Income Tax--Current Issues
Practice Update
V.K. Subramani
TAX CONSEQUENCE OF INVENTORY ADMITTED IN A SURVEY
UNDER SECTION 133A
One of the weapons used by tax administration to detect tax
evasion by the taxpayers is conducting survey in exercise of the powers
conferred by section 133A. The taxation and Other Laws (Relaxation and
Amendment of Certain Provisions) Act, 2020 has substituted the proviso w.e.f.
1-11-2020 such that no survey under section 133A could be made without the
approval of the Pr. DGIT or DGIT or Pr. CCIT or CCIT. This in a way puts the
responsibility for justifying a survey action with very high tax official which
would mean that it would be resorted to in deserving cases only.
Invariably when survey is conducted in business premises,
cash and inventory are verified besides any significant transaction about which
the Department may have some specific information. Conclusion of survey is
signified by recording a sworn statement which the courts have repeatedly held
that they have no evidentiary value [CIT v. S. Khader Khan Son (2013) 352
ITR 480 (SC) : 2012 TaxPub(DT) 3088 (SC)]. There are also decisions to say
that an addition cannot be made merely relying on the admission given during
survey.
One of the possible areas of controversy is about
inventory. The difference in inventory could be ascertained comfortably if the
books of account are kept up to date and actual inventory is compared with
those reflected in the books of account. However, in many cases there could be
stock for which inventory records are not updated and Revenue to justify their
survey action take admission from the taxpayer that there is difference in
inventory.
Assessees have to be cautious about the statement recorded
in a survey under section 133A in spite of the legal position that the
statement has no legally binding force. If there is a definite finding of
(paid) stock which is not accounted in the books, it is well justified to admit
the same as income. On the other hand, if there is no definite finding of
unaccounted inventory, it is better to admit in the statement by stating that
there could be discrepancy in valuation of inventory or a factual statement
that there is no unaccounted inventory. This would benefit the taxpayer in the
later stages of assessment, in case, Revenue assesses the inventory so admitted
under section 115BBE and whereas the assessee would have agreed for the
admission in belief that it would be taxed as regular business income liable to
tax at the normal rates.