empowered to impound books of account or other documents inspected by him in the course of survey u/s 133A. The period for retention of books of account or documents impounded during survey has been extended by the Finance (No.2) Act, 2014 w.e.f. 1.10.2014 to 15 days (exclusive of holidays). The said period of 15 days can be extended with the approval of the Principal CCIT or CCIT or Principal DGIT or DGIT or the Principal CIT or the CIT or the Principal Director or the Director, as the case may be.

In the context of section 131(1), the Karnataka High Court in the case of Subha and Prabha Builders P. Ltd. v. ITO [2009] 318 ITR 29 (Karn.) affirmed by Division Bench in 342 ITR 14 (Karn.) held that since the right of impounding is for few days, the extension can also be granted for few days and not for months or years. It further held that extension can be granted only once and not again and again.

The above decision u/s 131 holds equally good for impounding of books u/s 133A also.

Position in case of a survey relating to compliance of TDS/TCS provisions: It may be noted that the authorities conducting survey for TDS/ TCS compliance are not empowered to place marks of identification on the books of account and other documents inspected by him and such authority can’t make or cause to be made extracts or copies therefrom. Such authority is also not empowered to impound or retain in his custody books of account or any other document inspected by him during such survey.

7. Removal of books of account or documents and keeping them in a separate room under lock and key: This point came before the Gauhati High Court in the case of Mrs. Rumena Rahman v. Union of India & Ors. [2004] 265 ITR 16 (Gau.) : 187 CTR ( Gau.) 58 wherein it has been held that removal of documents, books of account, files etc. from the place of survey, keeping them in a separate room under lock & key and putting a paper seal on the entry of the room amounts to impounding of books of account.

8. Survey for verifying that tax has been properly deducted or collected at source: The Finance (No.2) Act, 2014 has inserted section 133A(2A) to provide to empower Income Tax Authorities to conduct Income Tax Survey for verifying the compliance of TDS/TCS provisions. The authorities can enter into the business premises after sunrise and before sunset.

However the authorities conducting survey for TDS/ TCS compliance under section 133A(2A) are not empowered : (a) to place marks of identification on the books of account and other documents inspected by him and such authority can’t make or cause to be made extracts or copies therefrom; (b) to impound or retain in his custody books of account or any other document inspected by him during such survey; (c) to make an inventory of any cash, stock or other valuable article or thing checked or verified by him during such survey

9. When survey can be conducted u/s 133A: The Income Tax Authority may enter any place of business or profession for survey only during business hours and in any other place only after sunrise and before sunset. It has been decided in the case of N.K. Mohnot v. DCIT [1995] 215 ITR 275 (Mad.) that for survey, once Income Tax Authority enters business premises of assessee during business hours, survey may continue till it is completed notwithstanding the fact that survey would spill over beyond business hours.

10. Places, where survey can be conducted: The survey can be conducted at the following places:

  1. The place within the limits of area assigned to such I.T. authorities where the business or profession is carried on.
  2. Any place occupied by any person in respect of whom the income tax authorities have jurisdiction, where the assessee carries on his business or profession or w.e.f. 1.4.2017 any activity for charitable purpose.
  3. 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.

Thus if a person is assessed by an income tax authority different from the territorial jurisdiction, survey can be carried out by both his assessing income tax authority as well as by his territorial jurisdiction income tax authority.

The above places, may be head office or branch offices of the person concerned. Survey can also be conducted at any other place where the assessee states that his books of account and other documents or any part of his cash or stock or other valuable articles or things relating to business or profession are kept. However, an important point is to be kept in mind that statement of proprietor/partner/director is the prerequisite to bring such other place within the ambit of survey u/s 133A. Generally in case of surveys it is explained that books of account or cash has been kept at the residence of proprietor or partners or stock is lying with some parties for processing. In such situation all such places come within the purview for survey u/s 133A. In cases, where part of rent of residential premises and electricity are claimed as business expenditure on the ground that business is partly carried from there, survey u/s 133A can be conducted at such premises.

However, the business or residential premises of third parties including Chartered Accountant, a pleader or income tax practitioner of whom the assessee is a client, are not the places where survey can be conducted in respect of a particular assessee [CBDT Circular No. 7D(LXIII-7) of 1967 dated 3.5.1967].

11. Survey in the office of lawyer, CA or tax practitioner in connection with a survey operation carried out in the premises of their clients: The IT authority does not assume any power to enter the business premises/ Office of the CA/Lawyer/ Tax Practitioner to conduct survey u/s 133A in connection with survey of the premises of their client unless the client states in the course of survey that his books of account/documents and records are kept in the office of his CA/Lawyer/ Tax Practitioner- U.K. Mahapatra and Co. v. Income -Tax Officer [2009] 308 ITR 133 (Ori.).

12. Obligations of the owner, employee or any other person attending the business at the time of survey: As per section 133A(1)(c), such obligations are as under:-

  1. to afford necessary facilities to inspect such books of account or other documents as the Income Tax authorities conducting the survey may require and which may be available at such place,
  2. to afford necessary facility to check or verify the cash, stock or other valuable articles or things, which may be found at the place of survey, and
  3. to furnish such information as may be required by such authority in relation to any matter which may be useful for, or relevant to, any proceeding under the Income-tax Act.

13. Meaning of proceeding with regard to survey u/s 133A: Explanation (b) to section 133A provides that proceeding means any proceeding under the Income Tax 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 the Income Tax Act, which may be commenced after such date in respect of any year.

14. If a person refuses or evades to furnish any information or refuses to have his statement recorded in course of survey: In case of such refusal during survey the I.T. authorities may exercise powers as are vested in a Court under Code of Civil Procedure, 1908 when trying a suit, in respect of the following matters :- (a) discovery and inspection; (b) enforcing the attendance of any person, including any officer of Banking company and examining him on oath; (c) compelling the production of books of account and other documents; and (d) issuing commissions.

15. Use of Information or extracts of books of account collected in course of survey in assessment: The same can be used for the purpose of assessment but the A.O. should give an opportunity to the assessee to explain the same. It will be relevant to refer the case of Dr. Vijay Kumar v. ITO 80 Taxman 201. Allahabad High Court held in the case of Baleshwar Flour & Oil Mills v. C.S.T. [1987] 67 STC 450, that when material recovered in a survey related to a year other than the relevant assessment year, then the same could not be used for the rejection of the account books for different years.

16. Some important decisions:

  1. Bhimsen Darbarilal Arorav v. ACIT Circle 5 [2023] 150 taxmann.com 68 (Surat-Trib.) decision dated 22 Feb., 2023: Administrating oath at time of taking statement would not vitiate contents of statement and documents/evidences found in survey and documents found in survey can be used against assessee even if statement on oath was retracted by assessee. Where during survey unaccounted stock of cloth and cash of substantial amount was detected which was unexplained and remained to be incorporated in books, said unexplained investments coupled with unverifiable purchase would render books of account incomplete and incapable to show true and correct picture of relevant year, and thus, A.O. was fully justified in rejecting book of accounts submitted by assessee during assessment proceedings by invoking provision of section 145(3). During survey at its business premises, assessee voluntarily disclosed additional amount which was over and above his regular income. Later, assessee submitted an affidavit wherein he retracted his statement. A.O. made additions with respect to unaccounted investment in stock. Assessee contended that on date of survey books of accounts were not completed and statement given by assessee was just on estimate basis, it was during assessment proceedings that complete audited books of accounts were submitted before A.O. Since in instant case additions were made based on documents and evidences obtained during survey and not solely based on statement, additions were justified, however as reconciliation statement for stock and cash in hand between audited books of accounts and unaudited books of accounts at survey were not considered, matter was to be remanded back for reconsideration.
  2. Principal CIT v. Dipansu Mohapatra [2023] 149 taxmann.com 99 (Orissa)[08-02-2023]: Where assessee provided all details of purchase and sales of shares to AO along with contract notes for purchase and sale, demat account and bank statement and, furthermore no incriminating material were found during survey conducted in premises of assessee, AO could not deny claim under section 10(38) merely by relying on statements of accommodation entry providers which were recorded much before date of survey. The facts were that during survey conducted at business premises of assessee’s group companies, it was noted from report of Investigation Wing that assessee was in list of beneficiaries who had allegedly taken accommodation entries. Assessee filed revised return wherein exemption claimed u/s 10(38) was withdrawn and entire income was offered for tax as income from other sources. During scrutiny, assessee claimed that revised return was filed under duress during survey and claim made u/s 10(38) in original return was valid. A.O. denied said claim and treated same as bogus on ground that receipts constituted accommodation entries taken by assessee. Tribunal noted that all details of purchase and sales were placed before A.O. along with contract notes for purchase and sale, demat account and bank statement and therefore allowed claim of assessee by holding that no incriminating material were found during survey and statements relied upon were recorded much before date of survey conducted at premises of assessee. Orissa High Court held that Tribunal was justified in allowing assessee’s claim u/s 10(38).
  3. Girdhar Gopal Rastogi v. CIT [2022] 142 taxmann.com 142 (Allahabad – Trib.) Decision dated 13th May, 2022 : Where there is no impounding of books of accounts during survey u/s 133A and returned income of assessee for year under consideration is not less than returned income of immediate preceding year then case would not fall in category of compulsory scrutiny as per Instruction No. 10/2013, dated 5-8-2013 and modified on 20-9-2013. Powers u/s 131 cannot be linked with powers to carry out survey u/s 133A and, hence, books of account impounded by Assessing Officer u/s 131(3) cannot be regarded as impounding of books of account in proceeding u/s 133A. Where Assessing Officer had not taken any prior approval for issuing notice u/s 143(2) and such notice was issued by A.O. on 11-6-2013 which was prior to Instruction No. 10/2013 dated 5-8- 2013, therefore, A.O. was not having jurisdiction and authority to take up case for compulsory scrutiny and, accordingly, initiation of compulsory scrutiny proceedings by issuing notice u/s 143(2) was invalid.
  4. Conversion of survey into Search: Survey at residential premises of assessee could not have been converted into search and seizure without tax authorities recording that assessee had failed to co- operate or there was a suspicion that income had been concealed by assessee warranting resort to process of search and seizure – Pawan Kumar Goel v. Union of India [2019] 107 taxmann.com 21/265 Taxman 25 (Punj. & Har.).
  5. CIT v. Pawan Kumar Goel [2020] 120 taxmann.com 319 (SC) Decision dated 17th Feb. 2020:SLP dismissed against High Court ruling that survey at residential premises of assessee could not have been converted into search and seizure without tax authorities recording that assessee had failed to co-operate or there was a suspicion that income was concealed by assessee warranting resort to process of search and seizure. Facts were that copy of summons u/s 131 were issued to assessee at its business premises informing assessee that respondent tax officials wanted to carry a survey operation u/s 133A. Assessee submitted that although summons indicated survey operations but procedure was converted into search and seizure which was impermissible in law. Moreover, summons were absolutely silent as to what information was required from assessee during survey operation. It was found that authorities had not demonstrated from any material as to whether assessee failed to co- operate or there was a suspicion that income had been concealed by assessee warranting resort to process of search and seizure. Moreover, assessee had voluntarily disclosed retention of cash in his premises. High Court by impugned order held that since no satisfaction was recorded by authorities that survey had to be converted into search and seizure, action of authorities was bad in eyes of law. It further held that summons issued to assessee were totally vague as no documents were mentioned which were required to be produced by assessee; thus, process of search and seizure conducted by respondents on business premises/residence of assessee was to be quashed and set aside. The special leave petition filed by Revenue against impugned order was dismissed by the Supreme Court.
  6. C.K. Abdul Azeez v. CIT, Central Circle, Calicut [2019] 111 taxmann. com 74 (Kerala)/[2019] 267 Taxman 553 (Kerala) Decision dated 5th Sept, 2019: Where assessee claimed that investment in property was made by company not by him, since assessee being Managing Director could have easily produced records or materials to show that amount was actually invested by company and not by him, but no such material was produced, A.O. was justified in rejecting explanation given by assessee and in bringing amount to tax as unexplained investment. Statement on oath made by an assessee to income-tax authority during survey proceedings u/s 133A is not conclusive; assessee can explain or withdraw admission, if any, made by him in such statement and assessment of tax cannot be made solely on basis of such sworn statement made by assessee u/s 133A(3)(iii). However, such statement can be used to corroborate other materials before assessing authority, including contents of any document. The facts were that during search, an agreement executed by assessee, for purchase of land, was found and seized which revealed that assessee had made advance payment for purchase of property. Thereafter, during survey u/s 133A assessee gave a statement on oath that he had given said sum as advance for purchase of property. Subsequently, assessee sent a letter to department taking plea that he had executed agreement in capacity as managing director of company and that advance was invested out of funds of company and that he had not made any personal investment in deal. A.O. found that books of account of company did not reveal that said amount was invested by company and the said amount was brought to tax by A.O. as unexplained investment.

Section 133A(3)(iii) empowers income- tax authority to record statement of a person including an assessee; section 133A, unlike section 132(4) does not specifically empower income-tax authority to examine a person on oath, however, section 133A does not also prohibit income-tax authority to administer oath to a person. It was held that merely by reason of fact that income-tax authority has administered oath to an assessee and recorded his sworn statement during survey proceedings u/s 133A, it cannot be held that such statement has no evidentiary value at all and that it cannot be used against assessee in any proceedings under Act.

Madras High Court in the case of CIT v. S. Khader Khan Son [2008] 300 ITR 157 (Mad.) has also held that statement taken during survey u/s 133A has no evidentiary value as section 133A does not empower the AO to administrator oath and take a sworn statement. The above view of the Madras High Court has been upheld in [2013] 352 ITR 480 (SC). Also refer ITO v. Vijay Kumar Kesar 327 ITR 497 (Chattisgarh) and CIT v. Diplast Plastics Ltd. 327 ITR 399 (P&H).

17. Presence of a tax consultant or legal advisor during survey: There is no express prohibition in statute prohibiting presence of counsel during interrogation and as such during survey proceedings legal advisors may be called upon to be present.

18. If the power of survey is abused by the I.T. authorities: Such actions of I.T. authorities are not permissible, therefore the assessee should immediately bring the same to the notice of concerned CIT. In case of seriousness of matter, even FIR can be lodged and matter may be taken to the Court as happened in the case of Hans Raj Chhabra v. Mukesh Mittal, Assistant Commissioner [1994] 77 Taxman 273. In the said case, even two customers, who were in the shop at the time of survey were also not permitted to leave the shop. The Court observed that this case was prima facie a case u/s 342/427/384/465/471 read with section 120B of the Code of Criminal Procedure, 1908 and the officer concerned was ordered to face the trial.

19. In course of survey, if the stock is found less or more than reflected in the books of account: Allahabad High Court has held in the case of Bhagwan Dass Hari Dass v. CIT [1996] 220 ITR 423 that in case of survey if there was a difference in the stock in the books of the assessee and the actual stock found on the spot, a reasonable inference could be drawn that the unexplained difference represented sales outside the books, when the explanation regarding deficiency in stock was not found acceptable by the A.O. In case excess stock is found in course of survey, the amount representing excess stock may be treated as current year’s income as held by Bangalore Bench of ITAT in the case of Jewelleries House v. ACIT 57 ITD 544 (Bang. Trib.).

Bhimsen Darbarilal Arora v. ACIT Circle 5 [2023] 150 taxmann.com 68 (Surat-Trib.) decision dated 22 Feb., 2023: Where during survey unaccounted stock of cloth and cash of substantial amount was detected which was unexplained and remained to be incorporated in books, said unexplained investments coupled with unverifiable purchase would render books of account incomplete and incapable to show true and correct picture of relevant year, and thus, A.O. was fully justified in rejecting book of accounts submitted by assessee during assessment proceedings by invoking provision of section 145(3).

Delhi High Court in the case of CIT v. Dhingra Metal Works [2010] 328 ITR 384 (Del.) held that, for a statement to have evidentiary value, the survey officer should have been authorised to administer an oath and to record a sworn statement. While section 132(4) of the Act specifically authorizes an officer to examine a person on oath, section 133A did not permit the same. 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 was not a conclusive piece of evidence by itself. It was settled law that though an admission was an extremely important piece of evidence, it could not be said to be conclusive and it was open to the person who had made the admission to show that it was incorrect. Since the assessee had been able to explain the discrepancy in the stock found during the course of survey by production of relevant record including the excise register of its associate company, the A.O. could not have made the addition solely on the basis of the statement made on behalf of the assessee during the course of survey.

20. Officers of IT Department going to assessee’s business place as decoy customers: In such cases, if manipulation is found, the books of account may be rejected by the A.O. and sale as well as profits may be estimated as was held in the recent case of Overseas Chinese Cuisine (India) P. Ltd. v. ACIT by Bombay Bench of ITAT (3rd Member decision) – [1996] 218 ITR (A.T.) 80. In such cases, even the assessments of earlier years and subsequent years may also be affected if it is established that the assessee was in the habit of making such alterations in the sale bills.

21. Confession regarding undisclosed income: In this context, the CBDT Instruction F. No. 286/2/2003 – IT (Inv.) dated 10.3.2003 regarding Confession of additional income during the course of search & seizure and survey operation is relevant. The same is summarised as below-

“Instances have come to the notice of the Board where assessees have claimed that 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 these 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 Departments. Similarly, while recording statement during the course of search & seizures and 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 evidences/materials gathered during the course of search/ survey operations or thereafter while framing the relevant assessment orders.”

The Apex court in the case of CIT v. S. Khader Khan Son [2013] 352 ITR 480 (SC) affirmed the view of the Madras High Court in 300 ITR 157 that no officer has power u/s 133A to administer oath and take a sworn statement.

22. Material gathered during an illegal survey: Materials found during an illegal survey could be used as evidence, if it could be established as relatable to the assessee as decided in CIT v. Kamal and Company [2009] 308 ITR 129 (Raj). The Supreme Court in the case of Pooranmal v. Director of Inspection (Investigation) [1974] 93 ITR 505 (SC) has held that materials found during an illegal search can be used as evidence against the assessee. Similar view was taken by the Supreme Court while interpreting other laws in the case of Dr. Pratap Singh v. Director of Enforcement [1985] 155 ITR 166 (SC).

23. Disclosure on account of inflated expenses: Where the disclosure obtained during survey proceedings is not based on material found in course of survey, the same cannot form the sole basis of addition – CIT v. Ashok Kumar Jain [2014] 369 ITR 0145 (Raj. HC); Gajjam Chinnayellapa v. ITO [2015] 370 ITR 671 (Telangana & AP HC), DCIT v. Samta Marine Kakinada [2007] 18 SOT 135 (Mum.), ACIT v. Smt. Usha Rani Talla [2010] 6 ITR (Trib.) 37 (Del.).

24. Confession obtained u/s 133A has evidentiary value: Statement recorded u/s 133A, is not recorded on oath, therefore, the same is not a conclusive piece of evidence and has no evidentiary value – CIT v. Sunrise Tooling System P. Ltd. [2014] 361 ITR 206 (Delhi); CIT v. P. Bala Subramanian [2013] 354 ITR 116 (Mad); CIT v. Shader Khader Khan Son [2013] 352 ITR 480 (SC); ACIT v. Maya Trading Co. [2013] 34 taxmann.com 144 (Agra-Trib). Assessment made only on the basis of confession may not be sustained- Gajjam Chinnayellapa v. ITO [2015] 370 ITR 0671 [Telangana & AP HC), CIT v. Ashok Kumar Jain [2014] 369 ITR 0145 (Raj. HC).


C.K. Abdul Azeez v. CIT, Central Circle, Calicut [2019] 111 taxmann.com 74 (Kerala)/[2019] 267 Taxman 553 (Kerala) Decision dated 5th Sept, 2019: Section 133A(3) (iii) empowers income-tax authority to record statement of a person including an assessee; section 133A, unlike section 132(4) does not specifically empower income-tax authority to examine a person on oath, however, section 133A does not also prohibit income-tax authority to administer oath to a person. It was held that merely by reason of fact that income- tax authority has administered oath to an assessee and recorded his sworn statement during survey proceedings u/s 133A, it cannot be held that such statement has no evidentiary value at all and that it cannot be used against assessee in any proceedings under Act.

25. Whether premises can be sealed in course of survey proceedings u/s 133A, in case it is not completed: Section 133A 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.).

26. Cross-examination of the person whose statement is recorded during survey is permissible: It has been held in the case of Rameshwar Lal Mali v. CIT [2002] 256 ITR 536 (Raj.) that there is no provision for permitting a cross-examination of the person, whose statement is recorded during survey.

27. Whether survey action u/s 133A can be converted into a search: Where during survey conducted u/s 133A, department found huge cash and incriminating documents and director of assessee company failed to provide explanation with regard to cash and dubious entries seized documents, survey could be converted into search u/s 132 after due approval of competent authority – Rich Udyog Network Ltd. v. Chief CIT [2015] 63 taxmann.com 88/ 235 Taxman 313 (All.). A survey action u/s 133A can be converted into a search u/s 132 if the conditions of that section are satisfied- Vinod Goel And Others v. UOI And Others [2001] 252 ITR 29 (P&H).

28. Prohibition on removal of any cash, stock etc. from place of survey: As per section 133A(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 cash, stock or other valuable article or thing. It has also been held in CIT v. Mool Chand Salecha [2002] 124 Taxman 898/256 ITR 730 (Raj.). that Prohibition contained in section 133A(4) is absolute and unqualified.

29. Whether immunity from penalty is available if assessee discloses income during survey: There is no such provision to grant immunity in case of disclosure during survey. Explanation 5 to section 271(1)(c) was to grant immunity for declaration of income u/s 132(4) during search & seizure operation. No such immunity is available in case of declaration made during survey proceedings – ITO v. Kunden Silk [2004] 266 ITR (AT) 45 (Pune).

30. Selection for compulsory scrutiny of cases pertaining to survey u/s 133A of the Income-tax Act,1961: Guidelines have been issued vide F.No.225/66/2023/ ITA-II dated 24th May 2023 mentioning cases for compulsory selection of returns for Complete Scrutiny during the Financial Year 2023-24 and procedure for compulsory selection in such cases. It also includes for the purpose of scrutiny. Returns filed for the assessment year relevant to the previous year in which survey was conducted under section 133A of the Income Tax Act subject to some exclusion as mentioned below. The cases shall be selected for compulsory scrutiny with administrative approval of Pr. CIT/ Pr. DIT/ CIT/ DIT concerned, who will ensure that such cases are transferred to Central Charges u/s 127 of the Income Tax Act within 15 days of service of notice u/s 143(2) by the Jurisdictional Assessing Officer (JAO) concerned. Guidelines are separately given for Assessing Officers in International Taxation and Central charges in Para 4.1 of the guidelines.

Exclusion: Cases, where following conditions are satisfied, are excluded from selection for compulsory scrutiny:

  1. Cases, in which books of accounts, documents, etc. were not impounded;
  2. Cases in which returned income (excluding any disclosure of hitherto undisclosed income made during the Survey) is not less than returned income of preceding assessment year; and
  3. assessee has not retracted from the disclosure referred to in point (b) above.