I-T officials can't make a forced entry

TAXING MATTERS

An important provision in the Income Tax Act, 1961, which enables the income-tax department to know about errant taxpayers and check whether existing taxpayers are discharging their tax obligations correctly, relate to surveys.

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.

The term 'survey' in the context of the Income Tax Act means collection of data or information for the purpose of the law. Broadly, there are two ways in which surveys can be conducted, namely internally and externally.

Internal surveys are carried under Section 133 of the Act by collecting information from various sources and agencies like the government departments, banks, financial institutions and autonomous bodies like universities.

The information collected in this way is collated and disseminated. External surveys are made for gathering information on spot or otherwise by exercise of powers under Sections 133A and 133B of the Act. By Section 133A(1), an income-tax authority is empowered to enter:

• any place within the limits of the area assigned to him, or
• any place occupied by any person in respect of whom he exercises jurisdiction, or
• any place in respect of which he is authorised for the purpose of this section by such income-tax official, who is assigned the area within which such place is situated or who exercises jurisdiction in respect of any person occupying such place, at which a business or profession is carried on, whether such place be the main place or not of such business or profession, and 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 of such business or profession to assist in survey operations.

An income-tax official can enter any place of business or profession referred to in sub-section (1) only during the hours at which such place is open for business or profession and, in the case of any other place, only after sunrise and before sunset.

Under Section 133B, an income-tax official has the power to collect information by entering any business premises, if necessary, which may be useful or relevant for the purposes of the law. Collection of information under Section 133B is confined to the details prescribed in Form No 45D.

In the context of surveys, both the income-tax department and the assessees have been conferred certain rights. These are:

I-T department's rights

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 account or papers or stocks are not available at the place of business and the assessee states that these are 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.

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

Residential or office premises of third parties, including a chartered accountant or income-tax practitioner of whom the assessee may be a client are not places, which may be entered into for the purpose of Section 133A.

The income-tax official is empowered to impound and retain in his custody books of account or other papers inspected by him during survey, after recording his reasons for doing so. The books can be retained for 10 days (excluding holidays) with the approval of the chief commissioner.

Cash, stock or other valuable articles or things cannot be impounded.

According to Section 133(A)(5), income-tax officials may collect information or evidence about ostentatious expenditure incurred immediately after any ceremony, function or event to be used at the time of assessment.

Sealing of premises during or after survey is not allowed.

The assessees surveyed cannot be compelled to make surrender of income.

During the survey business premises, books of accounts can be inspected, stock, cash and other valuable articles can be verified but no tax can be recovered.

An I-T official can put identification marks on the books of account or other papers inspected by him and may or caused to be made extracts or copies of the books of account or other papers.

Taxpayers' rights

A taxpayer has a right to continue with his business when survey is on.

The taxpayer has a right to seek assistance of tax consultant or legal adviser during the course of survey, as there is no prohibition in this regard in law.

The person, being surveyed, cannot be prevented in making telephone calls or receiving incoming calls.

A taxpayer has a right to take action against unauthorised powers exercised by the survey party. In the case of Hans Raj Chhabra vs Mukesh Mittal, Assistant Commissioner of Income Tax (1994) 77 Taxman 273 (Delhi), the survey team had not permitted even two customers to leave the shop and also disconnected the telephone.

The signatures of the assessee had also been taken on some documents forcibly by the survey team. On filing the case against, the action f survey team, the court observed that the case was prima facie a case under Sections 342, 427, 384 (extortion), 465 (false documentation), 471 read with section 120B of the Code of Criminal Procedure, 1908, and the officer concerned was ordered to face the trial.

The power of survey available under the Income Tax Act is a potent means for finding out new assessees an77d checking tax evasion. Regretfully, it is not being used for these purposes in a planned way.