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Survey Under Income Tax Act, 1961
By CA A. K. Jain

Survey has not been defined in the Income Tax Act. According to Concise Oxford Dictionary, The expression "survey" means general view, casting of eyes or mind over somethings, inspection or investigation of the condition, amount, etc. of something, account given of result of this etc.

According to Chambers 20th Century Dictionary, the meaning of the word 'survey' is to view comprehensively and extensively, to examine in detail, to examine the structure of a building, to obtain by measurements data for mapping, to perceive, collection of data, an organisation or body of men for that purpose.


In short the term 'survey' in context of the Income Tax Act means collection of data or information for the purposes of the Act.


Objects of Survey


Survey is an important weapon in the armoury of the Income Tax Department to call for information of various kinds as may be found necessary for making proper assessments. Survey is mainly conducted with the object of broadening the tax base by discovering new assessees, to gather information about possible tax evasions by assessees, spot checking of available cash and stock and to verify in a surprise and systematic manner, whether or not accounts are maintained properly and on day to day basis etc.


Types of Survey

Survey may be of three types -
  • Specific Survey under section 133A(1) - This is the survey of the business premises of a taxpayer.
  • Specific Survey under section 133A(1) - This is the survey of the business premises of a taxpayer.
  • Survey of Expenditure on Marriages, Parties etc. under section 133A(5) - In involves collecting information regarding the nature and scale of expenditure incurred by a person on functions, ceremonies and events such as Marriages, Birthday Parties etc.
  • Door to Door Survey under section 133B - The object of survey is to locate new assessees and thereby unearth black money. Persons who have been avoiding from coming into the tax net are brought into the mainstream, through a shop to shop or house to house survey.
Authorities competent to make survey

Authorities competent to make survey are Commissioner, Joint Commissioner, Director, Joint Director, Assistant Director, Deputy Director, Assessing Officer and Inspectors of Income Tax.


Powers of Income Tax Authority regarding survey

The Income Tax Authorities have been conferred the following powers under section 133A(3) -
  • To enter the place of business during business hours and in other places only after sunrise and before sunset.
  • 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 assessee states that his cash, stocks, records and books of account relating to business are lying there.
  • To place marks of identification on the books of accounts.
  • To take extracts from such books of accounts 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 accounts or other documents inspected by him after recording his reasons for doing so. It is further provided that such books of account or other documents shall not be retained for more than fifteen days without obtaining the approval of of the Chief Commissioner of Income Tax or Director General or Commissioner or Director therfor. [As per amendment made by Finance Act, 2002 w.e.f 1-6-2002]

Restrictions on Income Tax Authority impound
  • An Income Tax Authority can only enter a building or place where a business or profession is carried on.
  • An Income Tax Authority can only enter a building or place where a business or profession is carried on.
  • Survey at premises where business or profession is carried on shall normally commence during the business hours. It may however continue even after normal business hours. At any other place it shall commence after sunrise and before sunset.
  • The Income Tax Authority cannot impound or retain cash, stock or other valuable articles of the assessee.
  • Premises cannot be sealed during Survey [ Shyam Jwellers vs. Chief Commissioner Administration (1992) 196 ITR 243 (All).]
Rights of Person Present in the Premises
  • To verify the identity of the officials intending to carry out the survey.
  • If the survey is proposed to be carried out by an Inspector of Income Tax, to verify the authorization and to check that the name and address of the premises and the name of the inspector are correctly mentioned.
  • To ascertain that the officer who has authorised the survey has jurisdiction over the case or over the premises.
  • To consult and be defended by a legal practioner of his choice as per article 22(1) of the Constitution. The counsel may also b present during survey proceedings[Nandini Satpati vs. P.L. Dasi AIR 1978 SC 1025].
Duties of Person Present in the premises

He should provide the Income Tax Authority following facilities -
  • Facility to inspect books of accounts and documents.
  • Facility to inspect cash, stock and other valuable articles.
  • Facility to inspect books of accounts and documents.
  • 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. 
Timing of Survey

The fear in the mind of the assessees that survey can be conducted at any time does not appear in view of the clear provisions regarding timings of the survey in the Act. According to Section 133A (2) the survey at a premise, where business or profession is carried on, shall normally commence during the normal business hours decided it. A survey once commenced, may continue after the closure of normal business hours. The survey at any other place, where the books of accounts or cash, stock or other valuable articles etc. are kept, can commence between sunrise and sunset. However a survey once commenced may continue after sunset. N.K. Mohnot vs. Dy. CIT (1995) 128 CTR (Mad) 247




Premises which can be surveyed

According to Section 133A(1), clause (a)/(b)/(c), the power of survey extends only in respect of the place of business or profession. The ambit of the words "the place of business'', for the pupose of survey has been extended to any other place whether the business is carried on or not at such other place, provided it is reported that the books of account or other articles or things or other documents relating to the business of the assessee are kept there.

Clause (c) of sub section (1) of Section 133 A has been inserted by the Finance Act, 1995 with effect from 1-7-1995 under which an income tax authority is now empowered to enter into any place in repect of which he is authorised for the purposes of Section 133 A by such income tax authority, who is assigned the area within which such place at which a business or profession is carried on, whether such place be the principal place or not of such business or profession.

( i ) Survey at residential premises

Ordinarily, the power of survey does not confer a right to make the survey of a residential premises. In case, during the course of survey the income tax authority finds that certain books of accounts or documents or stocks are not available at his residence, the income tax authority will be entitled to enter the residence for the purpose of inspecting such books of account, documents or the stocks of the business. Similarly, if any discrepancy is found in cash and the assessee reports that the same is kept at the residence, there will be every justification for the authority to go to the residence and check the same. In view of this, the assessee should avoid the keeping of stocks at his residence or the cash balance of the of the business of the assessee at his residence so that it may not be required for him to state that these are kept at his residence . The department had issued it's Circular No. 70, dated 3-5-1967, according to which, the place where entry can be made under Section 133 A must not be a place where the assessee does not carry on business. Residential or Office premises of third parties including a Chartered Accountant, a pleader or income tax practioner of whom the assessee may be a client are not places which may be entered into for the purposes of Section 133A.


( ii ) Locked Business Premises

There is no provision in the Section 133 A empowering the surveying authority to break any door or lock the window to obtain ingress. Entry can be made only if the premises are open and that too during the hours specified for the purpose.


Consequences of Survey

If any unaccounted cash, stock or other valuable article or thing is found during the survey proceedings, the provisions of clause (c) of sub section (1) of Section 271 are attracted which states as below-

"If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of proceedings under this Act, is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty, in addition to tax, if any, payable by him, a sum of which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income."


When Survey is converted into Search

Proceedings under Section 133A, 133B and 132 are independent of each other. The object and scope of action under each of these actions is well defined. A survey can lead to search only when on the basis of the information collected in survey, conditions laid down in clause (a), (b), (c) of Section 132 (1) are satisfied. Similarly persistent failure on the part of the assessee to show cooperation with the Income Tax Authorities in the matter of survey may also result into income tax raid leading to search and seizure.


According to Vinod Goel, Advocate & Other vs. Union of India (2001) 23 DTC 471 (P&H HC) (2001) 252 ITR 29 (P&H), the survey ordered at the premises of the petitioners under section 133A and conversion of the said operation into search operation on the basis of the authorization given by the Additional Director in the list of Directors embodied in Section 132 cannot be declared illegal.

Consequences of non compliance / non cooperation

If an assessee who is being surveyed does not cooperate, either in respect of inspection or verification mentioned above in sub section (1) or does not supply or share information with the surveying officer and if the Officer feels that he is deliberately avoiding such an inspection or to answer the question which is material, it is likely that the survey officer may approach his superiors for authorizing a search under section 132. Income Tax Authority may also invoke powers under section 131(1) of the Act and levy penalty Rs. 10,000 for each default or failure under section 272A(1).


Surrender of Amounts during Survey



It is a common experience of the assessee whose premises are being surveyed under section 133A of the Income Tax Act, 1961, that irrespective of whether any apparent discrepancy in cash, stock or books of accounts is found or not, they are asked to make surrender towards concealed income. They do so referring to Sec. 132(4) and Explanation 3 to Section 271(1)(c) assuring him that if he so surrenders he will not be subjected to penalty, etc. But such is not the correct position of law. The immunity granted under Explanation 5 to Section 271 (1) (c) is only for surrender of assets found under Section 132 and not under Section 133A.

The proper course for the assessee under such circumstances is to assure that he will reconcile the discrepancy noticed by the surveying authorities or he will return the amount representing the discrepancy as his income of the current year.

Important Case Laws and References
  • CIT v. Manorajyam (1995) 54 ITD 116 (Coch-Trib)
    It was observed that survey party is not empowered under Section 133 A, to draw inferences and conclusion to support its report in addition to collection of the required information.
  • Sugan Chand Vinod Kumar v. CIT (1989) 175 ITR 273(Raj)
    It was held that where no reasons for impounding the books were recorded under section 131 (3), the impounding would be in contravention of the legal provisions and therefore not justified.
  • Sri Venkateswar Tourist (P) Ltd. v. Assisstant Director of IT (Investigation) (1999) 7DTC 436 (Cal-HC); (1999) 238 ITR 572 (Cal)
    It was observed that the seizure of the documents during the survey was illegal as there was no evidence of non-cooperation by the assessee, therefore, the assessee was entitled to the return of the documents so seized.
  • Dr. Vijay Pahwa v. Dy. CIT (1996) 84 Taxman 416(Cal)
    The Calcutta High Court imposed a personal penalty on the leader of the survey party for arbitrary exercise of power under section 133 A. As summons under Section 131 (1) can be served only in the case of obstruction by the person concerned or when some sort of hinderance is put up by him but in the instant case there was no pending aadjudication where the summoning power can be used at all. Further, it can be said that the assessee's books were seized, without any apparent authority. The assessing Officer and authorities do not have any power to interrupt the ordinary peacefull citizens of the country in any manner they like by utilizing the large powers given to them without keeping themselves strictly in the four corners of those large powers.
  • Rajkumar Jain v. Asstt. CIT (1994) 50 ITD 1(All-Trib)
    Survey at the time of functions and ceremonies - The concerned authority on the basis of the
    information gathered or the statement recorded by him may make addition under section 69C for unexplained expenditure. However in view of the above case,the onus of proving the incurring the above expenditure lies on the assessing officer aand no addition can be sustained when made on estimated basis only. The wordings of sub section (5) empower the authority to verify the expenditure of an assessee, therefore it can be inferred that this sub-section does not apply to those who are not assessees.
Important Circulars
  • Circular No. 7-D (LXIII-7), dt. 3-5-1967
    Business and / or residential premises of third parties or residential premises of assessee cannot be entered inot for conducting surveys.
  • Circular No. 179, dt. 30-9-1975
    Inspector of Income Tax can exercise powers of survey only with the permission of Income Tax Officer.

Tapuriah Jain & Associates
Chartered Accountants
21,. Skipper House, 9, Pusa Road, New Delhi - 110 005
Tele : 91-11-28754012 & 13, Mobile : 91-98-100-46108,
 E-Mail : caindia@hotmail.com




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Financial Liberalisation with Reference to Value Added Tax (VAT)
By CA A. K. Jain

1. Introduction

Value Added Tax is emerging as an effective tool of taxation in the hands of Governments internationally. In fact more than 100 countries around the world have accepted this as a way of taxation on commercial activities. Our neighboring countries like Bangladesh, Bhutan, Nepal and Pakistan have already recognized VAT. Developed countries including Australia, United States, USSR, UK have already introduced VAT successfully.


2. Indian Scenario


In Indian context of indirect tax system, the Central Government has the legislative powers to impose excise duties (CENVAT) on production and the states are empowered to levy sales tax on consumption. In addition, states are also authorized to levy tax on goods and services in the form of entry tax, entertainment tax etc.

With the acceptance of VAT by the central and state governments, India would have a system of dual VAT; a CENVAT levied by the Union and a state VAT by the states. Successful implementation programme of VAT will replace sales tax at state level and excise and central sales tax at central level.


3. VAT & Its Necessity


VAT is a multi-point tax system but without the effect of double taxation. Tax is chargeable at rate prescribed at each point of sale. In Valued Added Taxation system, the tax is calculated at different points of production and distribution of a commodity. It is collected in installment on the basis of value added at each point of production and distribution. Since an input is taxed only once VAT avoids the cascading effect, which is the chief demirt of a generalized system of taxation i.e. excise and sales tax.


There are several objectives associated with VAT, foremost being its revenue raising quality, due to inclusion of items such as wages, interest, profits etc. in its base. It shall also bring in more discipline in the indirect tax regime. It is also imperative that VAT will take care of the demerits of the existing system.


4. Calculation of Tax


For the calculation of tax payable on a service or commodity under this system, it is necessary to measure value added at each stage of manufacture and distribution. Three methods are generally prevalent to determine the differential values at each stage.


A. Addition Method: This method is based on the identification of value-added, which is arrived by summation of all the elements of value (i.e. wages, profits, rent and interest).

B. Subtraction method: The subtraction method estimates value-added by means of difference between outputs and inputs.

C. Indirect Subtraction Method: The indirect subtraction method entails deduction of tax on inputs from tax on sales for each tax period. This method is also known as tax credit method or invoice method. In practice, most countries use this method and employ net-consumption VAT. Tax Credit Method to avail VAT has been accepted by the Committee of the State Finance Ministers. Under this method, credit is allowed for tax paid on all the purchases and inputs made and adjusted to extent permissible against tax charged on sales.


5. Merits of VAT


Application of VAT is expected to reduce harassments and corrupt practices. Since, it is expected that the provisions of VAT will reduce multiple taxation it will make our domestic industry more competitive at international level. This will also help better tax compliance and increase in net revenue collections. Even the lower rate of taxation is expected to bring higher revenue due to large base. The transparency in the system of collection will further help the government and the industry in their day to day working. 


6. Problems During Switch Over


In the initial years of change to this system the states have the fear that their revenues are likely to suffer due to lower rates, probably this is the main reason for their reluctance to accept VAT. Now its being agreed by the central government that it will compensate the states for the revenue loss suffered on account of implementations of VAT. However, it is quite likely that some of the economically weaker states offering Sales Tax based incentives to attract investment may suffer by implementation of VAT as exemptions will be withdrawn. While the manufactures appear to be happy with this change but, how far VAT Regime gets endorsement from the trader community is a question mark. Some of their apprehensions are genuine and ought to be addressed. It is essential that uniformity in rates in the schedules / classification of commodities / nomenclatures on all India basis is introduced. Disparity shall encourage cross border smuggling of goods between neighboring States. Piecemeal implementation of VAT i.e. in some States first and in others later will not render full benefits of VAT. The target should be to cover the whole country so as to include credit for inter-state purchases and tax on services.


7. Special Additional Tax


Some states have proposed to make good the loss of revenue due to implementation of VAT by creating Special Additional Tax on certain selected items. Such provision shall permit the States to exercise discretion to include any particular item under SAT, which shall give rise to non-transparency. Moreover rates of such items in various states shall not be uniform. Therefore, it shall defeat broader principle of uniformity of rates in Sales Tax.


8. Necessity of Computerisation


For the smooth and successful adoption it is utmost important that all governments revenue records and business accounts are effectively and efficiently computerized. Government will also implement a scheme of PAN No. for every business.


9. DELHI VALUE ADDED TAX


9.1 Similarities to the Present System

Presently, Delhi is levying Last Point Sales Tax or Retail Sales Tax on many items, and as per economics, it is nothing but another form of Value Added Tax. Under the present system, an Inter-State Seller or Exporter is allowed to purchase his inventory, without payment of tax, against ST-1 or ST-35 Form. In VAT system, he has to purchase after paying local tax, but this tax paid on purchases is fully set off from his Central Sales Tax Liability. In case his CST liability is less than the local tax already paid, the net can be adjusted against his other VAT liability or can be claimed as Refund.

Similar is the case of Manufacturers - rather that purchasing without payment of tax against ST-1 / ST-35 Form, Local Tax is levied on purchases, and an equal amount is allowed to be set off against the Sales Tax liability on finished goods.

Therefore, changeover to VAT system is change in local sales tax collection procedure only. From the point of view of the seller, present arrangement of "not subjecting certain transaction to tax (like RD sale, sale of raw material to manufacturer, sale to inter-State seller etc.)" will change to "Subject all transactions to tax, but refund / adjust the tax so levied to the purchasing dealer". In other words, from the point of view of the purchase, he will not be able to "purchase tax free against forms", but an "purchase tax paid and take set-off." Although, it does not make any difference to the tax-payer, but the beauty of this system is that since all local sales are subject to tax, there are non Local Statutory Forms.


In the present system, many traders dealing in goods that are distributed from Delhi are facing problem of double taxation because of withdrawal of footnote facility. VAT solves their problem too. The entire local sales tax levied on the purchases of an Inter-State Exporter is allowed to be set off against the Central liability. Hence, no double taxation. In VAT, like in present system, no Local Sales Tax/VAT is levied on Inter-State Sales or Exports. Similarly, in case of inter-State purchase or imports, not set off is given because no local tax has been paid on such transactions. Manufactures of exempted goods are presently not allowed to purchase their raw materials against forms. Similar would be the case under VAT. They will not be allowed to take tax credit for goods purchased for use in manufacture of exempted commodities.

9.2 Differences as compared to the present system
In VAT system, all local sales will attract VAT liability. There would be no difference whether one is selling to another dealer or to the consumer. The same tax, equal to the rate of tax applied on the sale price, is to be charged. In present system, whatever tax charged is to be paid to be department, however, in VAT system, from this tax charged from the customer, he deducts the tax already paid on the purchase, and pays the rest to the Department. Present system does not allow Capital Goods, such as machinery, to be purchased against local forms. However, in VAT system, tax paid even on machinery is allowed to be set off.

9.3 Book Keeping, Forms & Returns
The present system requires the dealers to maintain account of Sales and Purchases. Calculation of VAT also requires maintenance of such accounts and nothing more. There are no local statutory forms under VAT. However the central statutory forms will remain as it is. There would be a single - page return form, common for Local & Central Acts. The return would be required to be filed quarterly, as is being done today. It is proposed that following documents will be required to be filed with return:

A. Proof of payment (C portion of challans),
B. Dealer wise statement of Central RD sales, against C/D/F/H Forms.
C. Dealer wise statement of purchases during the quarter, for which tax credit has been availed.
D. Pre-utilisation account of C/E/F/H Forms with the last quarter return.


10. Conclusion


Effective management of VAT will do away with multiple levies like Entry Tax, Turnover Tax, Additional Sales Tax, Surcharge, CESS, Octroi etc. There is no place for any other kind of taxation. One window tax reduces the collection cost to the States with easy compliance by taxpayers. In view of the anticipated advantages over a period of time all states and Union Territories including special category states have in principle agreed to shift to VAT from April 1, 2003. However, some of the states are still attempting to push forward the deadline as this will allow all states to effect the transition to VAT at the same time. This will also provide some more time to the central government to amend central sales tax act, bring legislative changes for implementation, taxation of services at state level and settlement of procedure for compensation to states on account of losses in revenue collection due to implementation of VAT. The delay would also give the states more time to put administrative arrangement into place and training employees for the new system.


Clearly, there is a need to popularise the scheme of VAT through persuasion, allaying the genuine fears of all the parties. New regime will be theoretically superior to the existing regime known to all. If effectively implemented, it will ensure greater transparency. It will also have the great merit of being simpler to monitor. Even from the revenue angle, it should increase the revenue in the hands of the State Governments. However, it is feared that in the first few years of VAT, the State Governments might face shortfall in revenue.


Tapuriah Jain & Associates
Chartered Accountants
21,. Skipper House, 9, Pusa Road, New Delhi - 110 005
Tele : 91-11-28754012 & 13, Mobile : 91-98-100-46108,
 E-Mail : caindia@hotmail.com





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This blog is Created by CA Anil Kumar Jain.