PRACTICAL ISSUES IN SEARCH & SURVEY

UNDER INCOME TAX ACT, 1961

…..
H. N. Motiwalla

I. Back drop
• Privacy is a valuable right of a civilized society.
• 1922 Act originally, did not contain any provision
• Second World War brought within its wake certain category of persons
known as ‘war-profiteers’
• So far the first time search & seizure provisions were introduced u/s. 37 of
1922 Act which received assets of President on April 27,1956.
• These provisions are constitutionally valid – Pooran Mal Vs. Director of
Inspection -93 ITR 505 (SC)]
• The in-built safe guards ensure that the privacy of the citizen is not impinged
upon and its consequences may be serious to a sensitive man the in-built
safeguards have to be satisfied before any order for any search and seizure
can be passed - Janak Raj Sharma Vs. DI(Inv) 215 ITR 234 (P & H).

II. The three specified situations:

• The Designated authority in consequence of information in his possession,
has reason to believe that one or more of these three conditions are satisfied
may authorize search:
a) Where the person has actually failed to produce books of account and
other document in response to
i) summons or notice issued u/s. 131(1) of the Act requiring the
production of specified books of account/other documents, or
ii) notice u/s. 142(1), requiring the production of books of account and
other documents
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b) any person to whom 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 this Act, or
c) any person:
i) is in possession of any money, bullion, jewellery or other valuable
article or thing; represents either wholly or partly income or
property,
ii) which has been or would not be disclosed for the purpose of Income
tax i.e. undisclosed income or property.

Poser 1:
Can search warrant be issued in a single name or can it be issued in joint names,
like ‘S.C. & Family’
- Madhupuri Corporation Vs. DDIT [2001 TLR 784 (Guj)]
- Ashok kumar Soni Vs. DDIT [72 TTJ (Jodh) 323]
In such case can assessment be in single name or joint names?
[CIT Vs. Vandana Varma - 186 Taxman 88 (All)]

Poser 2:
If yes, then, can search warrant issue in the name of company be taken to be a
warrant of search in the case of individual directors
- Narendra kumar Jain Vs. DCIT [119 Taxman 213 (Luck) (Mag)]

Poser 3:
Can Authorized Officer who is heading search party, act as Assessing Officer in
determining the tax liability of the assessee? Can the assessee in such
circumstances, challenge the assessment on the ground that it is bias and
therefore it should be quashed?
- UOI Vs. Vipin Kumar Jain [260 ITR 1 (SC)]
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IV. Meaning of Search & Seizure:

• ‘Search’ means a thorough inspection of the building, place, vehicle, vessel,
aircraft etc.
• ‘seizure’ means taking possession under the authority of law.
• ITO Vs. Seth Brothers [74 ITR 836 (SC)] – that the authority to search has to
be based on cogent information on the basis of which he has reason to believe
that undisclosed income can be detected.

• Dr. Nand Lal Tahiliani Vs. CIT [170 ITR 592 (All)].
“Privacy is a very valuable right of the civilized society and violation thereof
is not permissible except by authority of law. Therefore, the department
should not be slow, but slowest in acting upon the information given by an
informer. Before acting on information source of knowledge of an informer
should be fully tested and creditworthiness of the informer also be tested”.

Poser 4:
One suited – booted driver comes to the CIT’s office and informs the CIT that
in his car Rs. 6/- lacs cash is lying. What CIT should do?

• UOI Vs. Ajit Jain & Ors [260 ITR 80(SC)]: That a valid search can not be
initiated on the basis of a rumour. ‘Information’ is to be distinguished from
rumour or gossip. Rumour is something vague and unverified. Information is
something definite and verified.

V. Power in exercise of search

The authorized officer has the power to

i) to enter and search any building, place vessel, vehicle or aircraft, where he
has reason to suspect that such books of account, other documents, money,
jewellery, bullion or other valuable article or things are kept.
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ii) Break open the lock of any door, box, locker, safe, almirah or other
receptacle where keys are not available.

iii) Search any person who has suspected to have secreted any such books,
documents, money, bullion, jewellery, other valuable article or thing

iv) Afford him the necessary facility to inspect the books of account or other
documents maintained in the form of electronic record.

v) Seize any books of account, other documents, money, bullion, jewellery

or other valuable article or things found as a result of search. However if
the aforesaid items (excluding money books. documents) are stock-in-
trade of the business shall not be seized but only inventorised

vi) Place marks of identification on . any books or documents or copies

therefrom.

vii) Make a note or any inventory of such money bullion, jewellery or other
valuable article or things

viii) If any bullion, jewelry or other valuable article or thing, being not stock-
in-trade of business and it is not possible or practicable to take physical
possession of any valuable article or thing and remove it to a safe place
due to its volume weight or other physical characteristic or due to its
being of a dangerous nature, then, authorized officer may serve an order
for not removing or parting or otherwise dealing such order shall be
considered as deemed seizure. [Second proviso to S.132(1)].

ix) The authorized officer has the right to demand the services of any police
officer or any officer of the Cent. Govt.

x) The authorized officer is also empowered to pass an order prohibiting the

person in possession or control of any books, documents, money. Bullion,
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jewellery or other valuable article or things without prior permission, other

than deemed seizure mentioned above (S. 132(3)). The aforesaid order
is valid for 60 days from the date of the order (S. 132 (8A)).

Poser 5:
So, prohibitory order could be issued for business stock. Can such
prohibitory order be extended & thereby extending the time limit for
forming the assessment?
- CIT Vs. Sandhya P. Naik [253 ITR 534 (Bom)]

xi) He has power to examine on oath any person who is found to be in

possession or control of any books, documents, money, bullion, jewellery
or other valuable article or thing and record any statement made by such
person during such examination. That statement may be used in evidence
in any proceeding under the Act. [S. 132(4)]

VI. Evidentiary value of documents:

S. 132(4A) provides that any books, documents, money, bullion jewellery or other
valuable article or things found in the course of search, it is presumed:

a) that such books, documents, money, bullion, jewellery or other valuable

article or thing belong or belongs to such person;

b) that contents of such books/documents are true; and

c) that the signature and every other part of such books/documents are true and
that the signature and every other part of such books/documents which
purports to be in the handwriting of any particular person or which may
reasonable be assumed to be in the handwriting of any particularly person are
in that person’s handwriting.
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It is to be noted that the presumption is only with regard to the person from
whose possession and control the books/documents are found. This is rebuttable
presumption.

Poser 6:
A Diary was found in the premises of one of the actress. On diary neither name
of the actress was appearing nor was in her own writing. However, the pictures in
which she acted were appearing. In the said diary the cheque amount as well as
cash amount was appearing. The Assessing Officer estimated the cash received
and added the amount. The CIT(A) confirmed the addition. What arguments the
actress should take before the Tribunal?
- Straptex (India) Pvt. Ltd. Vs. DCIT [84 ITD 320 (Mum)]
- Prabhudayal S. Agrawal Vs. ITO [2003 SOT 390 (Mum)]

VII. Retention of books/documents

a) The books/documents shall not be retained by the authorized officer for a
period exceeding 30 days from the date of order of assessment u/s. 153A;
unless the reasons for retaining the same are recorded by him in writing and
the approval of the Chief Commissioner, Commissioner, Director General or
Director for such retention is obtained.

However, the Chief Commissioner, Commissioner Director General or

Director shall not authorize such retention for a period exceeding 30 days after
all the proceedings under the Act are completed.

b) The person from whose custody any books/documents are seized is entitle to
make copies thereof or take extracts therefrom in the presence of authorized
officer or any other person at such place and time as the authorized officer
may appoint on this behalf.
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c) If a person legally entitled to such books/documents seized objects for any

reason to the approval given by the Chief Commissioner etc. may make
application to the Board stating therein the reason for such objection and
requesting for the return of the books/documents and Board may pass such
order as it think fit after giving the applicant an opportunity of being head.

VIII. Handing over to the Assessing Officer:

If the authorized officer has no jurisdiction over the person, who has been
searched and any books/documents, money, bullion, jewellery or other valuable
article or thing are seized shall be handed over to the AO having jurisdiction over
such person, within 60 days from the date on which the last of the authorization
for search was executed i.e. on the conclusion of search as recorded in the last
panchnama drawn in relation to any person in whose case the warrant of
authorization has been issued.

Poser 7:

Can the Authorized Officer who has seized the documents etc. retention such
documents beyond the period of 60 days and moot a proposal under section
132(8)

for further retention of documents etc.?

- CIT Vs. K. V. Krishnaswamy Naidu & Co. [118 Taxman 889 (SC)]

Poser 8:

So if the seized documents etc not handed over to Assessing Officer within 60
days but handed over subsequently, can such documents be taken into account
by the Assessing Officer?

- Digvijay Chemicals Ltd. Vs. ACIT [248 ITR 381 (All.)]

- Sambhu Prashad Agarwal Vs. DCIT [254 ITR 660 (Cal)]

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IX. Rights of the person searched:

(i) To see the warrant of authorization duly signed and sealed by the
issuing authority.

(ii) To verify the identity of each member of the search party.

(iii) To make personal search of all members of the search party before the
start of the search and on conclusion of the search.

(iv) To insist on personal search of ladies being taken only by a lady, with
strict regard to decency.

(v) To have at least two respectable and independent residents of the

locality as witnesses.

(vi) A lady occupying an apartment being searched has a right to withdraw

before the search party enters, if according to custom, she does not
appear in public.

(vii) To call a medical practitioner in case of emergency.

(viii) To allow the children to go to school, after checking their bags.

(ix) To have the facility of having meals, etc., at the normal time.

(x) To inspect the seals placed on various receptacles, sealed in course of

search and subsequently at the time of reopening of the seals.

(xi) Every person who is examined under section 132(4) has a right to
ensure that the facts so stated by him have been recorded correctly.

(xii) To have a copy of the panchanama together with all the annexures.
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(xiii) To have a copy of any statement that is used against him by the
Department.

(xiv) To have inspection of the seized books of account, etc., or to take

extracts therefrom in the presence of any of the authorized officers or
any other person empowered by him.

(xv) To make an application objecting to the approval given by the

Commissioner of Income-tax for retention of books and documents
beyond 30 days from the date of the order of assessment under section
153A

(X) Duties of the person searched:

(i) To allow free and unhindered ingress into the premises.

(ii) To see the warrant of authorization and put signature on the same.

(iii) To identify all receptacles in which assets or books of account and

documents are kept and to hand over keys to such receptacles to the
authorized officer.

(iv) To identify' and explain the ownership of the assets, books of account
and documents found in the premises.

(v) To identify every individual in the premises and to explain their

relationship to the person being searched. He should not mislead by
personation. If he cheats by pretending to be some other person or
knowingly substitutes one person for another, it is an offence
punishable under section 416 of the Indian Penal Code.

(vi) Not to allow or encourage the entry of any unauthorized person into
the premises.
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(vii) Not to remove any article from its place without notice or knowledge
of the authorized officer. If he secrets or destroys any document with
the intention of preventing the same from being produced or used as
evidence before the Court or public servant, he shall be punishable
with imprisonment or fine or both, in accordance with section 204 of
the Indian Penal Code.

(viii) To answer all queries truthfully and to the best of his knowledge. He
should not allow any third party to either interfere or prompt while his
statement is being recorded by the authorized officer. In doing so, he
should keep in mind that—
(a)If he refuses to answer a question on a subject relevant to the
search operation, he shall be punishable with imprisonment or
fine or both, under section 179 of the Indian Penal Code.
(b)Being legally bound by an oath or affirmation to state the
truth, if he makes a false statement, he shall be punishable with
imprisonment or fine or both under section 181 of the Indian
Penal Code.
(c)Similarly, if he provides evidence which is false and which he
knows or believes to be false, he is liable to be punished under
section 191 of the Indian Penal Code.

(ix) To affix his signature on the recorded statement, inventories and the
panchanama.

(x) To ensure that peace is maintained throughout the duration of the

search, and to cooperate with the search party in all respects so that the
search action is concluded at the earliest and in a peaceful manner.
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(xi) Similar co-operation should be extended even after the search action is
over, so as to enable the authorized officer to complete necessary
follow-up investigations at the earliest.

(XI) Guidelines for seizure of jewellery and ornaments in course of search.

(i) In the case of a wealth-tax assessee, gold jewellery and ornaments
found in excess of the gross weight declared in the wealth-tax return
only need be seized.

(ii) In the case of a person not assessed to wealth-tax, gold jewellery and
ornaments to the extent of 500 gms. per married lady, 250 gms. per
unmarried lady and 100 gms. per male member of the family, need not
be seized.

(iii) The authorized officer may, having regard to the status of the family
and the custom and practices of the community to which the family
belongs and other circumstances of the case, decide to exclude a larger
quantity of jewellery and ornaments from seizure. This should be
reported to the Director of Income-tax/Commissioner authorizing the
search at the time of furnishing the search report.

(iv) In all cases, a detailed inventory of the jewellery and ornaments found
must be prepared to be used for assessment purposes.

[Instruction No. 1916, dated 11th May, 1994: (1994) 120 Taxation (St.)
98].

Power to requisition of books of accounts (S. 132A)

Where the books of account and assets belonging to an assessee were in the
custody of a department other than the Income tax department, like police, CBI,
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Customs, Central Excise, FERA, Enforcement Directorate, etc. warrants of

authorization under section 132 itself were used to be issued to the concerned
departments during the early seventies, for handing over such books of account
or assets. In the case of CIT Vs. Tarsem Kumar [161 ITR 505], the Supreme
Court held that section 132 could not invoked in such cases, since in the context
in which the expression ‘seizure’ and ‘search’ were used in section 132, where
the location of the property was known to the department, it could not be said
that one Government department could ‘search’ any other Government
Department and seized documents, money, etc. The Supreme Court however
pointed out that the income-tax authorities could, in such cases, approach the
appropriate authorities for realizing any money or for recovery only books of
accounts or documents in accordance with law. To overcome the effect of this
decision, section 132A was inserted by the Taxation Law (Amendment) Act,
1975 with effect from 1-10-1975, so as to provide for ‘requisitioning’ books of
account documents and assets which were in the custody of other departments.

The language of section 132A is almost on the same pattern as the language of
section 132(1), with some modifications to suit the concept of ‘requisitioning’
rather than the concept of ‘search’ and ‘seizure’ . Nevertheless, the situation in
which the provision can be invoked and the basic conditions regarding possession
of ‘information’ and formation of ‘reasonable belief’ must be satisfied in this case
also, in the same manner in which these situations and conditions are relevant for
the purpose of initiating search and seizure operations under section 132(1) of the
Act.

Poser 9:
The Police Officer seized the cash. Thereafter, the Income tax Authorities
requisition the above cash under section 132A of the Act. Can the Police Officer
deliver the possession of the seized amount to the Income tax Authority without
obtaining an order from the Magistrate u/s. 457 of Code of Criminal Procedure?
- Amardeep Singh Vs. DIT [252 ITR 139 (P & H )]
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No confession or forced surrender of income at the time of search or survey

The Finance Minister had made a statement in the Parliament that no forced
surrender will be obtained at the time of search or survey. The CBDT has issued
circular dt March 10,2003 whereby it has been clarified that no confessional
statement for surrender of additional income will be forcibly obtained at the time
of search and survey. .

SURVEY

Additional Power
The words ‘notwithstanding” anything contained in any other provisions of this Act,
signify that the power of survey can be exercised in addition to any other power
contained in various provisions of the Act, e.g.
S.132 Power to search & seizure
S, 133 Power to call for information
S.133B Power to collect certain information
S.134 Power to inspect registers of companies
S.135 Power of DG, Director, CCIT,CIT and DCIT to make any enquiry under
the Act.
S. 142(1) Enquiry before assessment.
S. 143(2) Enquiry during the course of assessment proceedings etc.

Income tax authority:

• Explanation (a) to section 133A defines the Income tax authority who is competent
to exercise the powers of survey. As per amended section, the following
authorities can exercise powers of survey.
- A Commissioner
- A Joint Commissioner
- A Director
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- A Joint Director
- A Assistant Director
- A Deputy Director
- An Assessing Officer
- A Tax Recovery Officer
- An Inspector of Income tax

• Powers on the Inspector of income tax have been conferred only in respect of the
following matters:.
(i) Entry into business or professional premises and to inspect books of account
or other documents available at such place.
(ii) Placing 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.
(iii) Calling for statements of expenditure in respect of function, ceremony or
event, after the function, ceremony or event.

• The proviso to section 133A provides from June 1,2003 that the following
authorities cannot exercise powers of entry into business/professional premises
under section 133A(1) without obtaining the approval of the Joint Director or the
Joint Commissioner, as the case may be:
- An Assistant Director
- A Deputy Director
- An Assessing Officer
- A Tax Recovery Officer
- An Inspector of Income tax

Poser 10:

The points for consideration are:

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- Can Chief Commissioner and Director General be empowered to conduct a

survey? Or can they authorize their subordinate to conduct a survey?

- Is Joint Director or Joint Commissioner who authorize survey, fully

empowered under section 133A to remain present at spot of survey for
supervising and doing all that was necessary for the purpose of Act?
[N. K. Mohnat Vs. CIT [240 ITR 562(Mad)]

Jurisdictional Limit
• Under section 133A(1)(a) the Income tax authority can enter into a place which
falls within his territorial limits irrespective of whether the assessee to whom that
place belongs is assessed by him or not.

• Clause (b) of section covers a place which may fall outside his jurisdiction provided
its belongs to an assessee over whom he exercises jurisdiction specially assigned
under section 127 of the Act.

• Accordingly to clause(c ) of the section any income tax authority can be authorized
to conduct the survey and to enter any place for that purpose. The authorization
can be given by an income tax authority who has assigned the area within which
such place is situated or who has specially assigned the jurisdiction in respect of any
person. However, the newly inserted proviso, with effect from June 1,2003
provides, that no action shall be taken by an Assistant Director or a Deputy Director
or an Assessing Officer or Tax Recovery Officer or an Inspector of Income tax
without obtaining the approval of the Joint Director or the Joint Commissioner, as
the case may be.

• Therefore, any entry by an officer who has no jurisdiction or no authorization

would be invalid and would amount to a trespass.
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Place of business or profession:

• An Income tax authority can conduct the survey operation only at a place at which a
business or profession is carried on, though that place need not be the principal
place of business or profession.

• Explanation below sub-section (i) of section 133A provides that a place where
business or profession is carried on shall also include any other place, whether any
business or profession is carried on therein or not, in which the person carrying on
the business or profession states that any of his books of account or other
documents or any part of cash or stock or any other valuable article or thing related
to his business or profession are or is kept.

Poser 11:
So the point for consideration is:
Can the Income tax authority enter the office of a chartered accountant for the
purpose of inspecting the books of accounts of his client?.

Poser 12:
Further the question is, if some premises is put to use for business as well as
residential purposes, can an income tax authority, acting under section 133A be
entitled to enter such premises?

Poser 13:
Many a times, assessees are in habit of keeping jewellery or other valuable articles
or things i.e. personal effects at the business premises. So, would it be open to them
to claim that the income tax authority is not empowered to check or verify such
items so long as they are found at the place of business under survey?
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Duties of the proprietor and others

• Proprietor, employee or any other person attending to business is liable to co-operate
in proceedings under section 133A. During the course of survey, the income tax
authority may 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 business
or profession:
(a) 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;
(b) to afford him the necessary facilities to check or verify the cash, stock
or other valuable article or thing which may be found therein, and
(c) to furnish such information as he may require as to any matter which
may be useful, for or relevant to, any proceedings under this Act,

Hours of survey:
• For determining the time of survey, the premises stand divided into two categories
(i) The first category includes the place where the business is carried on. At
such a place, the survey can be conducted only during the normal hours
when such place is open for the conduct of business or profession.

Poser 14:
- If the shop/office is open for any reason on a Sunday/holiday, this
being not a normal business hours, can survey be conducted?

- If the shop/office is closed during business hours, can it be forced

opened or break open for conducting survey?

(ii) The second category includes the place which has been given an extended
meaning by the Explanation below sub section (1) of section 133A, which
includes a place where the books of account or cash or stock etc. are stated
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to have been kept. At such place, the survey can be conducted after sunrise
and before sunset.

It must be noted that the time factor applies to the ‘entry’ into the premises by the
income tax authority , and not for the ‘exit’ from the premises by the survey party on
completion of survey operations. Once a survey is commenced by adhering to the time
prescribed for entry, the operations can go on continuously round the clock. There is no
question of suspending the operations at the closing time followed by the businessman or
professional or on the onset of sunset, as the case may be, and then resuming the
operations the next day. In a well reasoned judgment, the Madras High Court held so in
the case of N. K. Mohnot Vs. Dy. CIT [215 ITR 275]. The High Court made the
following significant observations justifying the necessity for carrying out the survey
operations without interpretation:
“…….The object of conducting a survey is to secure information. The
section does not require prior notice of the survey being given to the
affected person, in order to prevent the possibility of relevant materials
whether it be accounts, documents, negotiable instruments or cash or
other valuables, being removed from the place at which the business or
profession is carried on. The section, therefore, advisedly 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 in such as to require the survey being continued even after the
business hours, the continued presence of the authority in that premises
and the continuance of the survey can not be regarded as ‘illegal’.

Poser No.15:
Mr. Husain is a proprietor of Chandani Night Club. The Club starts at 8.p.m. and
closes at 4 a.m. The survey party visits the club at midnight. However, no books
of account or documents were available. On enquiry Mr. Husain replied that his
books of account are lying in his brother’s Night Club, whose timing are also same.
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So what survey party should do? Because, they cannot enter in that club after
sunset and before sunrise that club is not open?

The alternative of survey party is to issue summons under section 131(1) of the Act
to Mr. Husain for producing books of account of Chandani Night Club. If Mr.
Husain does not comply with summons under section 131(1), then, he would have to
face the consequence of section 132 of the Act.

Powers of Income tax authority:

• Before we discuss the powers of the income tax authority under section 133A of
the Act, it is worthy to note the observations of the Calcutta High Court in Dr.
Vijay Pahwa Vs. DCIT [129 CTR 64]. The Court observed as under:

“The Income- tax officers and authorities do not have any power to interrupt
the ordinary peaceful citizens of the country in any manner they like by
utilizing by large powers given to them, without keeping themselves strictly
within the four corners of those large powers. Since the powers vested are
large, even a millimeter of departure therefrom must be immediately shorn
off by the impartial courts of law if this country is to continue to remain a
free one”.

• Under sub-section (3) of section 133A, the powers of the income tax authority are
(i) To place marks of identification on the books of account or other
documents

(ii) With effect from June 1,2002 to impound and retain in his custody for
such period as he think fit any books of account or other documents
inspected by him, subject to following conditions:

(a) The Income tax authority must record his reasons for impounding the
books of account or other documents
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(b) The Income tax authority can not retain in his custody any such books of
account for a period exceeding 10 days (exclusive of holidays) without
obtaining the approval of the Chief Commissioner or the Director General,
as the case may be.

(iii) To check or verify the cash, stock or other valuable article or thing
which may be found in the place. He can also make an inventory of
cash, stock or other valuable article or thing checked or verified by
him.

(iv) To record the statement of any person which may be useful for or
relevant to any proceedings under this Act.

- For this purpose, the term ‘proceedings’ has been defined in

Explanation (b) to section 133A as to mean:

(a) any proceedings under the Act in respect of any year which may
be pending on the date on which the powers under section 133A
are exercised, OR

(b) any proceedings under the Act which may have been completed
on or before the aforesaid date and will also include:

- all proceedings under the Act which may be commenced

after the aforesaid date in respect of any year.

- In Rameshwar Lal Mali Vs. CIT [256 ITR 36], the Rajasthan
High Court held that, it is well settled position of law that a
competent income tax authority can inspect the business
premises and record the statements under the provisions of
section 133A. Such an authority can not demand collection
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of tax on the alleged undisclosed income then and there.

Such an authority is required to send the statement of the
material collected to the Assessing Officer if he himself is
not the income tax authority carrying out the survey
operation. There is no provision for permitting cross
examination of the person, whose statement is recorded
during the survey.
Poser 16:
Now, can the Inspector of the Income-tax count the cash and take the stock at the
time of survey u/s. 133A of the Act

Poser 1 7:
Can statement recorded under section 133A(3) be used against the person whose
statement is recorded at time of assessment or any other proceedings?

The statement recorded under section 133A(3) is not on oath and the section
does not provide that any statement recorded under this section may be used as
evidence in any proceedings under this Act. [see Paul Methews & Sons Vs. CIT
(263 ITR 101 (Ker.)]

Poser 18:
The assessee’s statement was recorded during the survey u/s. 133A of the
Income-tax Act, 1961, of one B. During the course of its deposition, the assessee
declared Rs. 4/- lacs as his income and that the aforesaid income was with the
assessee in the form of cash. Can the general rule of evidence, that no person can
be forced to be a witness against himself be applicable?
- ACIT Vs. Satanaryan Agarwalla [255 ITR 69 (Kol – Tri)]

• Further, section 132(4A) provides that where any books of account, other
documents, money, bullion, jewellery or other valuable article or thing is found
in the possession or control of any person in the course of a search, it may be
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presumed that such books of account, other documents, money, bullion,

jewellery or other valuable article or thing belong or belongs to such persons and
that there contents are true and that such books of account and other documents,
which purport to be in the hand writing of any particular person or reasonable
assumed to be in the hand writing of that particular person. There is similar
presumption in the matter of signatures as well as attestation of documents. This
presumption in law is drawn against the person in whose possession or control,
the documents are found. Such presumption is not provided under section
133A(3) of the Act. Therefore, the following poser are to be considered:

Poser 19:
During the course of survey at the premises of an assessee’s office, a diary was
found from his personal drawer. The said diary is written in the handwriting of his
accountant. The assessee and his accountant during the course of survey
consistently claim that the said diary does not belong to the assessee. At the same
time they also fail to give the information of person to whom it belongs. What
could be the implication of the same?

Poser 20:
During the course of survey the assessee makes a disclosure of unaccounted
investment in the stock of Rs. 20 lacs. On the said disclosure the survey party stops
further verification and leaves. Therefore, except for the statement of the assessee
there is no material with the department to prove that there is unaccounted income or
investment of the assessee. In case if the assessee retracts from his statement, can
the department still make addition on the ground that the survey party relied upon
the statement of the assessee and therefore did not investigate further? Would the
case be different if the assessee had made a disclosure of income only without
stating that the same is invested in the stock etc.?
[Abdul Qayume Vs. CIT [184 ITR 404 (All)] and
[ACIT Vs. Satya Narayan Agarwalla [255 ITR 69 (Kol-Trib)]
 23

Poser 21:
There is a survey in the business premises of an assessee. The survey party worked
out the book stock on the basis of the GP Method (i.e. Opening Stock plus Purchases
minus [sales less GP at estimated rate]. On verification of the Physical stock they
found that there is excess of physical stock in the possession of the assessee. The
assessee during the survey admits that concealment of income to the extent of
excess of investment in the stocks over the above computed book stock and also
admits to disclose the said income of the year in which the survey takes place. He
further agrees to make the payment of taxes due thereon. However, later on he
realizes that the difference in the stock arose as the department had committed the
following errors in arriving at his stock by using the GP method:
i) The rate of GP has been taken to be a lower figure than the one which can be
proved from the records,.
ii) ii) Certain purchases for which the deliveries were received but since the bills
were not received had not been debited in the books of accounts as purchases
and therefore purchases were to that extent stated less during survey.
iii) Certain sales have been made but the parties had not yet been taken delivery
goods. Therefore these items were included in stock as well as sales;
iv) Certain materials were received either for job work or on sale or return basis
and therefore did not belong to the assessee;
v) The physical stock taken by the department was not correct’

What would be the implication of the above explanation in the following two
alternative situations? When the explanation is given immediately after the survey
say within about seven days or so. When the explanation is given only at the time
of assessment proceedings in reply to the show cause issued to the assessee.
Would the situation be different if the person had executed an Affidavit
immediately after the survey but not submitted the same to the assessing officer
and the same is produced during the course of assessment?
 24

Poser 22
A survey under section 133A was carried on February 28,2011 at the premises of
the firm. One of the partner agreed to disclose Rs. 25/- lacs as shortage in stock.
As on the date of survey the stock was Rs. 83/- lacs plus net purchases of March
2011 were (Rs. 62/- lacs minus closing stock of Rs. 22/- lacs of March) were Rs.
40/- lacs. So, the total stock should have been in the balance sheet as on March
31,2011 at Rs. 1.23 crores, but was shown as Rs. 1.48 crores i.e. including Rs. 25/--
lacs declared at the time of survey However, the Assessing Officer assessed the
closing stock at Rs. 1.73 crores on the ground that the assessee has not included
Rs. 25/- lacs declared at the time of survey and retracted from his own admission,
whether the action of the Assessing Officer is correct? While the assessee claims
that stock of Rs. 1.48 crores include Rs. 25/- lacs but not shown separately in
accounts.

Restriction on removal of items:

• Section 133A(4) imposes a total ban on the income tax authority acting under this
section, on removing or causing to be removed from the place surveyed, any
cash , stock or other valuable article or thing.

• Thus the role of income tax authority is strictly confined to checking or verifying
cash/stock/other valuable article or thing, and making an inventory of such thing,
if he deems it necessary.

• It is to be noted that the inspector of income tax has no authority to check or

verify the stock and the assessee has a right to take objection if inspector takes
the inventory.

• The prohibition contained in section 133A(4) is absolute and unqualified as per

CIT Vs. Mool Chand Salecha [256 ITR 730 (Raj)]
 25

• As per sub section (3) of section 133A, books of account or other documents
could be impounded for limited period. Now, as per Madras High Court, in N.K.
Mohnot Vs. DCIT [240 ITR 562], ‘promissory notes’ are not documents,
therefore, they cannot be impounded. So, promissory notes are valuable articles
or things. [see Noor Aohd. Rahimatulla Gillani Vs. CIT (1976) Tax LR 688
(Bom)]. Therefore, as per sub section (4) of section 133A they cannot be removed
from the place of survey, however, they can be inventorised.

Poser 23:
Whether loose papers and small chits can be treated as books of account or
documents?
- CIT Vs. S.M.S. Investment Corp. Ltd. [207 ITR 364 (Guj)]
- Ashwani Kumar Vs. ITO [39 ITD 183 (Del)]

Powers to collect information in respect of ostentatious expenditure

Section 133A(5) of the Act empowers an income tax authority to take action on the
following lines in cases where, having regard to the nature and scale of expenditure
incurred by an assessee in connection with any function, ceremony or event, such
authority is of the opinion that it is necessary and expedient to do so:

• The income tax authority can require the assessee by whom the expenditure has
been incurred, or any person who, in his opinion, is likely to possess information
regarding such expenditure, to furnish such information as he may require.

• The said information must relate to any matter which may be useful for, or
relevant to, any proceeding under the Act.

• The income tax authority may have the statements of the assessee or any other
person recorded.
 26

• Any statement so recorded may thereafter be used in evidence in any proceeding

under the Act.

One important aspect to be noted is that, action on the above lines is permissible to be
taken by the income tax authority only after the function ceremony or event is over, and
not during the course of such function, ceremony or event.

To cite a simple example, suppose the income tax authority comes to know of a lavish
marriage celebrated by an assessee over whom he has jurisdiction. The income tax
authority can, after the marriage is over, call for information from the assessee regarding
the expenditure incurred by him on various categories connected with the marriage, like
printing of invitation, decorations, catering etc. The income tax authority can
simultaneously call for information from the printer, shamiana contractor and the caterer
regarding payments received by them for services rendered by them. By comparision of
the two sets of figures, the income tax authority can decide whether the assessee has
understated the expenses, and to take necessary consequential action against the assessee
during assessment.

Poser 24:
Shri Akash Pal, DDI, visited the reception hosted by Shri Ramesh Jain to mark the
marriage of his son. He attended the function without invitation and recorded the
proceedings on a Video Recorder. At the function, he met the Decorators and and the
caterers and inquired about the expenditure involved. Next day he summoned Mr.
Ramesh Jain and asked him to declare as an unaccounted income an amount of Rs. 10
lakh. Whether the action of DDI is correct?

Other Issues:
Business premises cannot be sealed:
Section 133A does not permit the sealing of the business premises. In fact, there is no
other provision in the Act under which sealing of business premises is permitted.[see
Shyam Jewellers Vs. CCIT 196 ITR 243 (All)]
 27

Re-assessment on the basis of survey report:

If survey report was submitted after the original assessment was completed and on the
basis of survey report if the Assessing Officer finds that income has escaped the
assessment, the re-assessment based on the survey report is valid. [See Badri Prashad
Rameshwar Prashad Vs. CIT 219 ITR 441 (MP)]

Can survey be converted into a search:

In case the Income tax authority has come into the possession of information on the
basis of its survey action, an authorizing authority can form a belief that any one or
more of the three conditions as contained in clauses (a), (b) & (c) of sub section (1) of
section 132 are satisfied, and it may be possible to convert a survey into search
operation. The conditions are:

(a) That any person to whom the summons under section 37 of the Income- tax Act
1922 or under sub- section (1) of section 131 of the Income- tax Act, 1961 or
a notice under sub-section (4) of section 22 of the 1922 Act or under section
142(1) of the 1961 Act was issued to produce or cause to be produced any
books of account or other documents and that the assessee has omitted or
failed to do so.

(b) Any person to whom summons or notice as aforesaid has been issued will
not or would not produce or cause to be produced any books of account or
other documents.

(a) Any person is in possession of any money, bullion, jewellery or other valuable
article or thing and such assets represent either wholly or partly income or
profit which has not been or would not be disclosed.
 28

Disallowance of Cash payment:

Poser 25:
During the course of survey, the assessee declared an amount of Rs. 50 lakhs in
aggregate on account of following discrepancies

Excess stock Rs. 20.00 lakhs

Cash found short Rs. 5.00 lakhs
Unaccounted purchases Rs. 10,00 lakhs
Unaccounted sales Rs. 10.00 lakhs
Unaccounted expenditure RS. 5.00 lakhs

Whether in such case a question of disallowance in respect of cash payment under

section 40A(3) would arise?

The Patna Tribunal (Third Member) in Sunil Grain Agency Vs. ITO [64 ITD 165] has
observed that:
“ Keeping before the eyes the fact that by making disallowance under
section 40A(3) what is sought to be attempted is bring it to the tax net, the
amount which is not otherwise chargeable and, therefore, the provisions
are required to be construed strictly

In view of the above, cash payment made by the assessee to the parties
could not be disallowed under section 40A(3)”

Further the Pune Tribunal in Rajmal Lakhichand Vs. ACIT [79 ITD 84] has
held that “ the provision of section 40A(3) are to be invoked when department
has evidence with itself that the assessee has made payments in cash exceed
prescribed limits and disallowance is impermissible mainly on a presumption
that assessee must have made payments and that too, exceeding prescribed limits”.

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