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HOW TO HANDLE SURVEY (under Income Tax Act) CA. Mukund Bakshi

HOW TO HANDLE SURVEY (under Income Tax Act) CA. Mukund Bakshi. PURPOSE. • Gathering information in relation to an Assessee in relation to any past, present or future proceedings and ensure – Availability of information which an Assessee may be concealing,

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HOW TO HANDLE SURVEY (under Income Tax Act) CA. Mukund Bakshi

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  1. HOW TO HANDLE SURVEY (under Income Tax Act)CA. Mukund Bakshi

  2. PURPOSE • Gathering information in relation to an Assessee in relation to any past, present or future proceedings and ensure – • Availability of information which an Assessee may be concealing, • Completeness of records / transactions to seek an idea of the discrepancy, if any in business • Not to seek any confession and collect taxes > Board’s Instruction No.286/2/2003-IT(Inv-II) dated 10.03.2003 • Conduct of survey would not mean that Assessee is guilty of non-disclosure of income. > MayankRotoplastIndustries 253 ITR 442 (Guj.)

  3. • Unlike searches, where ‘reason to believe’ of one of the conditions under Section 132(1)(a) to (c) is must, no such restriction is placed on conduct of surveys. It can be undertaken at the discretion of the Department if it is in need of information. • Person surveyed need not be a tax payer and pendency of any proceeding is also not necessary. CIRCUMSTANCES

  4. TYPES OF SURVEY • Survey under Section 133A(1) • Survey under Section 133A(2A) – Verification of provisions relating to TDS • Survey under Section 133A(5) – Ceremony • Survey under Section 133B – Door to Door • Survey under Section 133A by Transfer Pricing Officer – 92CA(7) • Survey for the purpose of recovery of Arrear Taxes

  5. AUTHORIZED / AUTHORIZING OFFICERS • Income Tax Authorities competent to authorize: - Principal CIT/DIT to Joint CIT/DIT - Authority of CIT(A)? • Authorized Officers: - Dy. CIT / DIT to Assessing Officer, TRO and Inspector • Authority of Inspector is limited to inspection of books, place marks of identification on books inspected, make extracts or copies.

  6. AUTHORIZED / AUTHORIZING OFFICERS (contd…..) • Material gathered in illegal survey – Consequences - Can be used against the Assessee > PooranMal Vs. DIT (Inv.) & Ors. 93 ITR 505 (SC) > CIT Vs. Kamal and Company 308 ITR 129 (Raj.)

  7. JURISDICTION OF SURVEY • Place within the limits of the area assigned (Territorial) • Place occupied by any person in respect of whom he exercises jurisdiction (Assessee-wise) • Any place in respect of which he is authorised by such authority having territorial or assessee-wise jurisdiction (Authorized Jurisdiction) • Any other place where the Assessee states the maintenance of accounts / documents, cash, stock, other valuables/articles relating to business.

  8. JURISDICTION OF SURVEY (Contd…) • Office of C.A’s / Professionals • Precondition of statement by Assessee of records / documents being maintained at C.A’s office is must.

  9. TIMINGS OF SURVEY • Any time during business hours and may continue after office hours. • Other places – only after sunrise till sunset.

  10. POWERS OF SURVEY PARTY • To inspect books of accounts / documents and place marks of identification. • Verify cash, stocks or valuables found and prepare inventory thereof. (no authority to remove or cause to be removed). • Record statement (not on oath). Can be recorded on oath if the Assessee does not co-operate. • Impound and retain books of accounts.

  11. POWERS OF SURVEY PARTY (Contd…) • Survey Party cannot prevent the Assessee from making phone calls unless it is found that the phone call is intended to tamper evidence. • From going to office/shop/attend routine. • TDS Survey, no authority to impound books and prepare inventory of cash, stock etc. • Attendance of Counsel. Constitutional rights under Article 22(1) to consult and be defended by a legal practitioner. Sec. 288 of I.T. Act provides for attendance by Counsel where an ‘A’ is required to attend (otherwise than u/s. 131)

  12. POWERS OF SURVEY PARTY (Contd…) Remedies against illegal survey - FIR (trespassing) - Complaint to higher authorities - Writs

  13. FAILURE TO CO-OPERATE • Survey party gets the powers under Section 131(1) a) discovery and inspection, b) enforcing attendance and examination on oath, c) compelling production of books and other documents d) issuing commission.

  14. FAILURE TO CO-OPERATE (Contd…) • If Assessee co-operates, powers u/s.131(1) cannot be exercised. Dr. Vijay Pahwa Vs. Samir Mukhopadhyay, DCIT 250 ITR 354 (Cal.)

  15. ISSUES DURING SURVEY/POST-SURVEY ASSESSMENT • Incomplete books of accounts • Discrepancy in Cash • Discrepancy in Stock: - where inventory records and books of accounts are maintained - where inventory records are not maintained but books of accounts maintained – G.P. basis

  16. ISSUES DURING SURVEY/POST-SURVEY ASSESSMENT (Contd...) - where no books of accounts maintained (returns filed u/s. 44AD / AF etc.) > ITO Vs. Devisingh 99 TTJ 890 (Jp). • Excess stock – Unexplained investment • Stock found short – sale out of books only. Profit from such sale could be brought to tax > President Industries, 258 ITR 654 (Guj) > Samir Synthetics Mill 326 ITR 410 (Guj)

  17. ISSUES DURING SURVEY/POST-SURVEY ASSESSMENT (Contd...) Incriminating Material • Dumb Documents • Unaccounted Turnover/ Receipts/On-Money - Only profit from such turnover > Abhishek Corporation– I.T.R No. 15 of 2003 dated 7.11.2014 (Guj.) > Panna Corporation 74 DTR 89 (Guj.)

  18. ISSUES DURING SURVEY/POST-SURVEY ASSESSMENT (Contd...) • Extrapolation > CIT Vs. Amar Corporation in Tax Appeal No. 584/2012 (Guj) dated 21.01.2013 > JayabenRatilalSorathia – Tax Appeal No. 914/2012 dated 12.07.2013 > CIT Vs. H.M. Eusafali HM Abdulala 90 ITR 271 (SC)

  19. ISSUES DURING SURVEY/POST-SURVEY ASSESSMENT (Contd...) • Inflation of Expenses • Unaccounted Expenses (Sec. 69C) • Applicability of – - Section 40A(3) > Sharma Associates 55 ITD 171 (Pune) > Vijay Proteins Ltd. 58 taxmann.com 44 (Guj) > Hynoup Food & Oil Industries Pvt. Ltd. 290 ITR 702 (Guj.)

  20. ISSUES DURING SURVEY/POST-SURVEY ASSESSMENT (Contd...) • Explanation to Section 37(1) - Speed Money • Sec. 269SS (w.e.f. 01.06.2015) In respect of On-Money received / receivable in relation to transfer of an immovable property • Section 292C [Different than provisions u/s. 132(4A)]

  21. ISSUES DURING SURVEY/POST-SURVEY ASSESSMENT (Contd...) • Difference between Sec. 132(4A) / 292C Sec. 132(4A) presumption could be used only w.r.t. seizure u/s. 132(5), now deleted, and in prosecution proceedings. Not in assessment. Sec. 292C is far wider and these documents can be used in any proceedings under this Act

  22. ISSUES DURING SURVEY/POST-SURVEY ASSESSMENT (Contd...) May make the following presumption w.r.t.– a) material belongs to the person in whose possession it is found – ownership of document/material. b) contents are true. c) signature and every other part of such books of accounts / document which purport to be in the handwriting of any particular person or which may be reasonable be assumed to be signed by that person are so handwritten / signed by that person.

  23. ISSUES DURING SURVEY/POST-SURVEY ASSESSMENT (Contd...) c) in case of documents stamped, executed or attested by the person by whom they purport to have been executed, attested or stamped. > Pr. CIT Vs. Delco India Pvt. Ltd. - 67 taxmann.com 357 (Delhi) > Harish Textile Engineers Ltd. Vs. DCIT 379 ITR 160 (Bombay) > P.R. Metrani Vs. CIT 287 ITR 209 (SC) > Ushakant N. Patel Vs. CIT 282 ITR 553 (Guj.)

  24. STATEMENT RECORDED AT THE TIME OF SURVEY • Since the purpose of survey is for gathering information, no confessional statement should be insisted. > Board’s Instruction No.286/2/2003-IT(Inv-II) dated 10.03.2003 • The statement recorded in the course of survey is not on oath and cannot be taken as an evidence unlike u/s. 132(4) or Section 131. > S. Khader Khan Son (2012) 210 Taxman 248 (SC)

  25. STATEMENT RECORDED AT THE TIME OF SURVEY (Contd…) • Documentary evidences of collection of On-Money. Denial by Assessee - No addition could be made unless authorities bring corroborative evidence to prove receipt of On-Money > CIT Vs. Maulk Kumar K. Shah – 307 ITR 137 (Guj.) • Statement if corroborated by documentary evidences can be used as an evidence against the Assessee even if retracted. > SanjeevAgrawal Vs. ITSC 56 taxmann.com 214 (All.)

  26. STATEMENT RECORDED AT THE TIME OF SURVEY (Contd…) • Statement if retracted and there being no evidence of suppression of income, no addition could be made. > CIT Vs. M. P. Scrap Traders 372 ITR 507 (Guj.) • Statements at midnight cannot be considered voluntary, if retracted. No additions merely on the basis of statements. > KailashbenMaharlalChoksi 328 ITR 411 (Guj.) > ChandrakumarJethmalKochar 55 taxmann.com 292 (Guj.)

  27. STATEMENT RECORDED AT THE TIME OF SURVEY (Contd…) • Statement of disclosure during survey at Rs. 5.00 Crores. Amount offered in return at Rs. 3.00 Crores based on explanation of the contents of impounded material. No further addition, if such explanation not controverted. > CIT Alwar Vs. Ashok Kumar Jain 369 ITR 145 (Raj.) > CIT Vs. Jayendra N. Shah 367 ITR 686 (Guj.)

  28. NATURE / HEAD OF INCOME DISCLOSED • Whether such income is to be treated as Business Income, Income from Other Sources, Capital Gains etc. General Principles: No other activity other than business – AO had not questioned source - Excess stock and cash found to be held as Business income > J. K. Chokshi Vs. ACIT (Guj.) – Tax Appeal No. 149 of 2003 > Mhaskar General Hospital (Guj.) – Tax Appeal No. 1474 of 2009

  29. NATURE/HEAD OF INCOME DISCLOSED (Contd…) • Relevance of such identification • Allowability of expenses such as remuneration to partners > CIT Vs. S.K. Srigiri & Bros. 298 ITR 13 (Kar.) >Dy. CIT Vs. New Umiya Vijay Saw Mills – ITA No. 2447/Ahd/2012 dated 30.06.2014 (Ahd. Tri.) > Fashion World Vs. ACIT - ITA No. 1634/Ahd/2006 dated 12.02.2010 • Set off of Losses against other incomes / carry forward losses

  30. NATURE/HEAD OF INCOME DISCLOSED (Contd…) • Claim of deductions under Chapter VIA – 80IB > CIT Vs. Sheth Developers 25 taxmann.com 123 (Bom) > MadhavCorporation Vs. ACITI.T.A. No. 380/Ahd/2014 dtd. 28.07.2015 (Ahd.) • Claim of deduction u/s. 54/54B > ShriBhagwanbhaiRevabhaiPrajapati 60 taxmann.com 219 (Ahd.)

  31. PENALTY / PROSECUTION Where return filed u/s. 139 (belated return) including the income disclosed during survey: No penalty on acceptance by A.O. in assessment > Pr. CIT Vs. ValibhaiKhanbhai Mankad – Tax Appeal No. 445 of 2015 dated 07.09.2015 Prosecution for not affording necessary facility to inspect the books of accounts etc. Section 275B only refers to such failure in search proceedings.

  32. INCOME DECLARATION SCHEME 2016 • Sec. 196 of the Finance Act, 2016 – Chapter IX Prohibition of the Scheme to the previous year in which survey is carried out u/s. 133A and notice u/s. 143(2) for the assessment year relevant to such previous year has not been issued and the time for issuance of such notice has not expired.

  33. PRE SURVEY PRECAUTIONS • Not to keep Books of accounts at any place other than principal place of business • To the extent possible, not to share common premises. However, if there is common premises then the identification of area should be affixed at some common visible place .

  34. Pre Survey Precautions (contd. ..) • Computer hard disk do not contain any irrelevant data. • That Books of accounts are properly updated. • That person in-charge of business have proper acquaintance of business affairs. • That stock register are maintained and kept updated. • That if no stock registers are maintained then inventory verification list is prepared at regular dates. • That physical cash available and cash in books of account matches. .

  35. PRECAUTION WHILE MAKING ANY STATEMENT • The head under which such income should be disclosed. • The consequences of such income being taxed as current year’s income vis-à-vis spread over many years. • Whether the benefit of capitalisation would be available • Disclosure cover the discrepancies found during the survey and also those that may be unearthed at a later stage and consequences, if any, in the assessment of related persons.

  36. PRECAUTION WHILE MAKING ANY STATEMENT (contd…) • Whether any evidence is found during survey that could lead to an inference of concealment / suppression of income • Discrepancy between the stock found and the stock as per books, cash, impact of loose papers / documents found. • Applicability of other laws viz. Sales-tax and Excise duty along with provisions like disallowance u/s. 37, 40A(3), 269-SS, 269-T etc.

  37. THANKYOU

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