Facts

The assessee filed its return of  income on  29.10.2001 disclosing an  income   of Rs.12,640. The return was processed under section 143(1) of the ‘Act’) on 27.8.2002 and notice under section 143(2) of the Act was issued on 27.8.2002   and served on the assessee on 24.9.2002. In the instant case, a survey action was conducted under section 133A of the Act on 24.7.2001 in the premises of the assessee and one of the partners of the firm, by name Asif Khan, in his sworn statement offered an additional income of Rs.20,00,000 for the assessment year 2001-02 and Rs.30,00,000 for the assessment year 2002-03. However, the said statement was retracted by the assessee through its letter dated 3.8.2001 stating  that the partner Asif Khan, from whom a statement was recorded during the survey operation under section 133A, was new to the management and he could not answer to the enquiries made and as such, he agreed to an ad hoc addition, which could never be achieved by the business owing to the severe competition and to the legislation by the Government prohibiting smoking in public places.   The assessee, thus, contended that the statement of Asif Khan recorded under section 133A has no evidentiary value. It was specifically contended that the power to examine a person on oath is specifically conferred on the authorities   only during the course of any search under section 132(4) of the Act and therefore, it was requested that the survey operations would not serve any useful purpose and the sworn statement recorded during the survey should not be given any weightage. The AO came to the conclusion that he  had  reason to believe that the assessee had evaded production of stated books during the survey action and even after the survey action, as it could be seen from the survey folders. Accordingly, the AO came to the conclusion based on the admissions made by    the assessee, which are directly relatable to the defects noticed during the action under section 133A of the Act, he recomputed the assessment and sought for the balance tax payable by his assessment order dated 30.3.2004. Aggrieved by the said assessment order the assessee preferred an appeal before the CIT(A), who, by

order dated 30.11.2006, held the issue in favour of the assessee. On appeal, at the instance of the Revenue, the Tribunal holding that there was no infirmity in the order of the Commissioner, dismissed the Revenue’s appeal. On revenue’s appeal, High court dismissed the same after culling out following striking principles on   the subject of evidentiary value of survey based statement under section 133A of the Act:

“From the foregoing discussion, the following principles can be culled out:

• An admission is an extremely important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of account do not correctly disclose the correct state of facts, vide decision of the apex court  in Pulkngode Rubber Produce Co. Ltd. State of Kerala [1973] 91 ITR 18;
• In contradistinction to the power under section 133A, section 132(4) of the Income-tax Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income-tax Act. On the other hand, whatever statement is recorded under section 133A of the Income-tax Act  is not given any evidentiary value obviously for the reason that the officer  is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law, vide Paul Mathews & Sons CIT [2003] 263ITR 101 (Ker.)(HC);
• The expression “such other materials or Information as are available with the Assessing Officer” contained in section 158BB of the Income-tax Act, 1961, would include the materials gathered during the survey operation under section 133A, vide CIT G. K. Senniappan [2006] 284 ITR 220 (Mad.) (HC);
• The material or information found in the course of survey proceeding could not be a basis for making any addition in the block assessment,vide decision of this court in C (A) No. 2620 of 2006 (between CIT v.

S. Ajit Kumar [2008] 300 ITR 152 (Mad.)(HC);

• Finally, the word “may” used in section 133A(3)(iii) of the Act, viz., “record the statement of any person which may be useful for, or relevant  to, any proceeding under this Act”, as already extracted above, makes it clear that the materials collected and the statement recorded during the survey under section 133A are not conclusive piece of evidence by

For all these reasons, particularly, when the Commissioner and the Tribunal followed the circular of the Central Board of Direct Taxes dated March 10, 2003, extracted above, for arriving at the conclusion that the materials collected and the

statement, obtained under section 133A would not automatically bind upon the assesses we do not see any reason to interfere with the order of the Tribunal.”

In revenue’s civil appeal, the apex court has dismissed it by very short order “ Heard learned counsel on both sides. Leave granted. In view of the concurrent findings of fact, this civil appeal is dismissed.” (AY.  2001-02) (SLA (A) (C)   No. 13224/2008 dt. 20-9-2012)

Editorial : View of Madras High Court in CIT v. S. Khader Khan Son (2008) 300 ITR 157 (Mad.) affirmed.

Merger Aspect : Since above apex court decision is an affirmation order of underlying high court decision, after the leave was granted and same was converted before apex court into a valid civil appeal, so as settled by Apex court    in case of Kunhayammed & Ors v. State of Kerala & Anr. (2000) 245 ITR 360  (SC), the high court decision merges into Apex court order and same is now an Apex court order for purposes of attracting binding force under article 141  of  the Constitution. For this reference may be made to latest apex court three judge bench dictum in case of Khoday Distilleries Ltd v. Mahadeshwara Sahkara Sakkae Karkhane Ltd (2019) 262 Taxman 279 (SC) which affirms above said merger principle reiterating Kunhayammed & Ors v.State of Kerala & Anr.

This decision in S. Khader Khan case (supra) has been subject matter of immense judicial interpretation before various judicial forums and is a celebrated decision  on the subject of evidentiary value of statement recorded under section 133A (survey operation) under the Act. Few notable High Court decisions favoring assessee where S. Khader Khan case is referred are: i) A. Thangavel.Nadar Stores v. ITO (2019) 417 ITR 50 (Mad) (HC) (reopening solely on basis of survey statement under section 133A quashed in writ petition by High court); ii) CIT v. P.Balasubramanian (2013) 354 ITR 116 (Mad) (HC). (same ratio as in S.Khader Khan case) iii) CIT v. Dhingra Metal Works (2010) 328 ITR 384 (Delhi) (HC) (same ratio as in S. Khader Khan case) iv) CIT v. IibsInfonet Pvt. Ltd. (2017) 394 ITR 538 (Delhi) (HC) Notably, even Kerala high court decision in case ofPaul Mathews & Sons v. CIT (2003) 263 ITR 101 (Ker) (HC) as followed in S. Khader Khan is assesse favoring decision which is followed in S. Khader Khan case by High court. Some revenue favoring High Court decisions where S. Khader Khan case is referred are i) CIT v.  Avinash Setia (2017) 395 ITR 235 (Delhi)(HC) ii)    Raj Hans Towers Pvt Ltd v. CIT (2015) 373 ITR 9 (Delhi)(HC); iii) C. K. Abdul Azeez v. CIT (2019) 417 ITR 363 (Ker) (HC)

In all such matters on above subject, it is notable that CBDT Instruction No.

1. No 286/2/2003-IT (Inv.)dt. 10-3-2003 (April 2003 AIFTP Journal P.  25 and Letter  [F. No. 286/98/2013-IT (INV-II) dt. 18012-2014) is normally referred to.

One recent amendment made in section 133A of the Act by Finance Act  2020 is worth noting where appropriate approval requirement is placed in the statute, which prior approval from higher authority of Joint director or Director     as the case may be, has to be obtained by survey conducting authority (with effect from 01.04.2020). Further vide order under section 119 of the Act dated 13.08.2020,CBDT has prescribed that only officers posted in Directorate of investigation (investigation wing) and Commissionerates of TDS shall only act as “income tax authority” for purposes of power of survey under section 133A of the Act and competent authority for approval for such survey action shall be DGIT  (Inv) for investigation wing and Pr.CCIT/CCIT(TDS) for TDS Charges, as the case may be (with effect from 13.08.2020).)

“You may think your actions are meaningless and that they won’t help, but that is no excuse, you must  still act.”

– Mahatma Gandhi