Specific Surveys U/s 133A(1) of Income Tax Act.

2. to verify cash, stock and other valuables found at the business premises, and to make an inventory of the same, and

3. To obtain relevant information about the business or profession from the proprietor, partners, employees or any other persons found attending to the business or profession, and to record their statements.

The books of account and other documents found during survey can be impounded but cannot be retained by the concerned income tax authority beyond a period of ten days without obtaining the approval of the Chief Commissioner / Director General of Income Tax. The cash, stock and valuables, however, cannot be seized during the survey. This is completely prohibited.

The persons attending to the business have an obligation under the law to co-operate and facilitate the conduct of the survey. They should provide support to the income tax officials for carrying out the requisite inspection and verification, and help them to collect such information as is required for the purposes of the survey.

As mentioned earlier, the place of business or profession can be entered into only during business hours, i.e. the time period during which such place is open for the conduct of business or profession. Once entry into the premises is made, the survey can continue even after sunset or the close of business hours.

If the person attending to the business or profession states, during the survey, that any of the books of account or documents or any part of the cash, stock or valuables relating to the business are kept at any other place, the survey can be carried out at that place also even if the business or profession is not conducted there. Such a place can, however, be entered only after sunrise and before sunset.

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.