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V K Subramani – [2025] 180 taxmann.com 775 (Article)

Collection of taxes by the State is meant for meeting the cost of administration, defence besides overall developmental programs. In the medieval days, taxes were collected by the rulers i.e. either by the kings or by the colonial rulers. The basic reason to collect resources to the kings’ cash chest was meant for meeting war expenses. Weak kingdoms fell prey to the stronger and the resources were plundered post-war from the defeated kingdom and in the process, the stronger kingdoms had accumulated huge wealth. Thus, their own resources were adequate to fund the public projects. Originally, income tax was introduced about 2 centuries ago for the first time in Great Britain to meet war expenses.

Evolution of democracy and the end to colonial rule have resulted in each State looking for mobilisation of resources from the Subjects and thus the levy of various types of taxes have come to stay. In India, the record of tax compliance is poor and the number of income-tax payers in proportion to the population is a proof of this fact. However, the lawmakers (more so by the bureaucrats) thought of detecting the evaders who may remain in the scroll of the Tax Department but not paying correct amount of taxes. The legal provisions such as search and survey have had deterrent effect on the taxpayers though it is an unwritten mandate that even among the taxpayers (if not non-payers) the tax administration resorts to search or survey for one reason or the other. A taxpayer whether corporate or non-corporate in the process of creating wealth may have undisclosed income or assets which could be detected only upon the actual physical verification of the premises and not merely by wading through the books of account.

The further evolution of the lawmaking in respect of search/survey cases is the levy of steep rate of income-tax @60% on the undisclosed income and assets upon detection. Similar such flat rate of tax is incorporated in section 115BBE to tax the undisclosed income and assets. In this refresher, whether a survey under section 133A would trigger automatically section 115BBE is discussed in the light of the legal decision in the case of Nikhaar Fashions v. Asstt. CIT [2025] 131 ITR (Trib.) 1 (Jaipur).

1. Legal Provisions

Section 133A says that an income-tax authority may enter:

(a) any place within the limits of the area assigned to him; or

(b) any place occupied by any person in respect of whom he exercises jurisdiction; or

(c) 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.

However, the place referred above is a place at which a business or profession or an activity for charitable purpose is carried on, whether such place be the principal place or not of such business or profession or of such activity for charitable purpose.

The income-tax authority may require any proprietor, trustee, employee or any other person who may at that time and place be attending in any manner to or helping in, the carrying on of such business or profession or such activity for charitable purposes. The person so present may:

(i) afford the income-tax authority the necessary facility to inspect such books of account or other documents required and which may be available at such place;

(ii) afford the income-tax authority to check or verify the cash, stock or other valuable article or thing which may be found therein; and

(iii) furnish such information as the income-tax authority may require as to any matter which may be useful for or relevant to, any proceeding under the Act.

An income-tax authority acting under this section may:

(i) if he deems necessary, place marks of identification on the books of account or other document inspected by him and make or cause to be made extracts or copies therefrom;

(ii) impound and retain in his custody for such periods as he thinks fit any books of account or other documents inspected by him.

The proviso to section 133A(3) says that the income-tax authority shall not:

(a) impound any books of account or other documents except after recording his reasons for so doing; or

(b) retain in his custody any such books of account or other documents for a period exceeding 15 days (exclusive of holidays) without obtaining the approval of PCCIT or CCIT or PDGIT or DGIT or PCIT or CIT or PDIT or DIT, therefor, as the case may be.

The income-tax authority is eligible to make an inventory of any cash, stock or other valuable article or thing checked or verified by him. Also, he can record the statement of any person which may be useful for or relevant to, any proceeding under the Act.

Section 115BBE says that where the total income of an assessee includes any income referred to in section 68 (cash credit), section 69 (unexplained investment), section 69A (unexplained money), section 69B (amount of investments etc not fully disclosed in books of account), section 69C (unexplained expenditure, etc) and section 69D (amount borrowed or repaid on hundi) reflected in the return filed under section 139 or determined by the Assessing Officer, the income-tax payable shall be at the rate of 60% plus surcharge @25% and cess @4%. The effective tax rate being 78%.

2. Facts of Nikhaar Fashion’s Case

The assessee a partnership firm was engaged in retail trading of designer sarees, suits and lehenga chunni, etc. A survey under section 133A was conducted on 9th August, 2016 and during the course of survey the stock of the assessee was determined @ Rs. 314.27 lakhs as against the arrived at book stock figure of Rs. 214.16 lakhs. Thus, the difference was excess stock of Rs. 100.11 lakhs. The assessee filed a return of income for the assessment year 2017-18 declaring a total income of Rs. 120.08 lakhs which included excess stock surrendered during the course of survey of Rs. 100.11 lakhs. The case of the assessee was selected for scrutiny by issuing a notice under section 143(2). The assessment was completed by adding the said Rs. 100.11 lakh under the head ‘income from other sources’ instead of income from business. This income was added under section 69B read with section 115BBE of the Act. The assessee preferred appeal before CIT (Appeals) who confirmed the order of the Assessing Officer.