Background
The power of survey under section 133A of Income Tax
Act, 1961, was made available to Tax Recovery Officers w.e.f. 01.06.2003 vide
the Finance Act, 2003 by amending Explanation (a) to sub-section (6) of Section
133A. This has undoubtedly strengthened the TROs for better result in
collection and recovery of outstanding taxes. The power of survey is provided
to Income tax authorities basically to enable them collect information and
evidence for the purposes of the Act, out of which assessment was the main purpose.
Survey was rarely utilized as a tool for recovery.
TROs were officers specially designated for collection
and recovery but they did not have this power. So, TROs had to request the
Assessing Officers to conduct survey and remain fully dependent on him for the
outcome. On many occasions such surveys conducted by Inspectors of Assessing
Officers at the request of TROs lost the focus and ultimately result too. It is
due to these reasons that extension of power of survey to TROs has been
considered as a great leap forward towards collection and recovery of taxes.
Selection
of cases for recovery survey
(i)
After 30 (or reduced) days of service
of demand notice. Check receipt of notice
(ii) Stay petition – not filed or filed &
rejected
(iii) Stay/instalment/rectification/waiver petition
not pending with Assessing Officer/higher authorities
(iv) Giving effect to appellate order – not pending
(v) Business is running
Objective
behind recovery survey
The objective behind recovery survey by Assessing
Officers as well as Tax Recovery Officer is to collect of information useful
for recovery of tax due. For example:
(i) Unaccounted
bank accounts (pass book, cheque book/leaves, account statement, counterfoils
of pay-in-slips, DD application)
(ii) Copies of documents of immovable properties
(iii) Fixed Deposit, National Saving Certificate
(NSC), shares, units of Mutual Fund, debentures, R.C. book, insurance policy
(iv) Addresses of trade & loan debtors as on
31st March before survey
(v) Credit sale bills to new parties (in this
Financial Year which remain due) & addresses new loan debtors (in this
Financial Year which remain due) & addresses
(vi) Addresses of godowns where stock-in-trade is
kept
(vii) Details of security offered for Over Draft/CC
accounts
(viii) Addresses of premises where cash is kept
(ix) Addresses of persons from whom assessee is
receiving different items of income such as rent, commission, etc.
(x) Rubber stamps/letter-pads in other name(s)
Conduct
of recovery survey
Needless to say, in a survey for recovery, focus has
to be on collecting any type of information which can help in taking action
under the provisions of the Act for recovery.
(i) All
requirements as for normal surveys under section 133A except that focus is not
on stock-taking or finding out undisclosed income (however, discrepancies, if
any noted, to be questioned in statement). Focus is to gather details which
will be helpful to recover the arrears.
(ii) After showing authorisation/approval, prepare inventory of cash found & gather all other details required.
(iii) To check, verify inventories/ cash/ stock and other valuable articles/things.
(iv) To impound books of a/cs. and other documents if necessary (which may be particularly useful when these are voluminous and survey team is unable to finish inspection of these during survey)
(v) To extend survey to “other places” like residence, chamber of authorized representative/accountant etc. (which pre-requires taking of statement)
(vi) To take statement (which the Inspectors are not authorized to take) and thus obtain replies to questions on different findings in books of a/cs. or other documents.
(vii) To issue summons under section 131 in the situations mentioned in Section 133A(6).
(viii) Once
unaccounted bank accounts found, issue notice under section 226(3) to those
banks, from survey premises, covering all accounts under same CIF (customer
identification folio) No. serve copy on him after serving on bank.
(ix) Once
names & addresses of trade & loan debtors from whom amounts are due as
on date of survey are collected, issue notice under section 226(3) to those
debtors from survey premises. Serve copy on him after ensuring personal service
on high value local debtors.
(x) Prepare
inventory of immovable property documents found. Take photocopies. Once Fixed
Deposit receipts are found, issue notice under section 226(3) to bank, from
survey premises, to prevent premature encashment.
(xi) Prepare
inventory of shares, units, debentures, R.C. books, insurance policies found.
(xii) Once
names & addresses of persons from whom he is receiving other items of
regular income such as rent, interest, etc, are collected, issue notice under
section 226(3) to those persons from survey premises & serve copy on him.
(xiii) Once
details of security offered for OD/CC a/c are collected, take appropriate
action based on nature of security.
(xiv) From
rubber-stamp impressions & letter-pads in other names, ascertain the link
and take appropriate action if amounts are due from those entities.
(xv) After
getting details of all godowns, certain approximate value of stock.
Precautions during recovery survey
(i)
At the time of survey, all general procedures like
spreading out in the premise, taking control of telephones, disallowing exit of
staff/proprietor, stopping removal/destruction of documents must be followed.
(ii) Control of cash, valuables, NSC, F.D. etc. should be
taken as fast as possible. If cash is found, TRO should make the seizure under
Schedule-II if and Tax Recovery Inspector should do the survey OR the other way
round. The bottomline is that cash should not be and cannot be seized during
survey operation. So, adequate application of mind should be made at planning
stage itself so as to avoid any legal complication.
(iii)
All types of books of accounts and other papers
including loose sheets, letters, cheque books, small diaries etc. should be
gathered from all places including brief cases at a central place in the
survey-spot.
(iv)
These are to be sorted into different groups, e.g.
books of accounts. Bank documents, sales bills, bills submitted, loan papers,
investment documents, tax files, subscription and membership folder, telephone
bills, electricity and other bills, rent receipts etc.
(v)
From the current sale bills, name and address of the
buyers may be noted. Later, correspondence may be made with them to know amount
receivable by assessee and the same may be attached.
(vi)
From all types of documents (e.g. bank pass book,
counterfoil of pay-in-slip, record ship of cheque books, cheque leaf, rent
receipt, tax paid challans, electricity/telephone bill receipts, page of
payment “Schedule”, deed of purchase/sale of immovable property, bill/invoice
of purchase of car etc.) try to note down details of all bank accounts
(including term loan account, cash credit account. Fixed deposit account etc.
with all banks and branches. Sometimes, only the cheque no. is available. But
that too should be noted as account no. can be known with this (subsequently
these accounts can be attached).
(vii)
If bank guarantee papers are found these will show as
to where the assessee has filed bills which have been discounted by bank
(subsequently, Assessing Officer/TRO may explore whether any amount can be
collected by attaching the bill).
(viii)
In the cash book, each page should be verified to find
out sources of cash /cheque received and destination of payments made.
(ix)
If there is loan/cash credit account, Assessing
Officer /TRO should try to get details of assets placed as collateral security
(If there is any, he may later explore if anything is available by attachment
of these after meeting bank’s hypothecation).
(x)
Small diaries, correspondence folders etc. should be
inspected to find out details of investments (so that these can be attached).
(xi)
Copies of documents related to purchase of
car/immovable property, share/debenture etc. should be obtained (these details
will enable TRO later to attach and sell these as these are necessary for
proclamation).
(xii)
Apart from these, even if documents of foreign travel,
club expenses, cash memo of expensive items are found, then copies of these
should be impounded. These will enable TRO to arrest and detain the assessee on
the ground that he had the means to pay the taxes but still neglected/refused
to pay.
(xiii)
At the time of taking statement, question should be
asked with the aim of eliciting some such reply which will disclose and own up
attachable assets.
(xiv)
If assesse is a company /firm/HUF/AOP/BOI/, then all
details of assets of director responsible under section 179
(1)/partners/karta/member, as the case may be, should be collected.
(xv) If
Assessing Officer conducts the survey, he should prepare a report and give it
to the TRO. Assessing Officer /TRO should not waste any time in attaching the
assets. Immediately after return, they should attach all assets/take action for
arrest and detention. In this way, survey can be used as a very effective tool
for recovery of taxes.
Invoking section 226(5)
Section 226(5) provides that the Assessing Officer
or Tax Recovery Officer may, if so authorised by the Chief Commissioner or
Commissioner by general or special order, recover any arrears of tax due from
an assessee by distraint and sale of his movable property in the manner laid
down in the Third Schedule.
Under section 133A(4), any cash, stock or other
valuable article or thing cannot be removed from survey premises.
However, if authorised by general or special order
by PCCIT/CCIT/ PCIT/CIT, AO/TRO may recover tax arrears by distraint & sale
of movable property in the manner laid down in Third Schedule. As per Third
Schedule, it has to be done as per Second Schedule.
Procedure for 226(5)
1. If cash on hand is of huge value & stock is
also huge, issue warrant of attachment of movable property to Income Tax
Inspector. Income Tax Inspector will serve it on assessee. Inform assessee that
ITI can seize both cash & stock & sell the stock. but if stock is not
be seized he has to mobilize funds to the extent of balance arrears (after
considering cash on hand). If he mobilises additional funds, even if not to the
entire extent of balance arrears, DD can be accepted & stock need not be
seized. Income Tax Inspector can return the warrant stating that since he paid
full/part of arrears, warrant was not executed.
2. If assessee is not willing to mobilise additional
funds, cash on hand has to be seized by Income Tax Inspector after bringing two
witnesses, preparing an inventory and panchanama serving a copy of both on him.
Stock need not be seized if approved by higher authorities.
THE THIRD SCHEDULE
PROCEDURE FOR DISTRAINT BY
INCOME-TAX OFFICER
[See section 226(5)]
Distraint and sale
Where any distraint and sale of movable property are
to be effected by any Income-tax Officer authorised for the purpose, such
distraint and sale shall be made, as far as may be, in the same manner as
attachment and sale of any movable property attachable by actual seizure, and
the provisions of the Second Schedule relating to attachment and sale shall, so
far as may be, apply in respect of such distraint and sale.
FORMS FOR RECOVERY SURVEY
(1) Warrant of attachment of
movable property
Government of India
Ministry of Finance
Income Tax Department
Office of
the ........................................
F.No.
WARRANT OF ATTACHMENT OF MOVABLE
PROPERTY
[See Section 226(5) and Third
Schedule to the
Income-tax Act, 1961]
To
Shri/Smt./Kumari.
............................................................
Inspector
of Income Tax
O/o
......................................................................................
Whereas Shri/Smt./Kumari/M/s.
................................................ (assessee) *Proprietor of M/s.
............................................................................
functioning at.............................. is in arrears of the following tax
dues which have not been certified to TRO:—
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Sl.
No. |
Asst.Year |
Description |
Amount |
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Interest
u/s 220(2) {from ............ to ............ (date
of warrant)} |
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Total |
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And
whereas the said sum of Rs............................. has not been paid till date;
And
whereas the undersigned has been authorized by the ........................... by
*general/special order in C. No. ........................... dated
........................... to recover the arrears of tax due from the assessee
by distraint and sale of movable property of the assessee;
Therefore
in exercise of the powers vested under section 226(5) of the Income Tax Act,
1961, this Warrant is issued to direct you to serve a copy of this warrant on
the assessee and, unless after such service the said assessee pays forthwith
the said sum of Rs............................ together with interest liable
u/s 220(2) thereon at the rate of one per cent for every month or part of a
month on Rs........................... from the date of the issue of this
warrant and Rs........................... for the cost of executing this
process, to proceed to attach the movable property of the said assessee [and
where necessary, the movable property which is included in the assessee’s
property by virtue of the Explanation to sub-section (1) of section 222 of the
Income-tax Act, 1961] and to hold the same until further orders from the
undersigned. You are further directed to return this warrant on or before the
.................. day of ................ 20 .......... with an endorsement
certifying the day on which and the manner in which it has been executed, or
the reason why it has not been executed.
Given
under my hand and seal at ................ this ................ day of
...........
(SEAL) Assessing
Officer
* Score
out whichever is not applicable.
(2)
Panchanama
Panchnama drawn by the Panchs, in the presence of
Shri/Smt./Kumari ...................................................................................,
Inspector of Income Tax in the Office of the
.................................................. (Assessing Officer), during
the course of the execution proceeds of Warrant of attachment of movable property
in File No. ....................................... in the case of
Shri/Smt./Kumari/ M/s..........................................................
(assessee),*Proprietor of M/s ...............................................................................
functioning at ................................................... who is a
defaulter for non-payment of arrears of Income-tax etc., on the spot at No.
.......................... Street .......................... at the time ..........................AM/PM
on .......................... 20 .........
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Sl.
No. |
Name
of Panch & Father’s Name |
Address
|
Age
|
Mobile
No. |
Profession
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1.
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2.
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We,
the above mentioned Panchs, on being called by the above said Shri .............................................................
Inspector of Income Tax in the Office of the
............................................................ (Assessing
Officer), gathered here today at the business premises of
........................................................................ at
............................. *belonging to Shri
............................................................ and learned that
Shri/M/s. ............................................................ is a
defaulter for non-payment of Income-tax etc., arrears to the extent of
.............................. for the assessment year ................... and
consequently the .............................. (Assessing Officer) has issued
a warrant of attachment of movable property of the assessee in the name of
Shri/Smt./Kumari .............................. Inspector of Income Tax on date
.................... in F. No. ............................. and the warrant is
to be executed on or before date .............................. and in
execution thereof Shri ........................................ the holder of
the warrant, today entered the business premises of
........................................................... *(Proprietor
Shri/Smt./ Kumari ............................................................
) at .................... at .................... *A.M./P.M., and after the
service of warrant on Shri ........................................ demanded
the payment of the above arrears and on its non-payment, attached movable
properties as detailed in the inventory attached to this Panchanama between the
hours ....................... A.M./P.M. and ........................ A.M./P.M.
in our presence.
We also
hereby state that during the execution proceedings ...............................................................
....................................................................................................
(to be filled in case of occurrence of any incidence)
Therefore,
we solemnly, declare that the facts of the Panchnama mentioned herein are true
and correct to the best of our observations & knowledge.
Dated Time
Signature
of witness No. 1
Signature
of witness No. 2
Drawn
before me. Inspector
of Income Tax
(3)
Inventory
Inventory
of cash attached in the case of
..................................................
File
No. ....................................
Date:
.................... 20 ..............
Inventory of cash attached at the premises of M/s
............................ *(Proprietor: Shri/Smt./Kumari
........................................................................... at
No. .................... Street, .................... under Section 226(5) read
with Third Schedule to the Income-tax Act, 1961 while executing warrant of
attachment of movable issued by the ................. (Assessing Officer),
.................... (Place), date .................... towards realisation of
arrears of tax of .................... due from .................... and
executed by Shri ......................................................... Inspector
of Income Tax on .................... of .................... 20 ............
between the hours .................... A.M. and .................... P.M.
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S.
No. |
Denomination |
Quantity |
Amount |
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Total |
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Witnesses:
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S.
No. |
Name
& Address of Panch |
Signature |
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Drawn
by me today the .............. of ............ 20 ...... at ..............
AM/PM.
Signature
of Assessee Signature
of Inspector of Income Tax
*
Strike if not applicable
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