One of the most powerful weapon in the hand of income tax department is the power to survey. Let us know more about it.

1. Power of Survey to the Authorities:
   Section 133A of the Income-tax Act, 1961 empowers the following income-tax authorities to conduct a survey:
   (a) Commissioner of Income-tax,
   (b) Joint Commissioner of Income-tax,
   (c) Director of Income-tax,
   (d) Joint Director of Income-tax,
   (e) Assistant Director of Income-tax,
   (f) Deputy Director of Income-tax,
   (g) Assessing Officer,
   (h) Tax Recovery Officer, and
   (i) Inspector of Income-tax, if so authorized by above persons.

Above is for the purposes of section 133(5) and clause (i) of section 133(1), 133(3)].

2.  Can survey power be delegated?
If authorized by higher authority, to limited extent a survey can be conducted by the Inspectors also. This has been held in Bombay Marble Industries V ITO (2006) 100 TTJ (JD) 927 (SMC). If survey conducted by Inspector without authority then it is illegal. It may be noted that Income Tax Authority includes Inspector of Income Tax for purposes of clause (i) of sub-section (1), clause (i) of sub-section (3) and sub-section (5). Section 133A Sub Section (1)(i) states:

133A. (1) notwithstanding anything contained in any other provision of this Act, an income-tax authority may enter—
(a) any place within the limits of the area assigned to him, or
(b) any place occupied by any person in respect of whom he exercises jurisdiction,
(c) any place in respect of which he is authorized for the purposes of this section by such income-tax authority, who is assigned the area within which such place is situated or who exercises jurisdiction in respect of any person occupying such place,at which a business or profession is carried on, whether such place be the principal place or not of such business or profession, and require any proprietor, employee or any other person who may at that time and place be attending in any manner to, or helping in, the carrying on of such business or profession—
(i) To afford him the necessary facility to inspect such books of account or other documents as he may require and which may be available at such place,

Section 133A Sub Section (3)(i) states:
(3) An income-tax authority acting under this section may,—
(i) if he so deems necessary, place marks of identification on the books of account or other documents inspected by him and make or cause to be made extracts or copies therefrom,

Section 133A Sub Section (5) states:
(5) Where, having regard to the nature and scale of expenditure incurred by an assessee, in connection with any function, ceremony or event, the income-tax authority is of the opinion that it is necessary or expedient so to do, he may, at any time after such function, ceremony or event, require the assessee by whom such expenditure has been incurred or any person who, in the opinion of the income-tax authority, is likely to possess information as respects the expenditure incurred, to furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceeding under this Act and may have the statements of the assessee or any other person recorded and any statement so recorded may thereafter be used in evidence in any proceeding under this Act.

3.  Survey on which Places:
Under section 133A, an income-tax authority may enter
(a) any place within the limits of the area assigned to him, [or] (b) any place occupied by any person in respect of whom he exercises jurisdiction, [or] (c) any place in respect of which he is authorised for the purposes of this section by such income-tax authority, who is assigned the area within which such place is situated or who exercises jurisdiction in respect of any person occupying such place, at which a business or profession is carried on, whether such place be the principal place or not of such business.

4.  Income Tax Survey & Residential premises:
CBDT in its Circular: No. 7-D(LXII-7) of 1967, dated 3-5-1967has clarified as under:

“The place which an Income-tax Officer or an Inspector, authorized by him in this behalf, may enter under the provisions of section 133A, must be either a place within the limits of the area under the jurisdiction of the Income-tax Officer or any place occupied by any person in respect of whom the Income-tax Officer exercises jurisdiction, at which a business or profession is carried on.

The provisions of section 133A make it clear that, in either case, the place must be one where the business or profession of an assessee is carried on, although it is not necessary that it should be the principal place of business or profession.

The place, where entry can be made under the section, must not be a place where the assessee does not carry on business. Business or residential premises of third parties, including a chartered accountant, a pleader or income-tax practitioner, of whom the assessee may be client, are not places which could be entered into for the purpose of section 133A.

It would be improper for an Income-tax Officer or an Inspector, authorized by him in this behalf, to enter the office of a chartered accountant for the purpose of inspecting the books of his client. It is also necessary that the place entered should be the business premises and not residential premises of the assessee and the entry should be during business or office hours.

It may, however, be noted that the above restrictions do not apply to cases of search and seizure specifically authorized under section 132 by the Commissioner of Income-tax/Director of Inspection, which will be governed by the provisions of that section.”

4.  Authorities can enter the Office of a CA of Assessee?:

CBDT in its above referred Circular: No. 7-D (LXII-7) of 1967, dated 3-5-1967 has clarified as under:

“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.”

6.  Assessee has power to seek the presence of CA or Advocate?

Though Assessee cannot not be denied the right to consult his CA or legal practitioner, it is often objected by the department.  It may be noted that Article 22(1) of the Constitution empowers the assessee to seek the help fot he counsel. One may refer Nandini Satpathi v. P.L. Dari AIR 1978 SC 1025.

7.  Duties of the Assessee:

Whenever a survey is carried out on the assessee, Assessee is duty bound with following obligations:

(i) to afford him the necessary facility to inspect such books of account or other documents as he may require and which may be available at such place,

(ii) to afford him the necessary facility to check or verify the cash, stock or other valuable article or thing which may be found therein, and

(iii) to furnish such information as he may require as to any matter which may be useful for, or relevant to, any pro ceeding under this Act.

If assessee either refuses or evades to do so then authoritsed income-tax authorities have the powers under section 131(1) for enforcing compliance with the requirement made. Section 131(1) gives the same powers as are vested in a court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit in respect of the following matters, namely :

(a) discovery and inspection;

(b) enforcing the attendance of any person, including any officer of a banking company and examining him on oath,

(c) compelling the production of books of account and other documents; and

(d) issuing commissions.

It may be noted that Inspector of Income-tax cannot be authorised for any purposes other than those mentioned earlier. He cannot require the concerned person,
(i) to afford him the necessary facility to check or verify the cash, stock or other valuable article or thing which may be found therein, and

(ii) to furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceeding under this Act.

He is also not empowered to :—
(i) make an inventory of any cash, stock or other valuable article or thing checked or verified by him,
(ii) record the statement of any person which may be useful for, or relevant to, any proceeding under the Income-tax Act.
It has been held in ITO v. Jewells Emporium [1994] 48 ITD 16(IndoreBench)that if a inspector records statements on oath or prepares cash or stock inventories, he acts beyond his powers.

8.  Power of Income Tax Authorities:

Income-tax authority acting under this section shall have the following power:
(i) if he so deems necessary, place marks of identification on the books of account or other documents inspected by him and make or cause to be made extracts or copies therefrom,
(ii) make an inventory of any cash, stock or other valuable article or thing checked or verified by him,
(iii) record the statement of any person which may be useful for, or relevant to, any proceeding under the Income-tax Act.

9.  Impounding of boos of Accounts:Books of account or other documents cannot be impounded by an income-tax authority only after recording his reasons for so doing.

10.  Sealing of the premises during or after survey?:
The premises of the assessee cannot be sealed during or after survey is over. Section 133A or section 132 nowhere empowers the authrotieites to seal the business premises. It has been so held in Shyam Jewellers v. Chief Commissioner 1990 Tax LR 696 (All.).

11.  Evidentiary value of statement recorded during survey:
It is worthwhile here to note the obsevatin by Kerala HC in the case of Paul Mathews & Sons V CIT (2003) 263 ITR 101 (Ker)wherein it held as under:

“Section 133A enables the income-tax authority only to record any statement of any person which may be useful but does not authorize for taking any sworn in statement. On the other hand, such power to examine a person on oath is specifically conferred on the authorized officer only under section 132(4) in the course of any search or seizure. Thus, the Act whenever it thought fit and necessary to confer such power to examine a person on oath, the same has been expressly provided whereas section 133A does not empower any ITO to examine any person on oath. In contradistinction to the power under section 133A, section 132(4) enables the authorized officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Act. On the other hand, whatever statement recorded under section 133A is not given any evidentiary value obviously for the reason that the officer is authorized to administer oath and to take any sworn in statement which alone has the evidentiary value as contemplated in the law. [Para 11].”

12.  Conversion of survey in to search:

If during the course of survey, some information comes to the knowledge of the authorities & the believe that the situation for authorizing search exist, they can initiate search operation subject to certain procedural compliances, as under:

12. Where the Director General or Director or the Chief Commissioner or Commissioner or any such Joint Director or Joint Commissioner as may be empowered in this behalf by the Board, in consequence of information in his possession, has reason to believe that—

–      person to whom a summons under sub-section (1) of section37 of the Indian Income tax Act, 1922 (11 of 1922), or under sub-section (1) of section 131 of this Act, or a notice under sub-section (4) of section22 of the Indian Income tax Act, 1922, or under subsection (1) of section142 of this Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account or other documents as required by such summons or notice, or person to whom a summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which will be useful for, or relevant to, any proceeding under the Indian Income tax Act, 1922 (11 of 1922), or under this Act, or

– person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property [which has not been, or would not be, disclosed] for the purposes of the Indian Income-tax Act, 1922 or this Act,

–      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.

It may be noted that 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.

13.  Recording of Statement

13. Statements recorded under threat, coercion, inducement or promise are not valid. If taken under coercion then the assessee must retract such statement without delay. Delay would result in denial power of the assessee. Ambalal v. Union of India [1983] 13 ELT 1321 (SC).
14. The person examined is eligible to obtain the copy of the statement before the same is relied upon by the Assessing Officer. If assessee asks & authorities do not offer it then authorities cannot rely on it.
15. Income surrender during Survey :
16. The main aim of the survey by the department is ultimately to get the revenue. An assessee can always ‘surrender his income’ to the department. However, the same should be done carefully by the assessee after understanding all the related provisons and implications. If disclosures are made in respect of the years for which returns are already furnished, it may happen that penalty for mis-reporting, under-reporting of income or the provision of section 68, 69A, 69B etc may get invoked along with section 270A, 271AAD, etc. 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, then there may not be the chances of penalty for misreporitn or under repritng of income.
17. Section 133A does not require the prior notice of the survey to be given to the assessee. It has been held in N.K. Mohnot v. Dy. CIT [1995] 215 ITR 275/83 Taxman 238 (Mad.).

14.  Other Important points:

14. If the department is taking stock on lump sum basis or ad hoc basis, this fact should be mentioned while signing the stock statement.
15. 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.).
16. Stock taking is one of the most common process during survey. There may be some discrepancies in the stock from actual vis a vis books of accounts. In such case, Assessee must first try to reconcile the difference in stock and some of the reason of discrepancies could be as under:
    1. Stock taken by department includes stock of third parties received on consignment basis.
    2. Goods sold but invoice not issued.
    2. Goods received but invoice not received
    3. Damaged stock not accounted for.
    4. Inventory taken by department team on lump sum basis.
    6. Errrors in recording & measurement by the department
    7. Mistakes in totaling by the department
    8. Stock of customers still lying at the premises of assessee for some reasons.
17. Cash counting is also done during survey. It may be noted that excess cash found may represent undisclosed income of the assessee whereas short cash is often treated as cash withdrawls, expenses payment, and do not carry much tax implications from department perspective.
18. For Survey, the authority may ‘enter’ only during business hours. There is no no further limitation regarding the period for which he may remain in that premises. It may be continued even after the business hours. It may be noted that the continued presence of the authority in the premises and the continuance of the survey cannot be regarded as ‘illegal’ and the same is also held in N.K. Mohnot v. Dy. CIT [1995] 83 Taxman 238 (Mad.).
19. Section 133A empowers income-tax authority only to record any statement of any person which may be useful & does not empower for taking any sworn in statement -Paul Mathews & Sons v. CIT [2003] 129 Taxman 416 (Ker.).