Such surveys are generally found to yield very good results. The following types of irregularities often come to notice:
1. Loose papers found during the survey may reveal that some sales and purchases are not being recorded in the books of account.
2. Physical stock inventory may indicate discrepancies in maintenance of the stock register, and sales and purchases being kept outside the books of account. Valuation of stock will further help in quantifying the value of discrepancies.
3. Stock received without bills may come to notice, making it evident that it is unaccounted.
4. Stock statement furnished to the bank for obtaining credit may be found to be different from the stock statement submitted to the department. This may be a lead for further investigation.
5. Discrepancy in cash may show unrecorded generation or utilization of cash. It may be on account of sales and purchases not recorded in the books of account or on account of unrecorded receipts and outgoings.
6. On the spot verification may reveal that certain deductions and exemptions have been claimed even though the requisite conditions are not being satisfied. For example, depreciation may be claimed on an asset but during the survey it is revealed that such an asset is not available for physical inspection because it was never acquired by the concern.
7. Some other concerns are also claimed to be operating from the same premises but, in reality, they have no separate existence. They may not have separate stock or separate suppliers or even separate employees. These concerns may have been created only to distribute the income and thereby reduce tax liability.
8. Conducting of some illegal business like betting or gambling from the same premises may also be reveai1ed.
It may not be possible for the survey team to draw final conclusions on the spot as the documents would need to be properly scrutinized and the assessee would need to be given an adequate opportunity to explain the discrepancies. For this reason, the survey team may place marks of identification on the account books and require the assessee to produce them subsequently at the office of the concerned officer. Alternatively, the survey team may impound the relevant documents and books of account and take them to their office. On the basis of the scrutiny of the documents and books of account and other information gathered during the survey, a survey report is prepared which is later used during assessment proceedings.
Surveys have been found to yield excellent results where other forms of inquiries have not succeeded. The following example shows how survey operations led to unearthing of a systematic tax fraud perpetrated by some iron and steel merchants.
There was information that one MIs ABC had made cash withdrawals of a few crore of rupees from its bank account over a period of one year. The purpose of making such huge cash withdrawals could not be ascertained. A survey was undertaken and on the basis of documents and other evidence found during the survey, it was revealed that the firm, which was in the business of selling steel and iron to steel traders and manufacturers, was also issuing bogus bills without actual sale of goods. The modus operandi was that against the issue of bogus sale bills, allegedly for the sale of metal, payment was received from the end users through account payee cheques. The cheques were deposited in the bank account of the concern and cash was withdrawn. The cash was subsequently handed over to the end users after deducting commission. Detailed follow up inquiries revealed that the scam was significantly big and many more players were involved in issuing bogus bills. This facilitated tax evasion by hundreds of persons who obtained bogus purchase bills. Subsequent surveys in the case of the beneficiaries — the persons procuring bogus bills to inflate their purchases — conclusively proved the modus operandi.
Here is an example of how surveys have helped in exposing illegal activities involving black money transactions. A survey was conducted in the case of a trust that owned some educational instftutes. The diaries found at the office premises of the trust and the colleges contained year-wise record of capitation fees or donations taken from the students for admission to various courses against the management quota seats. Charging capitation fees is unauthorised and illegal.
The efficacy of such surveys is illustrated with the help of yet another example. A survey was conducted on the premises of a leading gynaecologist running a maternity home. Records containing full details of caesarean sections and other deliveries performed by the doctor were found. When these were compared with the account books, it was found that both the number of procedures performed and the fees charged had been grossly understated. In this way the income had also been grossly under-reported.