1. Introduction

The provision of Section 133A was inserted by the Finance Act, 1964, with effect from 1st April, 1964. Since then, it has undergone many amendments over the years including those, increasing the powers and scope of the IT authorities and the last such amendment was made by the Finance Act, 2017 whereby the scope of survey was further extended. The survey provisions, is a permanent source for the department to create fear amongst the business community and therefore, always have a deterrent effect.

It is a matter of common experience that the number of surveys is generally increased in the last quarter of the financial year which is understood to be with the object of achieving the budget targets. Quite often the Income Tax Department is alleged to exert pressure to make the surveyed assessee declare income to the desired extent, irrespective of the fact whether surveyed person is having undisclosed income or not. Interestingly, even false evidences are created to support the declaration of the undisclosed income. Because of the frequent enlargement in the scope the powers of the authorities, a surveys have nowaday’s become a mini search yet however, many safeguards as provided in a search are completely lacking in a survey. Whereas in a search, the highest authority has to accord sanction; must record reasons to believe; must adhere to the ground rules, seizure must be in presence of two witnesses and so on, just contrary thereto in a survey, no such safeguards are found. In any case, survey action is an important weapon in the armory of the Income Tax Department.

2. Types of Survey: Survey may be of four types

• Specific Survey u/s. 133A(l) – This is the case of a survey of the business/institutional premises.

• Survey of Expenditure on Marriage functions, Parties etc. u/s. 133A(5) –
This 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.

• Door to Door Survey u/s. 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. However, the charitable institutions are still out of the scope of this provision in absence of any amendments made similar to Sec. 133A.

• TDS & TCS Survey – U/s. 133A(2A) w.e.f. 1-10-2014 by Finance (No. 2) Act, 2014.

3. Who can conduct survey – Authorised/Authorising Officer [Expln. to Sec. 133A(1)]

Authorised/Authorising Officers:

• Principal Director /Commissioner (added by FA (No.2), 2014 w.r.e.f 1-6-2013)

• Director/Commissioner

• Joint Director/Joint Commissioner

• Deputy Director/Deputy Commissioner. (Authorised)

• Assistant Director (Authorised}

• *Assessing Officer (AO) (Authorised)

• ITO (TDS}

• Tax Recovery Officer (Authorised)

• Sec.92CA(7) provide additional power of survey u/s. 133A to the TPO also, as defined in Explanation to Sec.92CA. Earlier TPO had the power only u/s. 131, Sec.133(6) but not the power u/s. 133A.

• Inspector of Income Tax (authorized) (For certain specific cases only i.e. for purposes of Sections 133A(1)(i), 133A(3)(i) & 133A(5) – as per Explanation (a) to Sec. 133A)

4. Territorial Jurisdiction of the Income Tax Authorities

The above authorities may enter in the following places:

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 the survey.

5. Place to be surveyed

5.1 Business premises

A survey can be carried out at any place where the business is carried on. As per Explanation below Sec. 133A(l), such place also includes a place where books of account or other documents or any cash or stock or other valuable article or thing relating to the business or profession are/is stated to be kept.

5.2 Charitable institutions

Although the existing provisions are perhaps already quite draconian yet the Government still realised that it can do even better. Therefore, by the Finance Act, 2017 w.e.f. 1-4-2017, the tax authorities will have unrestricted rights to enter any place where any “activity for a charitable purpose” is carried out. Furthermore, they can order anyone present at the place, even a volunteer assisting in that charitable activity, to provide them with any information regarding the books of account of the charity, or any other information that they feel like. It doesn’t require much imagination to see how this provision can be used to harass charities, disrupting activities organised by them, scaring off potential volunteers. The amendment should apply on/after 1-4-2017 which is the cutoff date.

5.3 Residential premises

Normally the survey team is not empowered to enter residential premises so also in the cases of TDS Surveys. However, when the books of account, other documents or the stocks or any other valuable items or things are stated to be kept at the residence, the survey team may entre such premises. During the course of the recording of the statement, when shortfall in cash or stock is found the assessee usually explains the availability of the same at the residence, ignoring of the fact that by stating so, the assessee is inviting the survey team.

5.4 Survey at the place of a third party or office of Tax Consultant

Such places on the face of it are not the places where the assessee carries on his business and therefore, the residential or office premises of third parties which include the office of a Chartered Accountant, a pleader or Income-tax Practitioner of whom the assessee may be a client, are not the places where the survey team may enter into.

• Refer CBDT Circular No. 7D dated 3-5-1967. However, the above restrictions do not apply to cases of search & seizure where specifically authorized u/s. 132.

• In U. K. Mahapatra & Co and Others vs. ITO & Others (2009) 308 ITR 133/221 CTR 328(Orissa), the Revenue conducted survey u/s. 133A in the premises of Petitioner, a Chartered Accountant Firm which was the auditor of the assessee, and impounded certain files. It was held that although Explanation to Sec.133A allows survey of any other place where the books of account of assessee are kept but the precondition for conducting survey u/s. 133A, is that the client in course of survey must state that his books of account/documents and records are kept in the office of his CA/lawyer/tax practitioner & not otherwise. The said decision now stands affirmed in ITO vs. U. K. Mahapatra & Co. (2009) 225 CTR 131/186 Taxman 181/27 DTR 155 (SC).

5.5 Locked business premises

There appears no specific provision or guideline enabling a survey team to break open the lock or the doors or the windows etc. to enter the premises or ingress therein. The law contemplates entry by the survey team only when it is open and during the business hours of the assessee. However, in contrast, in a search u/s. 132, the search team is authorised to break open the locks, remove obstacles etc. (Ref. Rule 112 of the IT Rule 1962). Thus, to enter into locked premises by the survey team may tantamount to a tresspassing and the authority concerned may invite a civil action.

6. Timings of Survey

As per Sec.133A(2), a survey team may enter the business premises only during the business hours when the place is open for the conduct of business. However, in any other place (including the place where charitable activities are being carried or), the authorities can enter only after the sunrise but before the sunset. The prescription is with regard to the entry in the premises however, there is no time limit prescribed to go out of the premises. In other words, if the survey team enters the premises within the prescribed time limit but if the volume of work, is so much that it is consuming more time than they may continue even after the sunset and such survey cannot be regarded as illegal, as held in the case of N. K. Mohnot v. DCIT & Ors. (1995) 128 CTR 247/215 ITR 275 (Mad).

7A. Power of the survey team

As per Sec. 133A(3), during the course of survey, IT authorities may do the following:

7.1 Place marks of identification on the books of account or other documents inspected by him,

7.2 Take extracts or copies from such books of account or documents,

7.3 Impound and retain the books of account or documents inspected by him.

• Such powers can be exercised only after recording the reasons to do so. The books of account can be retained for a period of 10 days (excluding the holidays). However, as per FA (No. 2), 2014 this has been increased to 15 days. For retaining the same beyond that period, prior approval of the higher authorities has to be obtained. However, the Law is silent as to allowing any opportunity to the assessee to object the impounding of books of account.

• The IT authority cannot remove any cash, stock or any other valuable things, during the survey. This prohibition contained in Sec.133A(4) is absolute and unqualified as held in CIT v. Mool Chand Salecha (2002) 256 ITR 730/174 CTR 1 (Raj).

• In Mrs. Rumena Rahman vs. Union of India (2004) 265 ITR 16/187 CTR 58 (Gau.) held that the authorities are required to impound and retain books of account only after recording reasons in writing.

• Permission for retention should be granted judiciously, there should be justification as to non-co-operation by the assessee as held in Raj & Raj Investments v. ITO (2007) 293 ITR 57/213 CTR 206 (Kar.).

7.4 Make an inventory of any cash, stock or other valuable article or thing checked or verified by him.

7.5 Record the statement (not on oath} of any person, which may be useful for or relevant to any proceedings under the Act.

7.6 However, in the case of TDS survey u/s. 133(2A), an IT Authority shall not be having powers to impound and retain the books of account or other documents nor to make an inventory of cash, stock or other valuable articles/things. Thus, his powers are only limited to place mark of identification on the accounts of documents inspected by him and to record the statement and that too with respect to the TDS & TCS.

7B. Limitations upon the survey team

It is not that blind powers have been conferred upon the IT authorities in the course of survey inasmuch as:

• They cannot impound/retain/remove any stock, cash, etc. but can only retain the books of account.

• They cannot break open the lock/safe/doors.

• They cannot seal the premises or pass prohibitory orders.

• They cannot damage the walls, tear the sofas or bed or to try anything which they suspect being hidden.

• They cannot personally search a person.

• They cannot snatch the mobile, etc.

• They cannot stop or ask to stop CCTV or any recording device during the survey.

• They cannot stop the persons coming in and going out.

• They cannot stop carrying on/off business & profession or of charitable activities or any other normal activities.

• A business place cannot be sealed during the course of survey. In Shyam Jewellers & Anr. v. Chief Commissioner (Admn) U.P. & Ors. (1992) 196 ITR 243 (All.), the Court held that sealing of business place during survey or even in course of search u/s. 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. This was followed in the case of M.D. Overseas Ltd. v. DGIT (2011) 333 ITR 407 (All.).

• 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 a 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 millimetre departure there from is not allowed. Refer Dr. Vijay Pahwa v. DCIT (1995) 129 CTR 64/250 ITR 354 (Cal.) and L. R. Gupta & Ors. v. Union of India (1992) 194 ITR 32/101 CTR 179 (Del.).

8.1 Powers of Inspector

An Income Tax Inspector (“Inspector” for short) has the following limited powers:

a. 133A(l)(i) to inspect the books of account or other documents,

b. 133A(3)(i) to place marks of identification on the books or account or other documents inspected by him

c. 133A(5) to enquire regarding the expen-diture incurred in any function, ceremony or event and to record a statement.

8.2 Powers cannot be given to Inspector

The Inspector can act only up to the extent of authority given to him by the authorised authority u/s. 133A and such empowered authority can authorise inspector only for limited purpose. The Inspector cannotbe authorised 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 therefore, also he cannot require the survey person to afford him the necessary facility for this purpose.

ii . To record the statement of any person which may be useful, for, or relevant to any proceeding under this Act. Refer ITO v. Jewells Emporium (1994) 48 ITD 164/12 CCH 287 (Ind.).

9. Duties of the person present

As per Sec. 133A(6), every person present at the place and time of survey must extend the following facilities:

a. To afford the facility to inspect such books of account or other documents as may be required and which may be available at such place.

b. To afford the necessary facility to check or verify the cash, stock or other valuable article or thing which may be found therein.

c. To furnish such information as may be required as to any matter which may be useful for, or relevant to, any proceeding under the Act.

10. Consequences of non co-operation

The following consequences may flow because of non co-operation by the person surveyed:

• As per Sec. 133A(6) provisions of Sec.131(1) may be made applicable for enforcing compliance with the requirement made.

Under Sec.131(1), the concerned IT authority may also assume powers which are vested in a court under the Civil Procedure Code, 1908 while trying a suit.

• If the assessee does not co-operate in respect of facilitating inspection or verification, or doesn’t supply or share to the survey team and it is felt that the assessee is deliberately avoiding such inspection, evading furnishing of information and in answering the material questions, the survey team may get their action converted into a search u/s. 132 of the Act.

• Useful Case Laws:

– Vinod Goyal v. UOI (2001) 252 ITR 29 (P&H)

– Dr. Nalini Mahajan & Ors. v. DIT (Inv.) & Ors. (2002) 257 ITR 123 (Del.)

– Jignesh Farshubhai Kakkad v. DIT (Inv.) & Ors. (2003) 264 ITR 87 (Guj.)

Hence, it is advisable for the assessee to co­ operate with the survey team in respect of all the matters connected with the survey, namely verification, inspection, furnishing of information and answering the statements recorded by the survey team.

11. Surveys of Functions: Sec. 133A(5)

With a view to detect unaccounted money being spent on lavish and in ostentatious wedding ceremonies and other social functions, the IT authorities, having regard to the nature and scale of expenditure incurred by an assessee, in connection with any function, ceremony or event, have the powers to call for the details of such expenses incurred by the assessee. However, such information can be obtained only after completion of such function, ceremony or event. For this purpose statement of the assessee or any other person who, may possess related information, can also be recorded. For example, in the case of marriage, enquiries can be made from a hotel, a restaurant, caterer, decorators, printers of invitation cards, jewellers, etc., who may give the information with regard to the expenditure incurred at the time of marriage. Such statement can be used in any proceedings under this Act . The terms Function, Ceremony or Event is not defined in the Act but in common parlance it Includes Marriage, Birthday, Anniversary, Mundan Sanskar, Bhandara. All the powers given in this section are available to Inspector also. [Explanation (a) to s. 133A]

12. Power during TDS survey

Even prior to the introduction of new provisions, the Hon’ble Calcutta High Court in the case of Reckitt and Colman of India Ltd v. ACIT (TDS) (2001) 251 ITR 306/170 CTR 611 (Cal.) affirmed, by Division Bench in 252 ITR 550, held that the officer in charge of Tax Deduction at Source could survey and compel the production of books and document by exercise of survey power.

But now the FA (No. 2) Act, 2014 certain important amendment have been made relating to survey and consequently, a new sub-section (2A) has been inserted in Sec.133A w.e.f. 1-10-2014 so as to provides that an income-tax authority acting under this sub-section may for the purpose of verifying that tax has been deducted or collected at source and for this purpose, such authorities shall be having the power to enter the premises as also to require the deductor/collector to offer him necessary facilities for inspection of the accounts/other documents and to furnish such information which he may require relating to TDS/TCS matter as are the powers conferred in normal survey.

However, while acting under sub-section (2A) of Sec.133A he shall not impound and retain in his custody any books of account or documents inspected by him or make any inventory of any cash, stock or other valuables.

13. Precautions (As also rights)

13.1 Precautions to be taken before the conduct of survey

The assessee

• Should avoid keeping large cash and stock balances. Needless to say that one major after effect of the demoralisation was availability of the large cash shown by the assessees on 8-11-2016. As we are aware the department issued notices u/s. 133(6) in large quantity and even surveys were carried out. Such cases, if selected for scrutiny, may have to face the additions u/ss. 68, 69B etc., and if so done, the assessee may face serious consequences in terms of heavy amount of tax, surcharge, cess etc. u/s. 115BBE as also a penalty u/s. 271AAC introduced by Act No. 8 of 2016 (w.e.f. 1-4-2017).

• Should avoid keeping books of account at any place other than the Registered Office and more particularly should not keep the accounts and other related papers, cash, stocks etc., relating the business, at the residence.

• Should avoid keeping cash, stock, books of account of different firms at one place. But if it is unavoidable, the place of keeping belongings of one firm should be clearly identifiable or there should be a visible demarcation of the place or the belongings of different firms.

• Should normally keep the books of account updated and in any case, at least the primary books.

• Should keep stock registers maintained and updated.

• Should keep track of unbilled goods, cash receipts, goods received without bills and of cash expenditure.

• Should avoid back-dating and correction/ editing in the books of account.

• The computer hard disk should not contain any irrelevant data.

• Must keep all CCTV camera fully operational.

13.2 Precautions during Survey

The assessee

• Should not be unduly influenced by the pressure tactics exerted by the authorities and should try to remain cool.

• Should satisfy itself about the identity of the authorities and in case of any doubt must contact the superiors and may also ask for the copy of approval of the Joint Director or Joint Commissioner for verification.

• Should be polite and must co-operate, should give suitable answers instead of adopting evasive tactics which may irritate the authorities. A continued non-co-operation may make the authorities convert a survey in a search.

While explaining the discrepancies in cash and stock or to avoid presentation of books of account must not state the same to be kept at residence in which case, he is inviting the authorities to survey the residence also.

Sometimes it is beneficial that the survey team to get a document e.g. a registered/unregistered bill and similar document to impound, if it is not being done, which, may help the assessee explaining many things later on e.g. the creation of the HUF, the source of the availability of the cash, gold ornaments etc. and so on.

13.3 Precautions during recording of statements

• It is advisable that at the time of recording of statement it must be specifically requested to the authorities to provide opportunity to look into the record and/or to complete the same if found incomplete before making any categorical admission. In any case, if assessee is not able to answer the discrepancy, the assessee must state that such difference shall be reconciled at a later point of time after looking into the record. But the very fact of possibility of such circumstances must be stated and got recorded in the statement.

• If the person is unable to immediately reconcile/explain the difference/ discrepancy in cash, stock etc., before making any categorical admission may state that the same shall be explained later after looking into the records etc.

• Before answering, the person must properly understand the question to be answered. Further while answering, a reference as to time and/or the person should also be given even if not asked.

• If he is medically unfit or has otherwise developed tension due to which he is unable to properly answer, he must request the authorities to record this fact in the statement itself.

• The statement should be signed only after properly reading and/or understanding the same.

• In ITO v. Vardhman Industries (2005) 24 CCH 185/(2006) 99 TTJ 509 (Jd), held that the statements recorded by the Inspector and the ITO, without reading over and explaining them to the assessee before obtaining his signature, were invalid.

• If income is being surrendered, the same should be with respect to the current year to the extent possible unless there is a direct & cogent evidence available indicating the fact of the income being related to the preceding year.

• To add Andaman Timber Industries v. CCE (2015) 127 DTR 0241/281 CTR 241 (SC)held that: not allowing assessee to cross-examine witnesses by Adjudicating Authority though statements of those witnesses were made as basis of impugned order, amounted in serious flaw which make impugned order nullity as it amounted to violation of principles of natural justice

13.4 Steps to be taken after Survey

• Copies of the statements of all the persons, whether recorded at the time of Survey or later on u/s. 131, of inventory and of hard disc should be collected from the department.

• The provisions of Right to Information Act, 2005 can be effectively used.

• To complete the books of account and other records taking care of all the discrepancies and shortcomings noticed and/or remaining unnoticed during survey. Also it is advisable to get the accounts audited.

• Must file retraction at the earliest available opportunity with a copy to the higher authorities. Also refer Para 17.4.

Issues

14. Presence of counsel during survey

Sec. 288(1) does not entitle an authorised representative to attend the survey proceedings and does not help in seeking personal presence in survey proceedings. The said section 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, except when required to attend personally for examination on oath or affirmation u/s. 131, may attend through an authorised representative, subject to the other provisions of Sec. 288. It has been seen that presence of the tax consultant may not be of much help to the assessee inasmuch as he is not allowed to interfere in the proceeding in any manner.

• The Article 22(1) of the Constitution of India provides that person shall not be denied the right to consult, and to be defended by, a legal practitioner of his choice. The counsel can be present during survey proceedings as held in Nandini Satpathi v. P. L. Dari AIR (1978) SC 1025.

• A person has a right of a counsel to appear in an enquiry or investigation as held in K.T. Advani v. State (1986) 60 Comp Cas. 603 (Del).

• In Central Excise & Customs matters, the Court has held that it is advisable to permit presence of lawyers during interrogation, though they cannot be allowed active participation. Refer Abdul Razak Haji Mohd. v. UOI (1986) 26 Taxman 234 (Bom.), Anil G. Merchant v. Director of Revenue Intelligence (1987) 12 ECR 183 (Mad.).

14.1 Slips or loose papers found during survey

The authorities often find slips, loose-papers etc. having some jottings/notings thereon and the A.O. tries his best to draw inferences there from in his attempt to compute the unaccounted income. The issues arising are (i) whether such loose-papers belong to the assessee, (ii) whether such chits & loose papers can be termed as books of account or documents, (iii) whether the contents thereof are binding against the assessee etc., (iv) whether the figures & jottings mentioned in such loose papers without there being any narration or sensible details, can represent income of the surveyed person. Sec.132(4A) raises a rebuttable presumption as regards ownership/truthfulness of the contents of seized accounts and documents, which rule of evidence has been extended to survey also and can be used in any proceedings under this Act vide Sec. 292c.

14.2 Presumption as to ownership Sec. 292C

Sec. 292C provides a rebuttable presumption regarding the assets, documents and books found in possession or control of any person in the course of a search or survey [Inserted by Finance Act, 2008, w.r.e.f. 1-6-2002] that:

• Such books of account, other documents money, bullion, jewellery, other valuable article or thing belong or belong to such person.

• The contents of such books of account and other documents are true.

• The signature and every other part of such books of account and other documents which purports to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person’s handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.

• Surendra M. Khandhar v. ACIT & Ors. (2009) 224 CTR 409/(2010) 321 ITR 0254 (Bom.) held that assessee having failed to rebut the presumption u/s. 292C, addition u/s. 69 on the basis of documents seized from the possession of the assessee was rightly made by AO & sustained by the Tribunal.

• Ashwani Kumar v. ITO (1991) 42 TTJ 0644/39 ITD 183 (Del) held that Income from undisclosed sources. Addition under s. 69 – Presumption under s. 132(4A) – Notings on slip found at business premises. There is nothing to show that slip was in possession or control of assessee – Presumption under s. 132(4A) is thus not attracted – Further, the slip does not indicate whether the figures noted thereon referred to quantities of money or of goods and which side represents receipts and which outgoings – Presumption that figures on the right side represents income is not permissible for lack of supporting evidence – Additions cannot be sustained.

• Refer CIT v. S. M. Aggarwal (2007) 211 CTR 180/293 ITR 43 (Del.) held that both CIT(A) and Tribunal having deleted addition in block assessment by concurrent findings that document relied on by Revenue was dumb document, such findings were essentially of fact not giving rise to any substantial question of law.

• Deaf & Dumb Documents

– Jayanti Lal Patel v. ACIT & Ors. (1997) 233 ITR 588 (Raj.)

– CIT v. Girish Chaudhary (2008) 296 ITR 619 (Del.)

• Loose slips/sheets/papers are not books of account as held in CBI v. V.C. Shukla (1998) 3 sec. 410has held that “File containing loose sheets of papers are not ‘book’ and hence entries therein are not admissible under s. 34 of the Evidence Act, 1872.”

• In the context of Sec. 271(1)(c) Explanation 5 sub-clause (1), in the case of Sheraton Apparels v. ACIT (2002) 256 ITR 20 (Bom.)

• S.P. Goyal v. DCIT 77 TTJ 1 (Mum.) (TM)

15.1.1 No evidentiary value of statements recorded during the survey

It is commonly found that income tax authorities record confessional statements and/or obtain admission from the person surveyed. Section 133A permits the income tax authority only to record a statement of any person which may be useful but does not authorise for taking any sworn in statement. Paul Mathew & Sons vs. CIT (2003) 181 CTR 207/263 ITR 101 (Ker.), has held:

‘..in contradistinction to the power u/s. 133A, section 132(4)…. enables the authorised 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 Income-tax Act. On the other hand, whatever statement is recorded under section 133A…. it is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law…”

Refer ACIT vs. Satya Narayan Agarwalla (2002) 91 TTJ (Cal.).

15.1.2 No addition permissible on the basis of sole statement

There are many cases including those in the recent past on the aspect that merely and solely based on the confessional statement, admitting some income, without there being any corroborative evidence or cogent material, no addition is permissible in law.

• The Hon’ble Madras High Court in the case of CIT vs. Kader Khan (2012) 300 ITR 157 (Mad.) has held that where assessee has admitted suppressed income but there was no documentary evidence in possession of the department, now held that Section 133A does not empower any I.T. Authorities to examine any person on oath and hence such statement has no evidentiary value. Consequently, admission made during such statement cannot by itself be made a basis of addition unless corroborated by some independent evidence. S.L.P. of the department against the said judgment has been dismissed vide order dated 20-9-2012 in CIT vs. Kader Khan (2013) 352 ITR (St.) 480 (SC).

• In the case of CIT vs. Ashok Kumar Jain (2014) 369 ITR 145 / (2015) 229 Taxman 65 (Raj.), the assessee surrendered ₹ 5 crores during course of survey, however in the return of income he offered only ₹ 3 crores. AO made the addition of ₹ 2 crores. Tribunal deleted the addition. On appeal by revenue the Court held that if the assessee did not adhere to the surrender made during the course of survey, it was for the Assessing Officer to bring on record cogent material and other evidence to support the addition rather than rely on the statements simpliciter. Therefore, there was no infirmity or perversity in the order of the Tribunal.

• Also refer Sahil Study Circle Pvt. Ltd. v. Dy. CIT (2016) 46 ITR 182 (Delhi)(Trib.), CIT v. M.P. Scrap Traders (2015) 372 ITR 507 (Guj.) (HC), Gajjam Chinna Vellappa & Ors. v. ITO (2015) 370 ITR 671 (T & AP) and Rajesh Jain v. DCIT (2006) 100 TTJ 929 (Del.).

• The CBDT has also similarly instructed to their subordinates and it will be apt to reproduce to refer the binding CBDT Circular No. 286/2/2003 dt. 10-3-2003 (repeated in further communication dated 18-12-2014), which has been frequently and repeatedly referred & cited in various judicial pronouncements.

15.2 Retraction of admission

The CBDT has also similarly instructed the subordinate authorities must avoid obtaining admission/confession under coercion/undue inference vide various instructions through letter No. 286/2/2003 dated 10-3-2003.

15.2.1 It is trite law that an admission, though a best evidence against such person however, if shown to be out of ambiguity, under tension or was against the facts or misconception of law, can be validly retracted.

15.2.2 It has been held by the Hon’ble Supreme Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala & Others (1971) 39 CCH 442/(1973) 91 ITR 18 (SC):

“Such admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the assessee who made the admission to show that it is incorrect and the assessee should be given a proper opportunity to show that the 
books of account do not disclose the correct state of facts’

The above decision has been applied/referred/ considered in the cases of ITO v. Vijay Kumar Kesar (2010) 231 CTR 165/327 ITR 0497 (Chhattisgarh), Ester Industries Ltd. v. CIT (2009) 226 CTR 112/316 ITR 260 (Del), Sonia Magu & Ors. v. CIT (2009) 227 CTR 680/(2011) 336 ITR 0227 (Del), ACIT v. Hukum Chand Jain & Ors. (2010) 236 CTR 92/(2011) 337 ITR 0238 (Chattisgarh), T. P. lndrakumar v. ITO (2011) 238 CTR 213/(2010) 322 ITR 0454 (Kar), Hukum Chand jain v. ITO (2011) 241CTR 280/334 ITR 0197 (Raj) and A One Batteries (P) Ltd. v. DCIT (2011) 242 CTR 436/58 DTR 0245(Jharkhand)
apart from many other cases.

15.2.3 In Nagubai Ammal v. B. Sharma Rao AIR 1956 SC 593 held:

“An admission is not conclusive as to be truth of the matters stated therein. It is only a piece of evidence, the weight to be attached to which must depend on the circumstances under which it is made. It can be shown to be erroneous or untrue”

There is no form prescribed for retraction. The intention to retract must be clear & manifest precisely & clearly explaining the grounds of retraction. Refer CIT v. Jagdish Naraian Ratan Kumar (2015) 373 ITR 394 (Raj.), Prakash Azad 50 Tax World 33 (Jp). In Sidhharth Shankar Roy v. Commissioner of Customs, Mumbai 2013 (291) ELT 244 (Trib.) (Mum.) held that retraction must be addressed to the same officer to whom confessional statement was given. In the survey cases however, since the statements were recorded by the survey team before whom admission was made who may not be available now therefore, it is the AO to whom retraction should be filed with a copy to the higher authority.

15.3 Interrogation of Human Rights

Interrogation till late night amounts to “torture” & violation of “human rights” – Officers are held liable for to pay compensation from their salary Refer CCIT v. State of Bihar, Through Chief Secretary (Rajendra Singh) (2012) 205 Taxman 232/71 DTR 268/250 CTR 304 (Patna)(HC) Thus, in an appropriate case, the assessee can make a suitable compliant to human right commission. Such statement is liable to be ignored. Refer Kailashben Manharlal Chokshi v. CIT (2008) 220 CTR 0138 & [(2010) 328 ITR 0411 (Guj.)].

15.4 Violation of Human Rights

It has to be established by the assessee with the support of strong & cogent evidence that such admission was made because of ignorance/a mistaken view of law or of facts or because it was obtained by the authorities under duress and for want of record etc. However, it is always advisable to make a retraction at the earliest opportunity available. The retraction letter must be filed to the jurisdictional AO with a copy to the higher authority. Although there is no Form prescribed for retraction however, the intention to retract must be clear & manifest, precisely & clearly explaining the grounds of retraction. Otherwise a retraction made abnormally late is always liable to be rejected. Refer Jagdish Naraian Ratan Kumar (Supra), Prakash Azad 50 Tax World 33 (Jp). In Sidhharth Shankar Roy v. Commissioner of Customs, Mumbai 2013 (291) ELT 244 (Trib.) (Mum.).

15.5 Evidentiary value of evidence collected during illegal survey

In the case of CIT v. Kamal & Co. (2007) 213 CTR 0200 / (2009) 308 ITR 129 (Raj.), and affirmed by the Supreme Court in 313 ITR 0125 (St.), it was held that any material collected during an illegal survey has got evidentiary value and can be used by the Assessing Officer against the assessee. To justify its finding, the Court followed the rulings of Dr. Partap Singh v. Director of Enforcement (1985) 46 CTR 319/155 ITR 0166 (SC) and Pooran Mal vs Director of Inspection (Inv.) (1974) 93 ITR 505/(1973) 41 CCH 0511 (SC) to the effect that illegality of search does not vitiate the evidence collected during such illegal search. The only requirement is that the Court or the authority before which such material or evidence brought is to be cautious and circumspect in dealing with such material or evidence. It was held that if materials collected during an illegal search could be used, on the same analogy, material collected/found during an illegal survey could be allowed to be used by the Assessing Officer because the procedure in regard to the use of material either collected in search or in survey is same. Also refer ITO v. U. K. Mahapatra & Co. (2009) 225 CTR 131 / 186 Taxman 181 / 27 DTR 155 (SC).

15.6 Discrepancies in Cash, Stock & Unrecorded Turnover etc.

The outcome of the survey, many a times results in the discrepancies in cash and stock etc. which, are found in excess or shortage when the physical availability is compared with the books of account. Addition on account of suppressed sale may also be made, based on certain other material found during survey. There may be many reasons behind such discrepancy.

15.7.1 Discrepancy in Stock

In case of shortage of stock normally entire sale is added however, depending upon the facts, it may be contended that it is only the net profit which can be added as income and not the entire sale. In case of excess stock also authorities normally make the addition of the entire amount, however, here also depending upon the facts it can be contended that it is only the net profit which can be added. The accounting treatment to be given, the implications of Sec. 40A(3), Sec. 69C etc. and of GST, if applicable must be considered. The following decisions may be referred to:CIT v. President Industries (2000) 158 CTR 372 (Guj), CIT v. Mehta Gwar Gum & Co. (2008)12 DTR 219 (Raj), CIT v. Balchand Ajitkumar (2004) 186 CTR 419 (MP), CIT v. S.M. Omer (1992) 201 ITR 608 (Cal), Ashok Kumar Rastogi v. CIT (1991) 100 CTR (All) 204, Man Mohan Sadani v. CIT (2008) 304 ITR 52 (MP), ACIT v. Ratan Industries (P) Ltd. (2012) 143 TTJ 24 (Agra) (TM), Sharma Associates (1995) 55 ITD 171 (Pune)(TM), Janta Tiles v. ACIT (2000) 66 TTJ 695 (Pune), Kishore Mohanlal Telwala v. ACIT 64 TTJ 543 (Ahd), Abhishek Corporation v. DCIT 63 TTJ 651 (Ahd), ITO v. B. D. Dal & Oil Industries (1192) 40 ITD 180 (JP), Tarachand Shantilal v. ITO (1987) 28 TTJ 128 (JP).

15.7.2 Discrepancy in cash

At the time of survey, when the physically available cash, is compared with the balances as shown in the cash book, there may arise situation of the excess as also short cash. The excess cash may be on account of various reasons being, the amount received on account of recovery from debtors or the sales effected but yet to be entered, the cash received for safe keeping or assessees personal money may be lying in the cash box and so on. Similarly the cash shortage may occur because of the withdrawals made but yet to be recorded due to pending entries etc.

The department is used to make addition not only of the excess cash (which may be justified in absence of satisfactory explanation) but also of the short cash. However, there appears no direct provision authorising addition merely due to short cash and such additions have been deleted by the court. On the contrary a deduction u/s. 37(1) can be claimed if the facts permit. Refer ITO vs. J.K. Bankers (1987) 27 TTJ 170/(1986) 5 CCH 55 (All Trib).

15.8 Treatment of income surrendered 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’ and the assessee may be denied the claim of expenditure otherwise allowable or the deductions under Chapter VI -A etc. It is advisable to specify the nature of income surrendered because if facts indicate that the income is generated from business, a case can be made out to get it taxed as business income and consequently, suitable allowances, deductions and/or benefit of depreciation etc., can be claimed and got allowed. In the case of M/s. Mangaldeep v. ITO (2007) 37 TW 35 (JP) (SMC) it was held that “The value of the access stock and cash found and surrender during the course of survey will be taxed only under the head of Business & Profession inasmuch as the same related to the cloth business of the assessee. Consequently, the ITAT directed that such surrendered income should be considered for computing the remuneration allowable under the provisions of Sec. 40(b)(v).”

However, to take care of ACIT v. Ratan Industries (P) Ltd. (2012) 143 TTJ 24 (Agra) (TM) following Fakir Mohmed Haji Hasan v. CIT (2001) 165 CTR 0111/247 ITR 0290 (Guj.).

15.9 Penalty u/s. 271(1)(c) in the cases of survey

15.9.1 The charge of concealment of income or furnishing the inaccurate particulars so as to impose penalty u/s. 271(1)(c), presupposes the return of income already filed because it is only on a comparison with such return of income, the income surfaced during the course of survey, the AO can reach to a conclusion as to concealment or furnishing the inaccurate particulars but not otherwise. It therefore, follows that where some income surfaced during survey is surrendered within the financial year and the same is then shown in the regular return of income filed within the prescribed time limit, there cannot be any penalty u/s. 271(1)(c) [or u/s. 270A for and from A.Y. 2017-18].

For this proposition reference can be made to the cases of in CIT v. S.A.S. Pharmaceuticals 335 ITR 259 (Del), CIT v. V. Narsimha Prasad 250 ITR 852 (Kar.) and Jt. CIT v. Signature (2004) 85 TTJ 117 (Del. ‘C’).

15.9.2 However, one must take care of the decision in Mak Data P. Ltd. v. CIT (2013) 358 ITR 593 (SC) where, in absence of any plausible explanation except that surrender was made to buy peace and to avoid litigation, penalty was confirmed.

16. Reopening in search and survey cases

16.1 No reopening, merely based on the confessional statement in absence of independent material

16.1.1 Reason cannot be mere whim and should be based on real material. Statement made during survey has no evidentiary value, not a good basis for reopening hence reassessment held invalid, even though initial assessment was completed u/s. 143(1) because no incriminating material found for the year reopened is AY 2003-04, subjected to reopening. Alfa Radiological Centre Pvt. Ltd. v. ITO (2015) 44 ITR 184 (Chandigarh Trib).

16.1.2 In absence of an independent material –Statement recorded during survey cannot form a valid basis for reopening – During a survey u/s. 133A, son of assessee in his statement offered some income however, no other material was found. The AO issued a notice u/s. 148 based on such admission. The ITAT quashed the reopening as not valid. On further appeal by the department “the High Court observed that the statement made during the course of survey by the son of the assessee formed the sole basis of reopening, and the reasons recorded did not give any further details as to what is the amount which had been accepted by the son of the assessee and how the same would bind the assessee. The High Court also referred to the Tribunal’s reliance on CBDT Circular dated 10-3-2003 wherein the insistence on the part of the Board is not to force any confession as any such confession recorded by the officer is based on no other evidence except the oral version in confessional mode and if later on it is retracted, it leaves the revenue with no basis.” CIT v. ShardabenK. Modi (2013) 217 Taxman 89 (Guj. HC).

16.1.3 Retracted statement cannot form the basis of reopening. Protective assessment without substantive assessment is not permissible u/s. 147. Reopening held invalid. G. K. Consultants Limited. v. ITO (Del. Trib.).

16.1.4 CIT v. Shardaben K. Modi (2014) 365 ITR 169 (Guj. HC).

16.1.5 Held that reopening on the basis of statements of managing director and chartered engineer during survey showing higher valuation of intangible assets and/or bogus claim was sustainable. Petition of assessee was dismissed. Powerdeal Enery Systems (I) (P) Ltd. vs. ACIT (2014) 112 DTR 409 (Bom. HC).

16.2.1 Survey report and other materials did not indicate any income chargeable to tax has escaped assessment. There is no material before the AO to record the belief as to escapement and the reasons recorded prior to and subsequent to the survey, not satisfying the requirement of law, Reopening held invalid. Held, allowing the petitions, that neither the survey report nor any other material indicated that any income chargeable to tax for the relevant assessment years had escaped assessment. AO, therefore, had nothing before him which would enable him to record his belief that any such escapement had taken place. Notice was held not valid. Hemant Traders v. ITO (2015) 375 ITR 167 (Bom. HC).

16.2.2 Recorded reasons had no nexus to form an opinion with material found in survey to connect assessee to the supplier – Hence reassessment invalid. Madan Madhav Fertilizer & Chemicals (P.) Ltd. v. JCIT (2013) 216 Taxman 34 (Mag. HC)

16.2.3 Held that a perusal of the original assessment order made it abundantly clear that the AO had not only referred to the documents and records found in course of the survey under section 133A of the Income-tax Act, 1961, from the business and office premises of the assessee but also those were test checked and evaluated in undertaking that exercise. The endeavour on the part of the Assessing Officer to initiate a reassessment proceeding under sections 147 / 148 of the Act on the purported ground that the same records/documents disclosed that the amount had escaped assessment was unconvincing and untenable as well. The notice of reassessment was not valid as it was based on mere change of opinion of the AO. CIT v. Vardhman Industries. (2014) 363 ITR 625/264 CTR 580 (Raj. HC).

Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. The author does accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.

[Source : Article printed in souvenir of National Tax Conference held on 2nd & 3rd September, 2017 at Kolkata]