How to Face Survey Proceedings as per Section 133A of Income Tax Act, 1961- Your Rights and Duties

An Income Tax Survey is a legal procedure under Section 133A of the Income Tax Act, 1961, where tax authorities visit your business premises to gather information or verify the books of accounts to ensure compliance with tax laws.

Objective of an Income Tax Survey–

The primary objectives of conducting an income tax survey include:

• Verifying the accuracy of records maintained by the taxpayer.
• Detecting undisclosed income, investments, or expenses.
• Collecting evidence for further investigation.
• Ensuring compliance with tax laws.

Category of survey–

The survey actions under the Income-tax Act, 1961 are carried outunder Section 133A of the Act. The Income-tax authorities are authorized to visit places of business or charitable activity to make such on-the-spot verification and enquiries, as may be required. Survey actions are also carried out for the specific purpose of recovery of taxes, verifying TDS and TCS compliances, making enquiries about ostentatious expenditure on occasions such as marriages, festivals, other events etc. Thus, surveys can broadly be categorized as:

• Survey u/s 133A(1)–Survey for verification, survey for recovery of tax, survey on charitable trusts, survey by I & CI wing
• Survey u/s 133A (2A)–Survey for TDS/TCS compliances
• Survey u/s 133A (5)–Survey for verification of ostentatious expenditure

Survey u/s 133A (1)

is carried out in the case of an assessee in the business premises or premises from which profession is carried on or an activity for charitable purpose is carried on. This provision empowers the Income-tax Authorities to inspect books of account and other documents, verify cash and stock, impound books of account and other documents under certain conditions, take statements and collect such information as may be required for any proceedings under the Act. This provision is also used to verify undervaluation or suppression of closing stock, suppression of sales, inflation of purchases and other expenses. Further, it is used to obtain information of latest income or debtors and other assets to enforce recovery of unpaid taxes. While carrying out survey action for verification of various issues, any violation of TDS/TCS provisions is also looked into for suitable action.

Survey u/s 133A(2A)

is carried out in respect of a deductor/collector in the business premises or premises from where profession is carried out as well as offices including government offices for verifying whether proper tax has been deducted or collected in respect of payments such as salaries, interest payments, payments made to contractors as well as other payments, which are subject to TDS/TCS as per the Act.

Section 133A(5)

empowers the prescribed Income-tax authorities to collect information and evidence regarding the expenditure incurred by a person in connection with functions, ceremonies and events like marriages, birthdays, anniversaries, etc. with the objective to verify whether tax has been correctly paid on the money spent in such occasions at the time when such income was taxable.

The Income-tax Authorities conducting survey are entitled to do the following acts-

• To enter the place of business during business hours and in other places only after sunrise and before sunset.
• To enter the place, other than business premises, if the person conducting such business states that his cash, stock, records and books of account relating to business are lying there.
• To place marks of identification on the books of account.
• To take extracts from such books of account and documents or records.
• To make an inventory of any cash, stocks and other valuables checked by him
• To record the statement of any person.
• To collect information regarding nature and scale of expenditure incurred in connection with personal functions and events like birthday, marriages etc.
• To impound or retain in his custody books of account or other documents inspected by him after recording his reasons for doing so.
• To focus on gathering of evidence.
• To take copy of digital evidence using forensic software/ write block.
• To follow the Standard Operating Procedure presented by the CBDT vide F. No. 286/55/2015-IT (Inv. II)

The Income-tax Authorities conducting survey should refrain from doing the following acts:

• Not to remove or seize cash, stock-in-trade and other valuable article or thing etc. found during the course of the survey.
• Not to harass and resort to coercion and related tactics.
• Not to exert pressure on the assessee to declare and surrender.
• Not to give any inducement or promise to assessee for making a disclosure of income
• Not to collect post dated cheque for tax applicable to amount of declaration.
• Not to act in a manner which are against the provisions of law or travel beyond his jurisdiction.
• Not to interrupt incoming telephone calls or not to deny usage of telephone etc.
• Not to physically search person or the persons present at the place of survey and not to stop ingress or exit of any person inside the place at the time of survey.
• Do not prohibit persons from taking meals, rest and medical facility whenever required.
• Not to break lock of any cupboard or room.
• Do not seal the business premises.
• Do not stop the business or the normal activities.
• Not to administer oath for recording statement u/s 133A of I.T. Act

The Rights and Duties of the Assessee being Surveyed are as Under

• Rights During a Survey under Section 133A

  1. Right to Verify the Authorization
     • The Income Tax officer must carry a valid authorization letter issued by a senior officer (Joint Director or above).
     • You have the right to verify the identity of the officer and the authorization letter.
  2. Right to Privacy
     • The survey is limited to business premises and professional offices. Officers cannot enter residential premises unless they are used for business purposes.
  3. Right to Legal Representation
     • You have the right to consult a tax professional or lawyer during the survey. However, the lawyer cannot interfere with the proceedings.
  4. Right to Refuse Unlawful Demands
     • You are not obligated to provide information or documents beyond the scope of Section 133A. For example, you cannot be forced to sign any statement or document under pressure.
  5. Right to a Copy of the Survey Report
     • You are entitled to a copy of any statement recorded or inventory prepared during the survey.
  6. Right to Confidentiality
     • Information collected during the survey must be kept confidential and used only for tax assessment purposes.

  Duties During a Survey under Section 133A

  1. Duty to Cooperate
     • You are required to provide reasonable assistance to the Income Tax officers, such as allowing access to books of accounts, documents, and assets.
  2. Duty to Provide Information
     • You must provide information or documents relevant to the survey, such as:
       • Books of accounts.
       • Financial statements.
       • Details of assets and liabilities.
       • Other records related to your business or profession.
  3. Duty to Allow Inspection
     • You must allow the officers to inspect the premises, books, and documents. However, they cannot seize any assets unless explicitly authorized.
  4. Duty to Maintain Records
     • Ensure that all records are maintained accurately and are readily available for inspection.
  5. Duty to Be Truthful
     • Provide accurate and truthful information. Misrepresentation or concealment of facts can lead to penalties or prosecution.

Duties of Person Present in the Premises–

The assessee should provide the Income-tax Authority following facilities:

• Facility to inspect books of account and documents including those on digital devices, facility to inspect cash, stock and other valuable articles. It is the duty of the assessee to permit the officers and the authorised persons to allow them to do their job so that there arises no occasion to breaking lock of any cupboard or room.
• To furnish such information as may be required in any other matter, which may be useful in proceedings of the Income-tax Act.
• Offer clarifications that may be necessary.

Relevant Case Laws-

MADRAS HIGH COURT in case of CIT v. S. Khader Khan Son [2007] 110 which was affirmed by the Hon`ble Supreme Court as CIT v. S. Khader Khan Son [2012] 134 TAXLOK.COM (IT) 152 (SC) held that the Department should not insist on making any disclosure and further such disclosure made in the course of survey should not be relied upon and the assessment should be based on the papers found and impounded during the course of survey.

INCOME TAX APPELLATE TRIBUNAL- ALLAHABAD  in case of GIRDHAR GOPAL RASTOGI  V/s COMMISSIONER OF INCOME-TAX  [2022] 192 held that section 131 cannot be linked with the powers to carry out the survey under Section 133A of the Act and hence, the books of account impounded by the Assessing Officer under section 131(3) cannot be regarded as impounding of the books of account in the proceedings under Section 133A of the Act. Once there is no impounding of the books of account during the survey under section 133(A) of the Ac and the returned income of the assessee for the year under consideration is not less than the returned income of the immediate preceding year then the case would not fall in the category of compulsory scrutiny.

GUJARAT HIGH COURT in case of Commissioner of Income Tax V/s Shardaben K. Modi [2013] 137, held that, considering the evidentiary value of the statement recorded under Section 133(A) use of such statement cannot be permitted without any corroborative evidence and the Tribunal having found that except the version of the assessee’s son recorded under Section 133(A) which too was retracted later on, there was nothing to base the entire proceedings of reopening.

TELANGANA HIGH COURT in case of SRI PAVAN KUMAR AGARWAL V/s DEPUTY COMMISSIONER OF INCOME TAX [2023] 196, quashed the ITAT’s decision, restoring the CIT(A)’s deletions, and clarified that unexplained investments must be supported by substantive evidence.