Nihar Jambusaria Shivaji Park CPE Study Circle - 25 Dec

Transcription

1 SURVEY UNDER THE INCOME TAX ACT Nihar Jambusaria Shivaji Park CPE Study Circle - 25 Dec

2 Power Of Survey Survey means to inspect or in a wider sense to scrutinize. The object of a survey is to find out, gather information, verify and collate information so as to apprehend a tax evader. Survey is basically a surprise inspection carried out by the officers of the Income-tax department to verify co- related information, check the cash balance with the books, verify the position of stocks as compared to the position thereof in the books etc. The Power of Survey emerges from the provision of S. 133A of the Income-tax Act, and the section starts with the words Notwithstanding anything contained in any other provision of this Act. Accordingly the provisions are independent and to the exclusion of the other provisions of the Income- tax Act. Shivaji Park CPE Study Circle - 25 Dec

3 What are the powers of the Income-tax authority? An income-tax authority may enter:- any place within the limits of the area assigned to him, or any place occupied by any person in respect of whom he exercises jurisdiction, or any place in respect of which he is authorized 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. Shivaji Park CPE Study Circle - 25 Dec

4 Scope of powers To inspect books of account and other documents. To place marks of identification on the books of account or other documents and make extracts or copies there from. To make inventory, check or verify cash, stock or other valuable articles or thing. To call upon the proprietor, employee or other person to furnish information relevant to any proceedings under the Act. To record the statement of any person, this may be useful for or relevant to any proceedings under the Act. Shivaji Park CPE Study Circle - 25 Dec

5 No powers seem to have been granted to an income-tax authority to take a personal search of a person during survey. W.e.f , however an incometax authority can impound books or documents inspected by him after recoding reasons for the same. Such impounded books can be retained in his custody for 10 days after which he is required to take the approval of the Chief Commissioner or Director General. Shivaji Park CPE Study Circle - 25 Dec

6 Where accounts are maintained on a computer, the income-tax authority would be within his powers to take a backup of the same on a CD, floppy etc. Besides this, copies of incriminating ledger accounts are also printed out and the assessee is asked to put marks of identification under his signature so that later on the evidence can be used against him. No power has been granted for seizure of cash, stock or other valuable article or thing during survey. Shivaji Park CPE Study Circle - 25 Dec

7 Presumptive taxation There are some provisions of the Act which permit some types of assessee having a restrictive turnover to pay tax on an assumed income. If during the course of a survey of such an assessee it is found that books of account are maintained, the income-tax authority would be very much within his powers to impound such books and thus make the assessee liable to income based on the entries in such books of account. Shivaji Park CPE Study Circle - 25 Dec

8 Issues for discussion Shivaji Park CPE Study Circle - 25 Dec

9 Who can be treated as Income Tax Authority? Do all of them have same powers? The powers of survey can be exercised by an Income-tax authority meaning a Commissioner, a Joint Commissioner, a Director, a Joint Director, an Assistant Director a Deputy Director an Assessing Officer, a Tax Recovery Officer an Inspector of Income-tax. Shivaji Park CPE Study Circle - 25 Dec

10 POWERS OF INSPECTOR OF INCOME-TAX [2005] 3 SOT 277 (MUM.) Harshad L. Thakker v. Assistant Commissioner of Incometax, Circle-18(2) It was held that an Income-tax Inspector is not an income-tax authority for purpose of recording statement of any person in course of survey proceedings under section 133A of the Act. However the assessee would still be liable to explain discrepancy in stock inventory prepared in course of survey even though statement recorded was non est. because incriminating material found in course of illegal search is admissible evidence. Shivaji Park CPE Study Circle - 25 Dec

11 [1998] 62 TTJ (JP.) 527/[1999] 104 TAXMAN 79 (JP.) (MAG.) Kamal & Co. v. Assistant Commissioner of Income-tax It was held that an Inspector is not empowered to record statement or to prepare stock inventory at time of survey and, therefore, additions made on basis of survey made by Inspector must be deleted. Shivaji Park CPE Study Circle - 25 Dec

12 Whether Income tax authority can enter business premises at 8.00p.m.? The section provides that the authority may enter only during business hours. After such entry, no further limitation is imposed by the section regarding the period for which he may remain in that premises. If the volume of materials to be scrutinized is such as to require the survey being continued even after the business hours, the continued presence of the authority in the premises and the continuance of the survey cannot be regarded as illegal - N.K. Mohnot v. Dy. CIT [1995] 215 ITR 275 (Mad.). Shivaji Park CPE Study Circle - 25 Dec

13 Whether summons u/s131 (1) can be issued during survey proceedings u/s 133A? A statement recorded under section 133A (3) (iii) is not a statement on oath and hence does not have evidentiary value. Whenever there is some incriminating material found during a survey, the income-tax authority immediately issues a summons under section 131 of the Act and records a statement since a statement recorded by this process is on oath and has the force of law. However for the exercise of a power under section 131(1), the Assistant Director, Deputy Director, Assessing Officer, Tax recovery Officer or the Inspector of Income-tax needs to take the approval of the Director or Joint Commissioner as the case may be. Shivaji Park CPE Study Circle - 25 Dec

14 During survey proceedings whether personal search can be taken? No powers seems to have been granted to an income-tax authority, i.e. he cannot take a personal search of a person during survey. Shivaji Park CPE Study Circle - 25 Dec

15 What is the difference between statement recorded u/s 132(4) and statement recorded u/s 133A(3)(iii)? A statement recorded under section 133A (3) (iii) is not a statement on oath and hence does not have evidentiary value. The Kerala High Court in 263 ITR 101 (Ker) in the case of Paul Mathew & sons has held that the Assessing Officer has no jurisdiction to record a statement on oath u/s 133A during the course of survey and such a statement has no evidentiary value since the Officer is not empowered u/s 133A to administer oath. A similar view has been taken by the Cochin Tribunal in 2 SOT 402 in the case of Kurrunen Vehil Financiers P. Ltd. Shivaji Park CPE Study Circle - 25 Dec

16 Accordingly, whenever there is some incriminating material found during a survey, the income-tax authority immediately issues a summons under section 131 of the Act and records a statement since a statement recorded by this process is on oath and has the force of law. However for the exercise of a power under section 131(1), the Assistant Director, Deputy Director, Assessing Officer, Tax recovery Officer or the Inspector of Income-tax needs to take the approval of the Director or Joint Commissioner as the case may be. In order to avoid such embarrassments, the CBDT vide instruction dated 10th March 2003, has instructed the subordinate officers to focus and concentrate on collecting evidence of income which is not disclosed or is not likely to be disclosed rather than record an unsubstantiated statement. Shivaji Park CPE Study Circle - 25 Dec

17 Whether statement recorded u/s 133A(3)(iii) can be retracted? It is frequently seen that the income-tax authority conducting a survey normally does not leave unless a confessional statement is recorded. Such statement is given by the assessee many a times to get rid of the officer and to bring an end to the proceedings. Later on the assessee files a declaration that the statement is taken under undue pressure and the facts stated therein are incorrect. As such the statement is retracted. [1994] 48 ITD 164 (Indore) Income-tax Officer v. Jewels Emporium It was held that by recording of a statement of firm s partner on oath and preparing inventory of stock during survey operations under section 133A, the Inspector of Income-tax has acted beyond the purview of his powers which was illegal. Shivaji Park CPE Study Circle - 25 Dec

18 RETRACTION OF A STATEMENT GIVEN DURING SURVEY [2005] 3 SOT 277 (MUM.) Harshad L. Thakker v. Assistant Commissioner of Income-tax, Circle- 18(2) It was held that if assessee can demonstrate that valuation of stock adopted by survey party during survey proceedings under section 133A was wrong with reference to material on record, then addition under section 69 on account of unexplained investment in excess stock could not be justified merely on ground that said addition was offered by assessee during survey proceedings. Shivaji Park CPE Study Circle - 25 Dec

19 Whether loose papers and small chits can be treated as books of account or documents? It may be possible for the assessee to get away with it where he is in a position to explain satisfactorily that the so-called entries in the loose papers, diaries, or note books have no connection with and cannot be related to the business of the assessee and that the books of account regularly maintained by him reflected the correct state of affairs and that no concealment of income or evasion of tax can be proved on the basis of the said documents. Shivaji Park CPE Study Circle - 25 Dec

20 Finance Act,2003 has given power to Tax Recovery Officer for conducting survey. Whether the power to survey is restricted to the persons whose proceedings are pending before Tax Recovery Officer or the Tax Recovery Officer can survey the premises of other persons who are liable to pay money to the assessee whose proceedings are pending before him? The Tax Recovery Officer can conduct survey even when no proceedings are pending. The Tax recovery Officer has same powers. Shivaji Park CPE Study Circle - 25 Dec

21 An assessee gave reply to various questions while recording statement u/s 133A(3)(iii). Subsequently it was found out that reply to certain provisions were false. Whether provisions of Chapter XXII dealing with offences and Prosecution can be invoked? No prosecution can be launched as statement not recorded on oath. Shivaji Park CPE Study Circle - 25 Dec

22 Whether provisions of section 275B for failure to comply with the provisions of section 133A can be invoked? If a person who is required to afford the authorized officer the necessary facility to inspect the books of account or other documents, as required under clause (iib) of sub-section (1) of section 132, fails to afford such facility to the authorized officer, he shall be punishable with rigorous imprisonment for a term which may extend to two years and shall also be liable to fine. As section 275B does not specify Section 133A, hence it cannot be invoked. Shivaji Park CPE Study Circle - 25 Dec

23 Are the Income Tax Officers authorized u/s133a to make surveys of marriage ceremonies and other ostentatious social functions and to detect use of unaccounted money? course of survey? Section 133A of the Income-tax Act, 1961, authorizes Income-tax Officers to make surveys of marriage ceremonies and other ostentatious social functions and to detect use of unaccounted money. Shivaji Park CPE Study Circle - 25 Dec

24 What is the implication of excess/short stock found in course of survey? The excess stock found in course of survey, may mean undisclosed investment in stock. Similarly short stock may be due to undisclosed sales. Assessee should at first try to reconcile the difference. Shivaji Park CPE Study Circle - 25 Dec

25 NOTE: If the department is taking stock on lump sum basis or ad hoc basis, this fact should be mentioned while signing the stock statement. If the person responsible for maintenance of inventory is not present and no other competent person is there, this fact should be mentioned in the stock statement. It can always be stated by the assessee that he will be in a position to explain the difference only after going through all the records and books and accounts. Shivaji Park CPE Study Circle - 25 Dec

26 Does the assessee have the right to legal consultation in case of survey? A person shall not be denied the right to consult and to be defended by a legal practitioner of his choice as per article 22(1) of the Constitution. As such, the counsel can be present during survey proceedings - Nandini Satpathi v. P.L. Dari AIR 1978 SC Shivaji Park CPE Study Circle - 25 Dec

27 Can penalty for concealment be imposed for disclosures made in course of survey? It depends on the facts of the case. If disclosures are made in respect of the years for which returns are already furnished, then it can be inferred that there was concealment in the return filed and income was concealed. Therefore in spite of disclosures made in course of survey penalty for concealment may be levied. It may be noted that immunity from penalties provided in search cases if disclosures are made subject to certain conditions are not available in survey cases. However, if the disclosure is made in respect of income of the current period or for a period for which return is not yet due and no return is filed, there is no case of concealment because concealment is made when the return is filed concealing the income. Such disclosed income if declared in the return income, no penalty for concealment can be imposed. Shivaji Park CPE Study Circle - 25 Dec

28 In Jt CIT vs Signature.[2004] 85 TTJ 117 (Del 'C'), income was surrendered by the assesee during survey. It was held that no penalty under s 271(1)(c) was imposable under s. 271(1)(c) in respect of income surrendered during survey and shown in return, and about which no satisfaction as to concealment was recorded by AO in order of assessment. In SILVER PALACE V. ITO[1999] 68 ITD (PUNE) 550 subsequent to survey proceedings, declaration of additional income was made by assessee, though no discrepancy was found, allegedly on advice and assurance of officers conducting survey, that no penalty would be imposed. Circumstantial evidence showed tacit agreement between assessee and survey party, that no penalty be levied if return was revised. Moreover there was no material on record to prove addition made by Assessing Officer represented income of assessee for assessment year in question. On these facts it was held that penalty proceedings were wrongly initiated. Shivaji Park CPE Study Circle - 25 Dec

29 Can an assessee surrender income during survey? An assessee can always surrender his income (disclose his income) to the department. Whether penalty for concealment will be levied on such surrender or not depends on facts of each case. Shivaji Park CPE Study Circle - 25 Dec

30 How far materials found in course of survey can be used in block assessment? In block assessment, material found during survey u/s 133A can be used only if it has some relation with the material seized during search, otherwise not. (GMS Technologies Ltd v Dy. CIT. (2005) 93 TTJ 218 (Del 'F')). Shivaji Park CPE Study Circle - 25 Dec

31 Can a survey be converted into search? This is rare, but it is possible. If in course of survey information comes to the department that the conditions for authorizing search exist, the department can initiate search operation subject to fulfillment of procedure thereof. The conditions are as follows: Where the Director General or Director or the Chief Commissioner or Commissioner or any such Joint Director or Joint Commissioner as may be empowered in this behalf by the Board, in consequence of information in his possession, has reason to believe that person to whom a summons under sub-section (1) of section37 of the Indian Income tax Act, 1922 (11 of 1922), or under sub-section (1) of section 131 of this Act, or a notice under sub-section (4) of section22 of the Indian Income tax Act, 1922, or Shivaji Park CPE Study Circle - 25 Dec

32 under subsection (1) of section142 of this Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account or other documents as required by such summons or notice, or person to whom a summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which will be useful for, or relevant to, any proceeding under the Indian Income tax Act, 1922 (11 of 1922), or under this Act, or person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property Shivaji Park CPE Study Circle - 25 Dec

33 [which has not been, or would not be, disclosed] for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act (hereinafter in this section referred to as the undisclosed income or property), If during the survey operation, information comes to the department which leads to formation of a reasonable belief that the conditions authorizing action u/s 132(1) exist, the department has right to take action u/s 132 Vinod Goel v. UOI [2001]252 ITR 29/118 Taxmann 690 (P&H) However if the survey is converted into search without fulfillment of conditions precedent for initiating search or without application of mind or satisfaction by the higher authority eligible to initiate search then the search will be illegal ( Dr Nalini Mahajan vs DIT(Inv) (2002) 257 ITR 123) Shivaji Park CPE Study Circle - 25 Dec

34 Can officers on survey resort to cross-examination of the person present in course of survey? There is no provision for permitting cross-examination of the person whose statement is recorded during the survey - Rameshwar Lal Mali v. CIT [2002] 256 ITR 536 (Raj.). Can officers on survey resort to inspection of the person present in course of survey? No, because it is not search and seizure proceedings. Shivaji Park CPE Study Circle - 25 Dec

35 Can the premises be sealed after or in course of survey? No, premises cannot be sealed after or in course of survey. Section 133A or section 132 nowhere provides for sealing of the business premises before or subsequent to the survey or even if there is difficulty in making survey - Shyam Jewellers v. Chief Commissioner 1990 Tax LR 696 (All.). Shivaji Park CPE Study Circle - 25 Dec

36 Whether business/residential premises of third parties or residential premises of assessee could be entered for the purpose of making survey? CBDT in Circular: No. 7-D(LXII-7) of 1967, dated has clarified as follows : The place which an Income-tax Officer or an Inspector, authorized by him in this behalf, may enter under the provisions of section 133A, must be either a place within the limits of the area under the jurisdiction of the Income-tax Officer or any place occupied by any person in respect of whom the Income-tax Officer exercises jurisdiction, at which a business or profession is carried on. The provisions of section 133A make it clear that, in either case, the place must be one where the business or profession of an assessee is carried on, although it is not necessary that it should be the principal place of Shivaji Park CPE Study Circle - 25 Dec

37 business or profession. The place, where entry can be made under the section, must not be a place where the assessee does not carry on business. Business or residential premises of third parties, including a chartered accountant, a pleader or income-tax practitioner, of whom the assessee may be client, are not places which could be entered into for the purpose of section 133A. It would be improper for an Income-tax Officer or an Inspector, authorized by him in this behalf, to enter the office of a chartered accountant for the purpose of inspecting the books of his client. It is also necessary that the place entered should be the business premises and not residential premises of the assessee and the entry should be during business or office hours. It may, however, be noted that the above restrictions do not apply to cases of search and seizure specifically authorized under section 132 by the Commissioner of Income-tax/Director of Inspection, which will be governed by the provisions of that section. Shivaji Park CPE Study Circle - 25 Dec

38 What are the points to be kept in mind with regard to statements recorded in course of survey? Regarding statements recorded in course of survey, the following points may be noted: Statements recorded under threat, coercion, inducement or promise are not valid but the person concerned should take care to retract such statement without delay - Ambalal v. Union of India [1983] 13 ELT 1321 (SC). The person examined must be supplied with a copy of the statement before the same is relied upon by the Assessing Officer. If he asks for it and authorities do not supply it, the authorities cannot rely on it - Ambalal s case (supra). Shivaji Park CPE Study Circle - 25 Dec

39 Do's and Don ts for assessees Return of income should be filed within the time limit prescribed. a. Copies of returns of income filed should be properly documented. Though your tax representative may be having and maintaining complete tax records, it is necessary that a copy of income tax and wealth tax returns filed are kept at office premises and in case of individuals, it should also be maintained at residence for all family members. b. Books of account are maintained properly and up to date. c.you may be called upon to explain any document, loose papers, etc. found during search or survey. As such, care should be taken to maintain papers in proper manner. Shivaji Park CPE Study Circle - 25 Dec

40 d. Investments made in assets should be properly accounted and supporting evidence should be available to substantiate the investment made. e. Ornaments belonging to different members of the family should be kept separately. It is advisable to keep lists of the ornaments of each person and also where the ornaments are kept. Valuation report of a jeweller can be obtained. Also Tax records substantiating such ownership should be available at residence. f. Statement recorded at the time of search are very crucial. The person making statement is advised to state truly, correctly, fully and completely. Reply should not be vague or evasive. One should be very cautious and careful while answering the question and the person should not panic. Shivaji Park CPE Study Circle - 25 Dec

41 g. Further, necessary co-operation should be made with the authorized officers. As per amendment made by the Finance Act, 2002, if a person who is required to afford the authorized officer the necessary facility to inspect the books of account or other documents maintained in electronic form, fails to afford such facility to the authorized officer, he shall be punishable with rigorous imprisonment for a term which may extend to two years and shall also be liable to fine. Shivaji Park CPE Study Circle - 25 Dec

42 SEARCH Where the Department receives information about a deposit in the bank account of an assessee, whether action u/s.132(1)(c ) to seize the money without having reason to believe that the money represents undisclosed income of the assessee is warranted? S.132(1) ( C) does not give power to seize money, bullion, jewellery, etc. without having reason to believe that the same represents income that the assessee has not disclose and would not disclose. Visa Comtrade Ltd. V. UOI 13 Taxmann.com 44(Orris) Shivaji Park CPE Study Circle - 25 Dec

43 Statements recorded u/s.132(4) can be used as evidence at the time of assessment. If the assessee retracts the statement, he has to substantiate his contention that the statement was obtained under compulsion or coercion. Unsubstantiated retraction is not valid. Kantilal C. Shah v. ACIT 14 Taxmann.com 108(Ahd.) where retraction is substantiated by evidence that the amount disclosed is not his income or does not pertain to the year under assessment, retraction is valid. M. Narayanan &v Bros. v. ACIT 13 Taxmann.com 49(Mad.) Shivaji Park CPE Study Circle - 25 Dec

44 where return is response to notice u/s.153a is filed after the time allowed in the notice, interest u/s.234a shall be payable from the date of expiry of the time allowed. If A.O. did not invoke the provisions of Ss.234 and 234B while completing assessment, he can levy interest subsequently by rectification u/s.154. Dr. V. jayakumar v. ACIT 10 Taxmann.com 141(Chen.) Shivaji Park CPE Study Circle - 25 Dec

45 where additions made by the A.O. in the original assessment were deleted by the CIT(A) in appeal and the Department did not go in further appeal,.o. cannot make addition of the same amount on the same ground in a subsequent search assessment u/s.135a. ACIT(OSD-1) v. Mrs. Uttara S. Shorewala 12 Taxmann.com 460(Mum) where assessment is completed and appeal is pending before the ITAT, the original assessment would not be abated u/s.153a as a result of search. CIT (Central) v. Mrs. Shaila Agarwal 16 Taxmann.com 232(AII) Shivaji Park CPE Study Circle - 25 Dec

46 where assessment order was passed before the due date, but was de to the assessee after due date for completion of assessment, the assessment had become time barred. Shauti Lal Gadawat v. ACIt 126 TTJ 136(Jodh) A.O. Of third party required to record satisfaction with regard to documents and materials found during the course of search. Appraisal Report in the case of the person searched, not sufficient to issue notice u/s.153c in the case of the third person. ACIT v. Amit Pande 14 Taxmann.com 93(Indore) Shivaji Park CPE Study Circle - 25 Dec

47 If return is filed by the third party before hos A.O. records satisfaction, action u/s.153c not valid. ACIT v. M.N. Rajaraman 5 ITR(Trib.) 261(Chen.) Shivaji Park CPE Study Circle - 25 Dec

48 THANKYOU YOU YOU Shivaji Park CPE Study Circle - 25 Dec