High Court of Rajasthan

Commissioner of Income-tax

v.

Kamal & Co.

BHAGWATI PRASAD AND MUNISHWAR NATH BHANDARI, JJ.

IT REFERENCE NO. 67 OF 1999

September 27, 2007

Section 133A of the Income-tax Act, 1961 - Survey - Whether unless an authority is given under provisions of section 133A, survey conducted by Inspector is not legal - Held, yes - Whether additions can be made on basis of materials collected during course of illegal survey - Held, yes

FACTS

During the course of survey conducted at the premises of the assessee, excess stock was found. The inventory of stock was prepared by the Inspector during the course of survey and based on said material the Assessing Officer made additions. On appeal, the Commissioners (Appeals) partly allowed the assessee’s-appeal. In second appeal, the assessee was permitted to take additional ground, questioning the competence of Inspector to hold survey in violation of section 133A. The Tribunal allowed assessee’s appeal holding that the additions could not be made by the Assessing Officer based on inventory of stock taken during the course of survey which was illegal as Inspector was not competent to conduct survey.

On reference:

HELD

The action of the Inspector to conduct survey under section 133A was not legal under section 133A though no prohibition had been imposed on the Inspector to conduct such a survey, however, unless an authority is given under the provisions of section 133A, survey, conducted by the Inspector is not legal and the Tribunal had recorded its finding accordingly. In the instant matter, inventory of stock was prepared by the Inspector during the course of survey and based on said material the Assessing Officer made additions. Considering the provisions of sections 132 and 133A, it was found that though there is a difference between the provisions rather the scope of two provisions is different yet the question in reference was only in regard to use of material during the course of illegal survey. [Para 8]

From the judgment of the Supreme Court in the cases Dr. Partap Singh v. Director of Enforcement [1985] 155 ITR 166/22 Taxman 30 and Pooran Mal v. Director of Inspection (Inv.) [1974] 93 ITR 505 it was found that the material collected during the course of illegal search can be made use of and, thus, if the ratio of those judgments is applied then it becomes clear that even in the case of illegal survey, material collected can be used for additions. While delivering the judgment the Supreme Court was cautious about the fact that material collected is coming out from illegal search and yet material collected was allowed to be used by the Assessing Officer. The same analogy applied in the instant for the reason that so far as the procedure undertaken by the Assessing Officer is concerned, it remains the same in regard to use of material either collected in search or in survey. The inventory of stock was prepared by the Inspector during the course of illegal survey and material was then used by the Assessing Officer for making additions. Hence, in those circumstances, in view of the two judgments of the Supreme Court the revenue was entitled to use material collected during the course of illegal survey. [Para 9]

CASE REVIEW:

Dr. Pratap Singh v. Director of Enforcement [1985] 155 ITR 166/22 Taxman 30 (SC) and Pooran Mal v. Director of Inspector (Inv.) [1974] 93 ITR 505 (SC) - followed.