Survey, Search and Seizure – CA Final DT Question Bank is designed strictly as per the latest syllabus and exam pattern.
Survey, Search and Seizure – CA Final DT Question Bank
Question 1.
Premises of Ganesh were subjected to a search under Section 132 Of the Act. The search was authorized and the warrant was signed by the Joint Commissioner of Income-tax having jurisdiction over the assessee. The assessee challenged the validity of search, since Section 132(1) does not empower Joint Commissioner to authorize a search under the Act. Decide the correctness of the contention raised by the assessee. [CA Final May 2010] [4 Marks]
Answer:
Section 132 provides that Search and seizure can be authorised by Director General or Director or Chief Commissioner or Commissioner or Additional Director or Additional Commissioner or Joint Director or Joint Commissioner.
However, search can be authorized by Additional Director or Additional Commissioner or Joint Director or Joint Commissioner only if he is empowered by the CBDT to do so.
In view of the above said provisions of section 132, Joint Commissioner can issue the warrant and authorize the search, if he is empowered by the CBDT to do so.
Therefore, in the given case, if the Joint Commissioner has not been specifically empowered by the CBDT to do so, the contention of the assessee would hold good.
Question 2.
The A.O. Issued notices u/s 133 to four banks requiring particulars relating to a customer in a specific format duly verified in a prescribed manner. One of the banks refused to part with the information on the ground that the letter did not specify about any proceeding pending against the said customer under the Income-tax Act, 1961. Discuss the correctness of action of the bank in refusing to furnish the particulars as required by the AO. [CA Final May 2012] [4 Marks]
Answer:
As per section 133(6), the A.O. may, for the purposes of this Act, require i any person, including banking company, to furnish information which will be useful for or relevant to, any enquiry or proceedings under the Act.
However, in case of inquiry where no proceeding is pending, this power shall not be exercised by any income tax authority below the rank of Principal Director or Director or Principal CIT or CIT, other than the Joint Director or Deputy Director or Assistant Director, without the prior approval of Principal Director or Director or Principal CIT or CIT, as the case may be.
Therefore, the A.O. can issue notice u/s 133(6) asking for particulars relating to a customer from the banking company, even if no proceeding is pending against such customer, provided he has obtained the prior approval of the Principal Director or Director or Principal CIT or CIT, as the case may be.
Hence, the action of bank in refusing to provide the particulars relating to a customer as required by the A.O. on the ground that no proceeding was pending against the customer, is not correct.
Question 3.
Mr. A’s premises were searched under section 132. During the course of search, certain records belonging to Mr. B were found, Mr. A and Mr. B wish to know from you the consequences. Advise them. [CA Final Nov. 2012] [5 Marks]
Answer:
As per section 132(4A), where any books of account or other documents, etc. are found in the possession or control of the person who is subject to search, then, it shall be presumed that such books of account or documents, etc., belong to such person. Hence, in the present case the records belonging to Mr. B found in the search of Mr. A’s premises, shall be presumed to be of Mr. A.
However, section 153C provides that where the A.O. is satisfied that any ; books of account or other documents, etc, seized belong to a person other than the person subject to search u/s 132, then the books of account or documents, etc., seized shall be handed over to the A.O. having jurisdiction over such other person and that A.O. shall proceed against such other person and issue such other person notice and assess or reassess his income as per the provisions of section 153A.
Therefore, in the present case, if the A.O. of Mr. A is satisfied that the records, belonging to Mr. B found in the course of search, have no bearing on the assessment of Mr. A, he shall hand over the same to the A.O. having jurisdiction over Mr. B. Such A.O. shall proceed with the assessment of Mr. Bu/s 153A.
Question 4.
The Director General of Income-tax after getting the information that Mr. X is in possession of unaccounted cash of ₹ 50 lakhs, issued orders by invoking powers vested in him as per section 131(1 A) for its seizure.
Is the order for seizure of cash issued by the Director General of Income-tax correct?
If not, does the Director General of Income-tax have any other power to seize such cash? [CA Final Nov 2014, Nov 2010] [3 Marks]
Answer:
As per Sec. 131 (1 A), the Director General, for the purposes of making an enquiry or investigation relating to any income concealed or likely to be concealed by any person or class of persons within his jurisdiction, shall be competent to exercise powers conferred u/s 131(1), which is confined to discovery and inspection, enforcing attendance, compelling the production of books of account and other documents and issuing commissions. This section does not, however, confer the power of seizure of cash or any asset. Thus, the order issued by the Director General of Income-tax u/s 131(1 A) 1 for seizure of cash is not correct.
However, u/s 132(1)(iii), the Director General has the power to authorize any Additional Director or Additional Commissioner or Joint Director or Joint Commissioner etc. to seize money found as a result of search, if he has reason to believe that any person is in possession of any money which represents wholly or partly income which has not been disclosed.
Therefore, the proper course open to the Director General is to exercise his power u/s 132(1) and authorize the Officers concerned to enter the premises where the cash is kept by Mr. X and seize such unaccounted cash.
Question 5.
A Co-operative society engaged in banking business received a letter from the ACIT, to furnish details of all persons who have made time deposit of ₹ 1 lakh or above during the period from 1.4.2018 to 31.3.2020.
There is no pending proceeding against the Co-operative society at the time of receipt of letter.
As a Chartered Accountant, what would be your advise to the cooperative society regarding legality of the notice? [CA Final Nov. 2015] [4 Marks]
Answer:
The issue under consideration is whether, in a case where no proceeding is pending against a person, can the A.O. call for information. It is | assumed that such details were sought for u/s 133(6).
As per Sec. 133(6), the A.O. may, for the purposes of this Act, require any person, including a banking company or any officer thereof, to furnish information which will be useful for or relevant to any enquiry or proceedings under the Act.
However, an income-tax authority below the rank of the Principal Director or Director or Principal CIT or CIT other than Joint Director or Assistant Director can exercise this power in respect of an enquiry in a case where no proceeding is pending, only with the prior approval of the Principal Director or Director or Principal CIT or CIT.
In this case, if the letter/notice been issued after obtaining approval of the competent higher authorities mentioned above, the ACIT has not erred in 1 issuing letter/notice to the co-operative society requiring them to furnish information regarding persons who have made time deposits of ₹ 1 lakh or more.
For such enquiry u/s 133(6), letter/notice could be validly issued by ACIT, after obtaining the approval of Principal Director or Director or Principal CIT or CIT. However, if prior approval of the competent higher authority is not obtained, the co-operative society can contest the validity of the notice issued.
Question 6.
Books of account and certain assets are found to be in possession of the person, whose premises are searched. What are the rebuttable presumptions regarding those items? [CA Final Nov. 2015] [3 Marks]
Answer:
As per section 132(4A), where any books of account, other documents and assets is found in the possession or control of any person in course of a search, it may be presumed:
- That such books of account, other documents arid assets belongs to such person
- That the contents of such books of account and documents are true; and
- That the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person are in that person’s hand writing, and in the case of a document stamped, executed or attested, that it was duly stamped, executed or attested by the person whom it purports to have been so executed or attested.
Question 7.
M/s. XYZ was subjected to search and seizure. During the course of search, sales, purchase ledgers and property documents pertaining to Mr. A was found in the premises of M/s. XYZ. What is the procedure to be adopted by the A.O. of M/s. XYZ who has seized the records? [CA Final May 2016] [4 Marks]
Answer:
As per section 153C(1), where the A.O. is satisfied that any books of account or documents seized or requisitioned pertains to or the information contained therein relates to any person other than the person subjected to search u/s 132 or whose books or documents were seized or requisitioned u/s 132A, then the books of account or documents seized or requisitioned shall be handed over to the A.O. having jurisdiction over such other person and that A.O. shall proceed against such other person and issue notice to him and assess or reassess income of such other person as per section 153A if, the A.O. is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for 6 A.Y. immediately preceding the A.Y. relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in section 153A(1).
In this case, if Mr. A is subject to the jurisdiction of the same A.O. as that of M/s. XYZ, the said A.O. shall proceed against Mr. A, otherwise, the A.O. of M/s. XYZ should hand over the sales, purchase ledgers and property documents pertaining.to Mr. A to the A.O. having jurisdiction over Mr. A, if he is satisfied that the same pertains to Mr. A or any information contained therein relates to Mr. A.
Thus, the same A.O. or the A.O. having jurisdiction over Mr. A, as the case may be, shall proceed against Mr. A and issue notice and assess or reassess the income of Mr. A as per section 153A, only if he is satisfied that the books of account and documents have a bearing on the determination of total income of Mr. A for 6 A.Y. immediately preceding the A.Y. relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or assessment years referred to in section 153A(1).
Question 8.
An Assessing Officer entered a hotel run by a person, in respect of whom he exercises jurisdiction, at 8:00 p.m. for the purpose of collecting information, which may be useful for the purposes of the Act. The hotel is kept open for business everyday between 9:00 a.m. to 9:00 p.m. The hotelier claims that the Assessing Officer could not enter the hotel after the sunset. The Assessing Officer wants to take away with him the books of account kept at the hotel. Examine the validity of the claim made by the hotelier and the proposed action of the Assessing Officer with reference to the provisions of the section 133B of the Income-tax Act, 1961. [CA Final May 2017, Nov. 2006] [3 Marks]
Answer:
As per section 133B, an income-tax authority may, for the purpose of collecting any information which may be useful for or relevant to the purposes of Act, enter any place of business or profession within the limit of the area assigned to such authority, or occupied by any person in respect of whom he exercises jurisdiction.
The income-tax authority may enter any such place of business or profession only during the hours at which such place is open for conduct of business or profession. As the hotel is open for business from 9:00 AM to 9:00 PM for the conduct of business, the action of A.O. of entering at 8:00 PM is valid.
Section 133B further states that the income tax authority shall on no account, remove or cause to be removed from the building or place wherein he has entered, any books of account or other documents or any cash, stock or other valuable article. Therefore, the A.O. cannot take away the books of account of the hotelier.
Question 9.
During October 2020, a search was conducted u/s 132 in the business premises of Mr. Q. At the time, the following assessments of Mr. Q were pending before the Assessing Officer:
Assessment u/s 143(3) for A.Y. 2018-19 and A.Y. 2019-20 and reassessment proceeding u/s 147 for A.Y. 2017-18.
Based on the above facts, you are required to explain the provisions applicable in case of the following:
(i) In respect of which assessment years can notice be issued for making post-search assessment?
(ii) Fate of pending assessments and reassessment.
(iii) State the consequence, if the post-search assessment orders are annulled by the Income Tax Appellate Tribunal. [CA Final Nov. 2017] [4 Marks]
Answer:
(i) The notice u/s 153A can be issued for 6 assessment years immediately , preceding the assessment year relevant to the previous year in which the search is conducted. Therefore, in the given question, for making post-search assessment notice can be issued for A.Ys. 2015-16 to 2020-21.
Further, as per the newly inserted provisions of 4,h Proviso to Sec. 153A(1), if the prescribed conditions are satisfied then notice can also be issued for relevant assessment year or years. “Relevant assessment year” means an assessment year preceding the assessment year relevant to the previous year in which search is conducted or requisition is made which falls beyond 6 assessment years but not later than 10 assessment years from the end of the assessment year relevant to the previous year in which search is conducted or requisition is made. Therefore, on fulfilment of the specified conditions, notice can also be issued for A.Y. 2011-12 to A.Y. 2014-15.
(ii) Section 153A( 1) provides that the assessment or reassessment relating to any assessment year, falling within the above period of 6 assessment year and for the relevant assessment year or years, pending on the date of initiation of the search u/s 132, shall abate. In other words, they will cease to be applicable.
Therefore, the assessments u/s 143(3) for assessment years 2018-19 and 2019-20 and the reassessment proceeding under section 147 for assessment year 2017-18 shall abate.
(iii) As per section 153A(2), where the post-search assessment order is annulled in any appeal or any other legal proceeding, the abated assessment and reassessment proceedings shall stand revived. Therefore, the assessments u/s 143(3) relating to assessment years 2018-19 and 2019-20 and the reassessment proceeding relating to assessment years 2017-18, which abated on initiation of search, shall stand revived.
Question 10.
A search as per section 132 of the Act was conducted on 02.01.2021 and cash ₹ 40 Lakhs was seized. The assessee moved an application on 30.01.2021 to release such cash with explanation of the nature and sources thereof, which was turned down by the department. Now, the assessee seeks your advice on whether the department can withhold the explained money? If yes, then to what extent and upto what period? [CA Final, May 2018 (New Syllabus), Nov. 2009] [4 Marks]
Answer:
As per First Proviso to Sec. 132B(1)(i), if the person whose assets have been seized u/s 132 makes an application to the A.O. for release of asset within 30 days from the end of the month in which the asset was seized, and the nature and source of acquisition of any such asset is explained to the satisfaction of the A.O., then the amount of any existing liability may be recovered out of such asset and the remaining portion, if any, of the asset may be released, with the prior approval of the PCCIT or GCIT or PCIT or CIT, to the person from whose custody the assets were seized. Such asset is to be released within 120 days from the date on which the search was completed.
In this case, the application for release of asset was made within 30 days 1 from the end of the month in which the asset was seized and therefore, the amount of any existing liability may be recovered from cash of ₹ 40 seized and the balance, may be released within 120 days from the date on which the last of the authorizations for search u/s 132 was executed.
However, in this case, it has been given that the assessee’s application for release of the asset, explaining the sources thereof, was turned down by the Department. It is possible to take a view that the application was turned down due to the reason that the A.O. was not satisfied with the explanation given by the assessee as to the nature and source of acquisition of the asset. In such a case, the cash cannot be released.
Question 11.
On 08.12.2020, search operations were conducted on the business premises of Mr. Sadanandam, Stock Broker in Mumbai by IT authorised Officials. Upon conclusion of search, certain documents/assets, which were not recorded in books of account pertaining to various previous years, were found, detailed as under:
| An agreement for purchase of flat indicating total consideration at ₹ 50 lakhs together with cash receipt for ₹ 23 lakhs and cheque receipt for ₹ 27 lakhs whereas sale deed registered for ₹ 27 lakhs. | ₹ 23 lakhs | P.Y 2012-13 |
| Jewellery based on the bill held in his desk drawer in his name. | ₹ 28 lakhs | P.Y. 2011-12 |
| Promissory note executed by his uncle in proof of loan taken from assesses. | ₹ 15 lakhs | P.Y. 2013-14 |
| Fixed deposit receipts from a bank in the name of assessee. | ₹ 12 lakhs | P.Y. 2015-16 |
| Shares and securities in name of family members. | ₹ 22 lakhs | P.Y. 2016-17 |
Pursuant to the above documents/assets found, the Assessing Officer, under section 153A,of the Income-tax Act, 1961 has issued notice for all the previous years from 2011-12 to 2019-20.
Mr. Sadanandam contends that the Assessing Officer cannot issue notice under section 153A beyond 6 years i.e. prior to P.Y. 2014-15.
Advise suitably on the matter in the context of relevant provisions of Income-tax Act, 1961. [CA Final Nov 2018 (Old Syllabus)] [4 Marks]
Answer:
As per Fourth proviso to Sec. 153A(1), issuance of notice and assessment or reassessment thereunder can also be made for an assessment year preceding the assessment year relevant to the previous year in which search is conducted which falls beyond 6 assessment years but not beyond 10 assessment years from the end of the assessment year relevant to the previous year in which search is conducted, provided that:
(i) the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income which has escaped assessment amounts to or is likely to amount to ₹ 50 lakhs or more in one assessment year or in aggregate in the relevant assessment years;
(ii) such income escaping assessment is represented in the form of asset which shall include immovable property being land or building or both, shares and securities, deposits in bank account, loans and advances.
(iii) the income escaping assessment or part thereof relates to such year or years; and
(iv) search u/s 132 is initiated on or after 1-4-2017.
Since, jewellery is not included in the meaning of “asset”, notice cannot be issued for P.Y. 2011-12 in relation to income escaping assessment represented in the form of jewellery.
Further, since the aggregate income escaping assessment represented in the form of assets amounts to only ₹ 38 lakhs [₹ 23 lakhs, being cash payment for purchase of flat in P.Y. 2012-13 and ₹ 15 lakhs, being loan given to his uncle in the P.Y. 2013-14], the A.O. cannot issue notice u/s 153A in relation to income escaping assessment for those years.
Thus, in this case, the contention of Mr. Sadanandam that notice cannot be issued beyond the 6 year period is correct.
However, there is no restriction on A.O. to issue notice relating to income escaping assessment for the P.Y. 2015-16 [in relation to bank fixed deposit] and P.Y. 2016-17 [in relation to shares and securities in the name of family members], since the period falls within the six previous years immediately preceding the P.Y. 2020-21 in which the search was conducted.
Question 12.
The Assessing Officer surveyed a popular cinema hall by name “Thriller” which is within his jurisdiction at 12 o’clock in the midnight for collecting information which may be useful for the purpose of Income-tax Act, 1961. The concerned cinema hall is kept open for business everyday between 9 p.m. and 1 a.m. The owner of the cinema hall claims that the A.O. could not enter his business premises after sunset and at late in the midnight. The, Assessing Officer wanted to take away with him the books of account kept at the premises of the cinema hall. Examine the validity of the claim made by the owner of cinema hall and the proposed action of the Assessing Officer. [CA Final May 2019 (New Syllabus), Nov. 2011] [4 Marks]
Answer:
As per Sec. 133A, an income-tax authority (which includes A.O.) may enter:
- any place within the limits of the area assigned to him, or
- any place occupied by any person in respect of whom he exercises jurisdiction, or
- any place in respect of which he is authorised for the purposes of this section by such income-tax authority, who is assigned the area within which such place is situated or who exercises jurisdiction in respect of any person occupying such place,
at which a business or profession or an activity for charitable purpose is carried on, whether it is the principal place or not.
The income-tax authority may enter such place only during the hours at which such place is open for conduct of business or profession.
Further, the income-tax authority cannot remove any asset during survey operations. However, he is empowered to impound and retain in his custody any books of account or other documents only after recording the reasons for doing so.
In this case, the A.O. surveyed a cinema at 12 o’ clock in the midnight and the concerned cinema hall is kept open for business everyday between 9 p.m. and 1 a.m. Therefore, the A.O. has entered a cinema hall during business hours which is valid.
Further, the action of A.O. to take away the books of account kept at the premises of the cinema hall is also valid, provided that the A.O. has recorded the reasons for doing so.