Transcript Document

SURVEY U/s.133A
Legal & Practical Aspects
By
Team SMR
Legal Aspects
2
Objectives of survey u/s.133A
It is conducted to find out whether
a- regular books of account (BOA)are maintained
b- correct entries or made in BOA
c- cash and stock tally with entries in BOA
d- are there any documents indicating unaccounted purchases
and sales,etc.
e- there exist other valuable article/things not disclosed
3
Who can conduct Survey?
1.
2.
3.
4.
5.
6.
Director /Commissioner of Income-tax
Joint Director/ Joint commissioner
Deputy / Asstt. Director / Deputy / Asstt.
Commissioner (on authorized by -2)
Assessing Officer (on authorized by -2)
Tax Recovery Officer (authorized by -2)
Inspector of Income Tax (For certain purposes only)
(on authorized by -2)
(later on referred as Income-tax Authority- ITA)
4
Where it can be conduct?
U/s. 133A an ITA may enter :
(a) Any place, falling in his territorial jurisdiction;
(b) Any place, occupied by any person falling in
his territorial jurisdiction;
(c) Any place, in respect of which he is authorized for survey
by such ITA, who is having jurisdiction in the above
manner;
at which a business or profession is carried on, may
or may not be the principal place of business
5
Contd….
(d Any other place
Under explanation to section 133A, any other place
stated by the person carrying on the business, where the
books of accounts, other documents, cash, stock, etc. are
kept can also be surveyed.
6
When it can be conducted?
 The ITA may enter any place of business or profession
only when it is open for business
 In respect of any other place, only after sunrise
and before sunset.
 The restriction is only in respect of entry. [215 ITR 275
(Mad)]
7
Powers of Survey Team
ITA is empowered to
 Inspect, place marks of identification on the books of
account, make or cause to be made extracts or copies
there-from;
 Impound and retain such books of account for 10
working days after recording reasons and with approval
of CCIT/ DGIT thereafter;
 Make an inventory of cash, stock or other valuable
article or thing verified by him;
8
Powers of Survey Team
 Record statement of any person, which may be
useful for proceedings under the Act.
ITA is precluded
The ITA shall not remove any cash, stock or any
other valuable article or thing from the place of
survey.
9
Sec. 133A(5)- function/ceremony/
event survey If ITA views lavish spending in any function or
ceremony.
 He can at any time thereafter, call for the information
from assessee or from any other person who is likely
possess information about the expenditure incurred.
 ITI is also an ITA for this purpose and the statement
recorded may be used as evidence in any proceedings
under the Act.
10
Obligations of Assessee
 To afford facility to inspect the required books of
accounts or other documents available at such place
 To afford facility to verify cash, stock or other
valuables found therein
 To furnish required information, which may be
useful for any proceeding under the Act
11
Sec. 133A(6), In case of noncooperation,
S. 131(1) can be invoked
 If a person under this section refuses or evades to 



Afford the facility to inspect books of accounts
Afford facility to check or verify cash, stock etc.
Furnish any information or
To have his statement recorded.
The Income tax authority shall have all powers u/s
131(1) to enforce compliance.
(Unitex Products Ltd.Vs. ITO (2008) 23 SOT 429 (Mum)
12
Presumption as to Ownership. s. 292C
 Section 292C mandates presumption regarding ownership of
the assets, documents and books found in possession or
control of any person in the course of a search or survey
operation as belonging to him, their contents are true, they
are in his handwriting and if executed and attested, it was
done by him.
 Due to assessee’s failure to rebut the presumption addition
made u/s 69 was confirmed Surendra M. Khandhar vs ACIT &
Ors. (2009) 224 CTR (Bom)409-
13
Practical Aspects
14
2
What does the Survey Party Generally
Look out for?
 Loose Papers including diaries, note books/ pads
 Any Documents containing financial data
 Emails, including provisional financial data, MIS Reports,
etc.
 Account books
 Discrepancy in Cash
 Discrepancy in Stock
 Production and/or Sales Records
 Investments
 Expenditure, such as commission, etc.
15
Pre Survey Precautions
Avoid to
 Keep books of accounts at any place other than
Registered Office.
 Share common premises- if unavoidable keep a map.
 Keep personal documents of workers in business premises.
 Do backdating and editing in books of Accounts.
 Keep items attracting criminal action under other laws.
 Keep items affecting moral dignity.
126
Ensure
 That person in change of business have proper knowledge of
business affairs
 To maintain and keep Books of Account of respective assessees
for the current year at the principal place of business
 To maintain and keep stock register updated
 That physical cash and cash as per books matches
 To prepare and keep stock inventory at regular intervals, if
stock register not maintained
17
Contd….
 To reconcile all records that are maintained at different
levels like, gate, security guard, store keeper, etc.
 That computer hard disk does not contain any irrelevant
data
 To prune loose papers at regular intervals
 That
Assessment
particulars
of
Directors/
Partners/AOP members are readily available
 That registered value of property is known to concerned
persons.
18
Conduct during Survey
 Politely ask for identity, if faces are unfamiliar
 Be cool, co-operative and hospitable
 Make up your mind to pay taxes, if required
 Don’t forget ITA is a team of human beings clothed with
powers; let them do their duty, don’t inject ego or emotions
 Don’t drag them to your weak points through your anxiety
 Never try to obstruct, hasten or snatch anything
 Take care to avert sabotage of your mechanism
19
Contd…
 Endeavor to withstand pressure; it is your strength
 If books of accounts are not written up to date, don’t update
in hurry
 If records are impounded, ensure that no important paper
helpful to you is left
 Keep extra copy of account statements, etc. that you are
delivering to the ITA
 Note down all major figures while giving statement
 Always put date and time while signing the statements.
20
Points to ponder while making statement
 Insist on choice of language if not comfortable with
English.
 Is there any reason for surrender of additional income and
whether it could lead to any inference of concealment ?
 Are there any discrepancies between the stock, cash found
on physical verification and that as per books?
 Is it advisable to admit the discrepancies ?
 Keep the provisions of Sales tax and Excise duty, ST, IT Act
in mind while making surrender?
21
Contd…
 Is it safer to disclose income under the head "other
sources" or “business” ? State cate-gorically the nature
of income
 Would it be possible to declare the entire amount as
current year’s income or spread over income for many
years?
 What’s the liability of interest and penalty for
concealment ?
 Whether a survey would result in reopening of
assessments of earlier years?
22
Contd…
 Is it possible to capitalize the disclosed amount?
 Whether to include the stock difference in BOA or merely
offer to tax ?
 If the amount is surrendered to purchase peace, firmly state
that the offer is subject to condition that no penalty
proceedings shall be initiated.
 Mere request for non-initiation / leniency in penalty is not
sufficient – Arpanna Development Corpn. vs. ITO (2010)
35 SOT 135(Mum)
23
Post Survey Watch over
 Arrange and set your records, stock, etc. in regular order, to
assess importance of impounded things
 Apply for copy of inventory, statements, etc. drawn
 Meticulously check working, totals, read statements
 In case of inconsistencies immediately inform the ITA
 Separately offer the surrendered amount to tax in the Return
24
Retraction – How, when, etc.
 No specific form - Affidavit, letter, etc.
 Earliest Opportunity – minimum time gap
 Reasons for retraction like knowledge of incorrect facts
 Circumstances leading to retraction must be specified like
inducement/ threat/ coercion, etc. with evidence
 Documents/ Evidence in support of retraction
 Information to higher tax authorities like CBDT, CCIT, CIT,
JCIT, etc.
 Appropriate note/ disclosure in the return of income
25
PREPAREDNESS AND PRECAUTIONS
 Mock Survey
o By independent third party, preferably professionals/
consultants
o Suddenly and without prior information
o Across all business premises
 Educate client and its staff
o About basic provisions;
o Rights and Duties
26
Issues
 Whether premises of third parties be covered? No
(Circular No. 7- D dt 3/5/1967) However, if a client states his
books etc. are at some other place, it can be covered. UK Mahapatra &Co vs. ITO [2009] 308 ITR 0133 (Ori.), affirmed by
Hon’ble SC [2010] 186 Taxman (181)
 Whether survey team has power to break open locked
premises or seal the premises? No, both are not permissible
- Premises cannot be sealed - Shyam Jewellers & Anr. Vs CCIT
U.P (1992)196 ITR 243(All)
27
Contd…
 Whether TDS survey possible?: Yes : Reckitt and
Colman of India Ltd. vs. ACIT [2001] 251 ITR 306 (Cal).
 Whether TDS survey at a place other than the place
of regular assessment is possible? Yes : Peerless
General Finance & Invesment Co. Ltd. v. AO 248 ITR 113
(All).
 Whether a Survey Can Be Converted Into Search?
There is no bar on initiating search proceedings during the
course of survey and such action was confirmed in : Vinod
Goel & Others vs Union of India and others [2001]252 ITR
029 (P&H)
28
Contd…
 Whether surrender is necessary? No, as per CBDT’s
Circular No. 286/2/03- IT (Inv) dt. 10/3/03- no Confessional
statement can be elicited.
 What is the evidentiary value of statement recorded on
oath during survey? Such statement has no evidentiary value
– Paul Mathews & Sons v. CIT 263 ITR 101 (Ker); CIT v. S.
Kader Khan Son 300 ITR 157.
 Whether statement can be recorded an oath during
survey? If Sec. 133A(6) is invoked, Yes. United Chemical
Agency vs. R.K. Singh 97 ITR 14 (All.)
29
Contd…
 Whether the statement recorded during survey
has any value? Yes : It is an important piece of evidence
and can be used against assessee – Dr. S.C. Gupta v. CIT
248 ITR 782 (All)
 What is the evidentiary value of loose sheets
found during survey? Loose sheets found during
survey have no evidentiary value unless and until proved by
some cogent material and the books of account of the
assessee, which are audited, are of great evidentiary value :
CIT vs Diplast Plastics Limited [2010] 186 Taxman 317
(P&H )
30
Contd…
 Whether cross examination of the person giving
statement during survey is possible? There is no provision
for permitting cross examination Rameshwar Lal Mali v. CIT
[2002] 256 ITR 536(Raj)
 Whether confession made during survey is conclusive?
No, it is not conclusive & it is open to establish otherwise by
filing cogent evidences- ITO vs. Vijay Kumar Kesar (2010)231
CTR(CG)165; CIT vs. Dhingra Metal Works 236 CTR (Del)
621.
However Retraction made after two months and without
contemporaneous evidence of agricultural income was rejected –
Bachittar Singh v. CIT (2010) 236 CTR (P&H) 587.
31
Contd…
 Why copy of statement is not given during survey?
There is no provision to supply such copy, however, if it is
being used against assessee, it shall be given.
 What would be the effect of declaration made
against unaccounted expenditure, losses of
undisclosed business? Unexplained expenditure u/s
69C no deduction is allowable. Losses of undisclosed
business are allowable : Dr. T.A. Quereshi v. CIT 287 ITR
547 (SC).
 Whether provisions of Sec 40A(3) applicable for
unaccounted business transactions? Yes, CIT v.
Hynoop Food & Oil P. Ltd. 290 ITR 702 (Guj)
32
Contd…
 Whether ITO has power to remove cash valuables,
etc.? No. However attachment of promissory notes to
effect recovery upheld N.K. Mohnot v. DCIT 215 ITR 275
(Mad).
 Whether A.O. can impound and retained books of
account for indefinite period? No, Shubha & Prabha
Builders (P) Ltd. v. ITO 318 ITR 29; Raj & Raj
Investments v. ITO 293 ITR 57 (Kar).
 Whether any action is possible on the basis of
material illegally impounded? Yes, ITA can not be
restrained from initiating proceeding on the basis of such
material – United Chemical Agency v. R.K. Singh ITO 97
ITR 14 (All); CIT v. Kamal & Co. 308 ITR 129
33
Contd…
 Whether stock of goods not recorded on the date of
survey and failed to offer the explanation due to
non availability of concerned person leads to
addition? No - CIT vs. Satyanarayan Agrawal 319 ITR 396
(CG)
 Can materials found in course of survey can be used
in assessment u/s.153A? Sec. 153A makes it specifically
clear that action u/s 132 & 132A alone is to be considered
for assessment under this section.
 Whether penalty is leviable on income surrendered
during survey? No. CIT v. Bedi Kirana Stores 235 ITR
0351 (P&H);Amir Chand v. ITO 48 TTJ (Del) 308.
34
Contd…
 Whether penalty is leviable if return is revised at the
assurance of ITA? No, Silver Palace v. ITO 68 ITD (Pune) 550.
 Whether penalty is leviable on admission of non
maintenance of books of account? Yes, A One Batteries (P)
Ltd. v. DCIT (2011)Taxman 208 (Jharkhand)
 Whether books of accounts can be rejected u/s.145(3) if
difference found in cash/ stock ? Yes. DCIT vs. Premsons
(2010) 130 TTJ (Mum)159
 Whether higher remuneration considering excess stock
surrendered during survey is allowable in the case of a
firm? Yes- Anand Electrical & Mill Stores vs. ITO – ITA
No.105/Nag/2006
35
Questions ???
THANK YOU !!!
-Team SMR
References :
 Chaturvedi & Pithisaria’s Incometax law 5th Edition.
 CTR Encyclopedia on Indian Taxes
 Presentation of CA Sanjay K. Agrawal, New Survey, Search & Seizure Delhi
 Presentation of CA Rohit Jain, Vaish Associates, Advocates, New Delhi made in
All India CA Society 6th AnnualWork Shop on Direct Taxes.