Survey not a short cut assessment proceedings. ITAT explains intricacies of survey
In a recent judgment, ITAT Chandigarh has held that survey is not a short cut assessment proceedings or summary assessment, explained intricacies of survey u/s 133A of the Act.
ABCAUS Case Law Citation:
4230 (2024) (08) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the addition made by the Assessing Officer (AO) on account of difference in amount surrendered during the survey u/s 133A of the Income Tax Act, 1961 (the Act) and the amount actually offered in return for taxation.
A survey operation under section 133A of the Act was carried out at the business premises of the assessee. During the course of survey operation certain looses documents were found at the business premises.
The assessee in a surrender letter admitted that certain income was to be booked over and above, already captured in the books of accounts. An amount of Rs. 45.00 lakhs was voluntarily surrendered by way of additional tax liability, by the assessee on account of discrepancies found.
Later, the assessee filed the return of income for the relevant Assessment Year and the same was processed under section 143(1). Subsequently the case was selected for scrutiny. It was observed that despite the surrender was made voluntarily, the did declare the surrendered income in the income tax return for the relevant Assessment Year
The assessee was asked to provide the details of surrendered income and to explain as to why no declaration had been made on account of the surrendered income. The assessee replied that noting incriminating was found during the survey. It was submitted that the assesses had given the surrender letter stating that while scrutinizing certain loose documents some income needed to be booked which was not shown in the books of accounts. Hence additional liability of tax arising out of the income on the bases of loose documents was to be included. However, while scrutinizing the documents no tax liability arose out of those documents. Hence normal tax has been deposited on the returned income.
In a further reply, the assessee submitted the a comparative chart of income and expenses for the relevant Assessment Year with preceding year and stated that sales had grown at a rate which was less than the growth rate of expenses. It was stated that at the time of survey, the assessee was having a small profit in the books, but we in returned income the assessee had declared Rs. 3300000/- as additional income.
The AO observed that during the course of survey operation, a number of incriminating documents were found which were impounded. The contents of these documents were confronted to the assessee during the course of survey operation while recording the statement of the Directors of the company. The statement clearly revealed that the assessee was explicitly asked about certain incriminating documents. The assessee was also informed regarding the difference of stock found during the survey. Further, the fact that there was a difference in cash was also confronted to the assessee. However, the assessee could not offer any plausible explanation for the above referred discrepancies found. In these circumstances, the assessee voluntarily offered to surrender an additional income on account of the discrepancies found.
The AO placed reliance on the judgment of the ITAT Pune Bench and jurisdictional High Court judgment wherein statement under section 132(4) and under section 133A have been placed at an equal footing.
The AO also placed reliance on the judgment of the Hon’ble Supreme Court wherein it was held that evidentiary admissions are not conclusive proof of the facts admitted and may be explained or shown to be wrong, but they do raise an estoppel and shift the burden of proof on to the person making them. The Supreme Court further held that unless shown or explained to be wrong, they are an efficacious proof of the facts admitted.
Accordingly, the AO made the impugned addition of the amount surrendered during the survey minus amount stated to be declared by the assessee. The AO also made addition u/s 40A(3) for payments made in cash
Before the Tribunal the assessee submitted that during the course of the survey, the assessee panicked as there was an element of surprise in the survey. The assessee thought that documents including loose documents perhaps could lead to more income to be accounted for and consequently they would be required to be pay more advance tax or tax. Hence they worked out a tax liability of Rs. 45 lacs and thought it prudent to pay the same and accordingly gave post dated cheques. At that stage computation of income was done on basis of approximation and a definite income was not determined.
The assessee submitted that the Department of Income Tax had taken surrender letter as if assessee had signed an confession or admission or has given a confession or an admission that income had escaped assessment and taxes are not paid. The letter of surrender cannot be used as a sole basis to compute the income and determine tax liability based thereon. In order to compute an income first of all there should be an income from the business, then that income must be duly reflected in the books of account; corresponding to income; there are expenses incurred and expenditure made and then after a detailed exercise final figure on basis which tax must be paid is arrived at.
The Tribunal held that surrender letter by itself cannot be made sole basis of the assessment adversial to the assessee even assuming it that it was a voluntary and not made under force, coercion threats, undue influence etc.
The Tribunal held that both the lower authorities gave undue importance to the letter of surrender and in the process had ignored other vital issues of material found in course of survey. Both statements which are on record and its cumulative analysis were missing. Only one statement of was discussed as if other statement does not exist at all. By virtue of Section 134 of the Act power is conferred upon the Income Tax Authorities to inspect registers of companies. In addition, they have other powers too which a Civil Court has. These powers though conferred had not been exercised either post survey or during the course of the assessment under section 143.
The Tribunal further observed that the loose paper’s which were impounded during the course of survey alongwith other documents basis which addition is made or surrender was made does not find even a mention of it in the core assessment proceedings. There was no analysis of income vis a vis difference between income surrendered and offered or of any other income which would be revealed after going through the impounded papers both by the Department and the assessee.
Tribunal being final fact finding authority is not an original fact finding authority.
The Tribunal opined that since in depth analysis of impounded documents including loose papers coupled with statement of both the Directors were not done in a manner known to law the real income the determination of which is essential on merits apart for the surrender letter and statement would always remain in realm of hypothesis. Needless to state, income for purpose assessment cannot be determined on assumption, and presumption. Assessment besides being quasi judicial in nature is also an empirical exercise. Further Tribunal being final fact finding authority is not an original fact finding authority.
During Survey, tax authorities and assessee both wants matter to subside as early as possible without understanding true picture of books of account.
The Tribunal observed that during the course of survey under section 133A of the Act, the tax authorities are mainly concerned in unearthing unaccounted assets specially in the form of cash, stock, receivables and other discrepancies or otherwise. And whenever tax authorities come across such unaccounted assets, the assessee comes under pressure to surrender income on account of discrepancies. Tax authorities as well as assessee both wants the matter to subside as early as possible without understanding the true picture of books of account. This sometimes results in assessee surrendering a higher income in panic and sometimes even though the surrendered income is correct but head under which it has been surrendered is not correct. In both such situations consequential effects may be very dangerous.
The burden lies on assessee to establish that surrender made during survey was wrong
The Tribunal further observed that many a time a question arises that the statement recorded at the time of survey has no evidentiary value. This is a wrong conception. This is a settle position of law that the statement obtained under section 133A would not automatically bind upon the assessee. However, an admission is extremely an important piece of evidence but it cannot be said that it is conclusive; and it is open to the person who made the admission to show that it is incorrect. The burden lies on the assessee to establish that the admission made in the statement at the time of survey was wrong and that there was no additional income.
Income tax authorities under section 133A have no jurisdiction to ask for a surrender of income.
The Tribunal further observed that the statement recorded under section 133A(3)(iii) during the survey proceedings many a times inter alia contains admission of surrender of income. Income tax authorities under section 133A have no jurisdiction to ask for a surrender of income in the statement. The relevance of disclosure or surrender of income during the survey proceedings has not been given place in the Income Tax Act. No where under the Income Tax Act this issue has been touched upon.
The Tribunal further stated that that statement recorded at the time of survey has a locus standi and by virtue of power conferred on Income Tax Authority by virtue of Section 133A(3) (iii) they have power. The statement is relevant but it has no characteristic as statement u/s 132(4). Where asessee retracts from disclosure made during the survey he / she will be under obligation to establish contrary which had not happened in this case expressly. The burden lies on the assessee to establish that the admission made in the statement at the time of survey was wrong and that there was no additional income.
There are statements which may be useful to assessee to set up his /her defence.
The Tribunal further observed that Department should not expect that each and every statement would be inculpatory in nature as there are statements which at times are expulcatory in nature too, and may be useful to assessee to set up his /her defence. Similar is the situation with regard to the nature of documents including lose papers. It is preposterous to assume & presume all the impounded material are in allowed the appeal in favour of the assessee of the Department as at times inspection of documents / impounded material helps the assessee to setup a defence or update his /her accounts as per law which often gets hinderances due to search / survey, operation.
Statement u/s 133A on oath do not have attributes of Section 132(4) but are relevant
The Tribunal opined that statement of director though u/s 133A was on oath but nevertheless it was not having attributes of Section 132(4) but is relevant and can be taken into consideration in the Remand proceedings along with surrender letter and other material issues which are deeply embedded in “Impounded Material”.
Law to rebut the presumption as section 292C is applicable to survey proceedings
The Tribunal held that assessee is mandated by law to rebut the presumption as section 292C is applicable to survey proceedings / powers of survey too under section 133A and therefore if on basis of material found during the course of survey are not relatable to balance income, it should be pointed out by the assessee expressly and upon complete failure the CIT(A) can adjudge and adjudicate the “remainder income” on basis of surrender letter, material and lose papers, stock register, books, diaries entries etc. found on day of survey. However, before that principles of natural justice be strictly adhered to.
There is nothing known as survey assessment in law
The Tribunal observed that Chapter XIII Section 133A deals with power of survey and that there is nothing known as survey assessment in law. The survey material; statements, alongwith computation of income are all required together for an assessment under section 143(3). For that purpose and meaning a proper assessment on cumulative basis is required in law and not mere material found in survey, surrender letter etc. Survey is not a short cut assessment proceedings or summary assessment. Due process and rigours are required on part of both the parties i.e; Department and Assessee. Survey is a unique provision as it simply gives power of survey to Income Tax Authorities.
The Tribunal set aside the impugned order and remitted the matter back to the file of CIT(A) to adjudge and adjudicate appeal on merits. It was directed that the survey impounded material be disclosed to assessee for such purposes as deem fit & proper and further also to set up a defence that only the Returned income arose in the financial year and not the surrendered income, consequently ROI is justified.
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