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When the Taxmen Knock Your Door… (II) [Know about Income Tax Survey]
In the last issue of the TAX talk, we have discussed about the powers of taxmen to surprisingly knock the door of taxpayers through Income Tax Raid or Survey. Let us know more about income tax survey, powers of the authorities, what can be done during income tax survey, duties & rights of the taxpayers & normal precautions to be taken by the taxpayers which can help them during the survey proceeding:
- Power to conduct Survey:
Income Tax Officer & higher officials are only authoised to carry out the income tax survey, that too by taking the required approval of the prescribed higher authorities. Lower officials of the department Authorities cannot be the authorised officer. Presently, the power of survey is centralized at the investigation wing of the department. TDS authorities are also empowered to conduct a survey, however, the scope of their survey must confine to matters relevant to TDS only. Even survey can be carried out after celebration like marriages, birthday parties, anniversaries, etc. for collection of information regarding nature and scale of expenditure – Section 133A(5)]
- Where survey can be done?
Generally, surveys are conducted only at the place where a person carries on its business or profession. It is not necessary that such a place ought to be the principal place of business. Survey proceedings cannot be extended to the residential/other premises unless such taxpayers categorically mentions about the availability of books of account, documents, valuable article/thing etc. of his business/profession at such premises. Now, even survey can be done on charitable organizations.
- Whether Accountant, CA & Advocate of taxpayers can also be covered?
Survey can also be conducted at the premises of a taxpayer’s CA/Advocate if taxpayers states that his books of account, documents, valuable articles/things etc. related to business/profession are with them.
- When Survey can be done?
Income Tax Survey can be carried out at business working hours i.e. during the hours at which the place of business/profession is open for the conduct of business/profession.
- What can be done by Income Tax Authorities during survey?:
Authorities are empowered with following powers during income tax survey:
a) To place marks of identification on the books of accounts.
- b) To take extracts from such books of accounts and documents or records.
- c) To make an inventory of any cash, stocks and other valuables checked by him.
- d) To record the statement of any person.
- e) To collect information regarding nature and scale of expenditure incurred in connection with personal functions and events like birthdays, marriages etc.
- f) To impound or retain in his custody books of accounts or other documents inspected by him after recording his reasons for doing so. It is specifically provided that such books of account or other documents as impounded shall not be retained for more than 15 days (exclusive of holidays) without obtaining the approval of the CCIT or DGIT or CIT/DIT.
- What cannot be done by Authorities during survey?:
- a)The authorities do not have power to interrupt the ordinary business or peaceful life of citizens.
- b)Enter into the premises can be made only if the premises are open and there is no power to break open any door or lock or windows to enter the premises.
- c)Business places cannot be sealed during the course of a survey.
- d)The authorities conducting the survey do not have the right to conduct physical searches of any person.
- Duties of the Taxpayers:
a) To ensure that necessary facility is provided to the income tax authorities so that they can carry out the their function of
b) To assist in the inspection of books of account/other documents verification of cash/stock/valuable article or thing,
c) To provide any other information that is deemed to be necessary or relevant.
It may be noted that if the officer feels that the assessee refuses or evades co-operating during the survey, it is likely that the survey officer may approach his superiors for authorizing a Search.
- Whether Taxpayers can seek the help of the CA/ Advocate/ Counsel?
Law is silent as it neither entitles an assessee to insist on the presence of an Authorised Representative nor prohibits the presence of the counsel. As a routine practice, taxpayers may request the authorities for calling the counsel and if permitted may call to assist in proper conduct of the survey.
- Recording of statement:
a) Income Tax survey is concluded by recording the statement of such persons as may be useful for or relevant to any proceeding under the Act. The statement cannot be recorded on oath unless the person refuses to cooperate.
b) Though the statement is not recorded on oath & has no evidentiary value, materials collected can be used for making additions.
- Can they break open closets?
Income Tax authorities don’t have the power to break open the closets during survey
- Whether cash and jewellery can be impounded?
During income tax survey, income-tax authorities don’t have the power to remove or cause to be removed any cash, stock or other valuable article or thing.
- Whether computers or hard disks or pen drives can be taken?
Now, the word “document”, includes an electronic record which means that the power to impound documents includes power to impound the data stored in computers. In short, the data stored on pen drives as well as hard disks can be taken for the purpose of inquiry.
- Can taxpayer claim that the documents found during the Survey belong to someone else?
There is a presumption that, all the books of account, other documents, money, bullion, jewellery or other valuable article or thing found in the possession or control of any person in the course of a survey, it belongs to such assessee unless proved otherwise.
- Whether a penalty applicable if the amount is surrendered during income tax survey?
This is the most common question which is asked after an income tax survey. It may be noted that there is normally no immunity from penalty if undisclosed income is surrendered in the course of survey.
Survey & Precautions by the taxpayers:
- Ensure that the books of accounts are updated regularly.
- Ensure that the cash balance matches with the cash book.
- All the vouchers/records are properly documented. Irrelevant data / records should not be there physically or in computers.
- Stock registers should be maintained properly wherever possible. If the stock register cannot be maintained, ensure that stock in hand should be explainable with alternative mechanisms whatsoever.
- The person in charge should have proper acquaintances with the business affairs and books of accounts.
[Readers may forward their feedback & queries at firstname.lastname@example.org. Other articles & response to queries are available at www.theTAXtalk.com]