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Introduction
The basic purpose of conducting survey u/s 133A is to visit the
place of business by the Income Tax Authority to ascertain
the correct state of affairs on the spot. The objective of the Tax
Authorities is to ensure that an assessee pays tax on his correct
income. The advantage to the Income Tax Authority while conducting
survey is that by a surprise action they can find out what is the
real state of affairs and from the books of account, records and other
documents determine the correct income of the assessee.
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Recording of
statement
Under survey proceedings the Income Tax Authority can inspect,
check and scrutinize the books of account, documents, records, cash
and stock available at the business place or at any other place. Under
section 133A the Income Tax Authority does not have power to conduct
personal search of the persons who are present in the place of business.
These powers are given u/s 132 of the Income-tax Act, 1961. Both u/s
132 as well as u/s 133A the Income Tax Authority does not have power
of arrest or power of detention. In order to achieve objective of
finding of correct income the only weapon which Income Tax Authority
has is to record a statement of the persons who are present at the
place of business or other place where survey is conducted. Through
the process of recording the statement and by asking questions on
the various transactions undertaken by the assessee the Income Tax
Authority can find out what is the true state of affairs. The power
to record statement is provided u/s 133A (3)(iii) of the Income-tax
Act, 1961. An Income Tax Authority recording the statement and asking
questions over and over to find the truth cannot be faulted at any
point of time because it is the only weapon the Income Tax Authority
has to find out the truth.
The statement u/s 133A(3)(iii) is
not a statement on oath as compared to recording the statement u/s
132(4) during search which is a statement on oath. This is a very
important distinction between a statement recorded during survey and
the statement recorded during search.
The assessee has to be very careful
while giving replies to the questions raised while recording the statement
by the Income Tax Authority. The replies given during recording of
the statement are binding on the assessee and can be used against
him in assessment / reassessment proceedings unless he proves that
the statement is recorded under coercion or threat and what is recorded
in the statement is not the truth which he has stated while recording
the statement. Once a statement is recorded and is signed unconditionally
then the burden will be on the assessee to prove at the time of assessment
or reassessment that what is recorded is not correct. He will have
to establish with evidence or circumstantial facts to prove that what
is stated in the statement is not true. In the absence of any such
attempt whatever is recorded in the statement will be considered as
the true state of affairs stated by the assessee while recording the
statement. The assessee, if in doubt must not confirm or admit certain
state of affairs and must clearly say that he is not in a position
to give reply to the questions raised before him.
Generally it is the practice that
the signature of a witness is also taken at the time of recording
the statement. The witness can play a very important role as he will
be a witness to all the proceedings. The witness is supposed to be
present throughout the proceedings and if witness signs the statement
he confirms that the statement is given voluntarily by the assessee
and there was no force or coercion on behalf of the Income Tax Authority.
If the witness finds that what is recorded in the statement is not
correct or what is stated by the assessee is not correctly recorded
then he can object to the same while signing as witness. The witness
thus plays a very important role and could be a very important evidence
in the event of dispute between the assessee and Tax Authorities.
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Declaration
and penalty
During the survey proceedings generally it is found that the assessee
discloses unaccounted income which is not reflected in the books of
account for the current financial year corresponding to the relevant
assessment year. There is no added advantage to the assessee if he
makes a disclosure of income in the survey proceedings for the current
financial year as the current financial year is yet to end and the
due date of filing of the return is yet to expire. Assuming that during
the course of search certain unaccounted income is detected for the
current financial year then also there could not be an issue of penalty
u/s 271(1)(c) of the Income-tax Act, 1961. Section 271(1)(c) provides
that when the assessee has concealed the particulars of his income
or has furnished incorrect particulars of such income then he will
be liable to pay penalty. The basic and the first condition before
invoking the penalty provisions is that the assessee must have filed
the return of income and thereafter certain material or information
has come into the possession of the Assessing Officer which could
lead to concealment of income or furnishing of incorrect particulars
of such income. The Bombay High Court in the case of Rohitkumar
and Co. and Others vs, F. J. Bahadur, CIT and Others reported in 190
ITR page 93 has held that penalty u/s 271(1)(c) can be levied
only when return of income is first filed. During the survey if unaccounted
income has been detected then in the absence of filing the return
for the current year there cannot be any question of levy of penalty
u/s 271(1)(c). The assessee can record the income in the books of
account as the accounting year has not ended and include it in the
return of income. Explanation 5 to section 271(1)(c) can only be invoked
when an action is taken u/s 132 of Income-tax Act, 1961. Explanation
5 to section 271(1)(c) has no applicability for survey proceedings.
If during the course of survey certain
documents, information or material is found which could prove that
in respect of assessment years for which return of income has been
filed then based on such material if concealed income is determined
then the issue of penalty u/s 271(1)(c) will arise for those respective
years. Even in this situation an assessee makes a declaration of income
during the survey proceedings does not give him an additional advantage
or benefit in penalty proceedings. On the contrary if the concealed
income is admitted during survey proceedings then the assessee is
bound by the quantum of the income disclosed as well as his own admission
will act adversely in penalty proceedings. Generally it is found that
in survey proceedings the Income Tax Authority gives blanket assurances
stating that no penalty will be levied or initiated against the assessee
if he admits the disclosure of income. However, under the Law no such
provisions exists which gives a right to the Income Tax Authority
conducting survey u/s 133A to give assurance of exemption from the
penalty proceedings. The assessee in no circumstances should admit
the concealment of income.
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Shortage in
stock/cash
During survey on physical verification of stock or cash sometimes
it is observed that the physical stock or cash is less than what is
recorded in the books of account. The Income Tax Authority generally
pressurises the assessee to make disclosure of income equal to the
shortage of the stock or cash. The principles of accounting as well
as the theory of real income cannot support a proposition that the
total shortage is the income of the assessee. The purchases and the
cash on hand being duly reflected in the books of account and the
difference between the physical stock and the book stock and the difference
between physical cash and book cash could by stretch of no imagination
be considered as undisclosed income of the assessee. As regards shortage
of stock the Department can argue that the sales are not duly reflected
in the books of account whose corresponding purchases are duly reflected
and there could be an issue of estimating the gross profit. However
as regards cash is concerned even the gross profit issue cannot arise.
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Retraction
of statement
After the survey, if the assessee realizes that the statement
which was recorded does not reflect the true state of affairs then
he has a right to retract. However this right has to be exercised
judiciously and expeditiously. The assessee also has to bring out
the circumstances and the situations under which statement is recorded
and must be in a position to prove the fact that what he has stated
is not correct state of affairs. A statement recorded has an evidential
value but is subject to following three basic principles.
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An admission is not conclusive
as to the truth of the matter stated therein. It is only a piece
of evidence the weight to be attached to which must depend upon
the circumstances under which it is made.
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A confessional statement made
in ignorance of legal right cannot be admitted as evidence.
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In Law it is always open to the
Court to convict an accused on his confessional statement itself
even though he has retracted it at a later stage. Nevertheless
the Court usually requires some corroboration to the confessional
statement before convicting the accused.
An assessee must therefore be very
careful if he wants to retract the statement which is given at the
time of survey. The second most important thing to be kept in mind
is that the statement should be retracted at the earliest opportunity
because as the time lapses it may be construed as after thought. Depending
upon the facts of each case and the circumstances under which statement
is recorded the retraction should be made. In the case of Baldev Krishan
Kapoor vs. ACIT. 68 ITD 37 (Chd.) (TM) and A.C.I.T. vs. Sushiladevi
S. Agarwal 50 ITD 524 (Ahd) it was held that on facts the retraction
was accepted. As against this in the case of I.T.O. vs. B.D. Dal and
Oil Industries 40 ITD 180 (JP) and Param Anand Builders (P) Ltd. vs.
I.T.O. 59 ITD 29 (Mum) on facts the retraction was not accepted.
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Prosecution
As regards prosecution is concerned there are no specific provisions
in the Income-tax Act, 1961 which could invoke the provisions for
initiation of prosecution against the assessee as far as survey proceedings
are concerned. Chapter XXII of the Income-tax Act, 1961 deals with
offences and prosecution and there is no direct section which deals
with prosecution in survey proceedings. Section 275B deals with failure
to comply with the provisions of section 132(1)(iib). It does not
deal with section 133A. Similarly section 277 deals with making of
statement in verification under the Act or under the Rules which is
false. The statement made under survey cannot be treated as or equated
to statement in any verification. However if during survey any document,
account or statement if produced which is false and which the assessee
knew or believes to be false or did not believe to be true then possibly
the provisions of section 277 could be invoked.
