Power To Gather Information and Summons

Introduction

Law enforcement agencies have been provided with a wide range of powers to gather information or to enforce production of records or to ensure physical attendance of a person or a group of persons. Such, powers come in handy to fulfil the objectives of law and to gather information to prevent misuse and abuse of law and to deter non-compliances. Such powers also help departments verify records and evidences produced before them by way of examination or cross examination on oath. In this article we shall be discussing some of these powers along with the legal backing.

Summons u/s 131-

Income-tax authorities being quasi-judicial authorities, enjoy similar powers under Income-tax Act. Section 131 of Income-tax Act (IT Act) empowers them to issue summons. The section specifies the authorities who can issue summons. These authorities enjoy the powers that are vested in a court under Code of Civil Procedure (CPC) when trying a suit. But this is not carte blanche given to the authorities. Powers under section 131 are specific and limited, only to the matters relating to

i. Discovery and inspection

ii. Enforcing attendance of any person, including any officer of a banking company and examining him on oath

iii. Compelling production of books of account and other documents and

iv. Issuing commissions

[Section 131(1)]

Who can issue summons?

According to section 131(1), the authorities who can issue summons are: Assessing Officer, Deputy Commissioner (Appeals), Joint Commissioner, including Joint Commissioner (Appeals), Commissioner, including Commissioner (Appeals), Principal Commissioner, Chief Commissioner or Principal Chief Commissioner.

Sub-section (1A) of the section empowers authorities acting under section 132 of the Act to exercise the powers available under section 131(1). These authorities are, Principal Director General, Direct General, Principal Director, Director, Joint/Deputy/Assistant Director or Authorised Officer.

Similarly sub-section (2) says that authorities notified by CBDT, not below the rank of an Assistant Commissioner, acting under section 90 or 90A, also enjoy the powers specified in section 131.

Meaning of the term, "Assessing Officer" in section 131(1) has given rise to some litigations. In a case before Hon`ble High Court of Allahabad, the question was, whether ITO(TDS) falls within the definition of "Assessing Officer". It was held that the expression `Assessing Officer` in Sec 2(7A) of IT Act is not confined to regular assessment. It extends to enquiry regarding non deduction of tax also and summons in this regard is valid. Peerless Finance and Investment Co. Ltd. Vs AO [2000] 83 TAXLOK.COM (IT) 258 (All). Similar view was expressed by Hon`ble High Court of Calcutta also in Reckitt Colman of India Ltd. s ACIT [2001] 86 TAXLOK.COM (IT) 449 (CAL); [2001] 85 TAXLOK.COM (IT) 168 (CAL)

Pendency of Proceedings:

Section 131 does not specifically say that some proceedings must be pending for issue of summons. But it does so indirectly. Sub-section (1A) says that authorities acting under section 132 can issue summons even if no proceedings are pending before any IT authority. In other words, if sub-section (1A) is being applied, no proceeding need be pending; whereas, if sub-section (1) is being invoked, proceedings must be pending. Of course, the proceeding need not be in the case of the person to whom summons is being issued.

Recording of Reasons:

What is important is that the Officer issuing summons must apply his/her mind. Summons issued without application of mind is liable to be struck down by courts. Recording of reasons for the issue of summons demonstrates application of mind. Therefore, even though the section does not explicitly require recording reasons, it is an essential requirement. Discussion about the relevance of the documents required or the need to examine the taxpayer/witness, would go a long way in satisfying both the requirements i.e., application of mind and also their relevance to the pending proceedings.

In G.M.Breweries Ltd. Vs UOI [1999] 79 TAXLOK.COM (IT) 358 (BOM) ITO, TDS, issued summons under section 131/37/36 of IT Act/WT Act/Gift-tax Act to produce books of accounts which are required for proceedings under IT Act/WT Act/Gift-tax Act. It was held that not filling up the blank spaces and not striking out inapplicable portions clearly show that the Officer concerned has not applied his mind before issue of summons. Accordingly, the summons was quashed. Similar view was expressed by Hon`ble High Court of Calcutta in Dwijendra Lal Brahmachari Vs New Central Jute Mills Co. Ltd [1977] 16 TAXLOK.COM (IT) 440 (CAL). Here it was further held that the information/documents sought in the summons must be relevant to the proceedings before the authority issuing summons.

Physical Attendance of Assessee:

Generally, there is a misconception that when summons is issued, compliance is ONLY through personal appearance. But this is not so. Section 288(1) of the IT Act states that taxpayer is entitled to be represented by an authorised representative, unless he is required under section 131 to personally attend for examination under oath. Therefore, if personal attendance is required, it must specifically be mentioned so in the summons; else, other modes of representation, including a written reply should suffice.

Copy of Statement:

Another vexatious issue is furnishing copy of the sworn statement recorded after issuing summons. Should it be furnished immediately after recording the statement? Or can it be furnished at a later stage? Ground Rules for Search and Seizure, mentioned earlier and also Charter of rights and duties of persons being searched 208 ITR(St) 5-7 say that assessee is entitled to copy of the statement when it is used against him. Hon`ble High Court of Orissa has held in J B Patnaik Vs Bennet Colman & Co AIR (1989) 216, 218 that party is not entitled to know the facts which constitutes opponent`s exclusive evidence; otherwise, it may enable unscrupulous to tamper with the evidence.

Impounding of Books and other Documents produced:

Any authority referred to in sub-section (1) or sub-section (1A) or sub-section (2) may impound and retain in its custody for such period as it thinks fit any books of account or other documents produced before it in any proceeding under this Act:

Provided that an Assessing Officer or an Assistant Director or Deputy Director shall not—

(a) impound any books of account or other documents without recording his reasons for so doing, or

(b) retain in his custody any such books or documents for a period exceeding fifteen days (exclusive of holidays) without obtaining the approval of the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner or Principal Director or Director therefor, as the case may be.

Power to call for information- Section 133-

Section 133 offers a wide range of power to call for information but out of the same sub-section 6 of the said section is the one that is most commonly used to call for information and to verify evidences produced before the authorities. However, one cannot be called upon under this section to physically attend before the authority nor can one examine a person under oath.

Section 133(6)-

(6) require any person, including a banking company or any officer thereof, to furnish information in relation to such points or matters, or to furnish statements of accounts and affairs verified in the manner specified by the Assessing Officer, the Deputy Commissioner (Appeals), the Joint Commissioner or the Joint Commissioner (Appeals) or the Commissioner (Appeals), giving information in relation to such points or matters as, in the opinion of the Assessing Officer, the Deputy Commissioner (Appeals), the Joint Commissioner or the Joint Commissioner (Appeals) or the Commissioner (Appeals), will be useful for, or relevant to, any enquiry or proceeding under this Act:

Provided that the powers referred to in clause (6), may also be exercised by the Principal Director General or Director-General, the Principal Chief Commissioner or Chief Commissioner, the Principal Director or Director or the Principal Commissioner or Commissioner or the Joint Director or Deputy Director or Assistant Director:

Provided further that the power in respect of an inquiry, in a case where no proceeding is pending, shall not be exercised by any income-tax authority below the rank of Principal Director or Director or Principal Commissioner or Commissioner, other than the Joint Director or Deputy Director or Assistant Director, without the prior approval of the Principal Director or Director or, as the case may be, the Principal Commissioner or Commissioner:

Provided also that for the purposes of an agreement referred to in section 90 or section 90A, an income-tax authority notified under sub-section (2) of section 131 may exercise all the powers conferred under this section, notwithstanding that no proceedings are pending before it or any other income-tax authority.

The section is most widely used to verify claims of the assessee, whether it may be for verification of certain expenses or balances appearing in the audit report or it might be to verify the evidences produced before the authority. Multiple instances have been seen where if the assessing officers do not receive information from the person to whom notice under this subsection has been issued, the claims of the assessee have been denied. In multiple cases where persons named in the audit report do not confirm their balance the amount is also treated as unexplained and taxed accordingly.

While hearing a case of Shree Star Carrying Vs ITO (New Delhi) ITAT found that AO had disallowed commission expenses for the reason that some of the agents failed resond to the notices issued to them under this section.

ITAT Held-

"Needless to say, the transport business covering such distinct area is quite challenging and commission agents are strategically important persons whose absence has a potential to dent the business prospects of such type severely. The small time delivery agents at various locations in the state of Bihar and booking agents stationed at various far-off places have been paid commissions for generating freight revenue of Rs.9.3 1 crores. The commission payment stands at 2.88% or about which it cannot be regarded as abnormal. Having regard to the fact that necessary TDS against the payment of commission to agents have been deducted, confirmation along with return of income of such commission agents were placed before the AO, non-compliance of notice u/s 133(6) in the peculiar circumstances requires to be viewed benignly. The assessee has no control over such independent agents and non compliance of such notices at their end should not operate conclusively to the detriment of the assessee. The assessee has reasonably established the nexus between the expenditure and the purpose of business. Besides from the return of income of the commission agents placed before the AO, it is ostensible that such parties are identifiable and receipt of commission has been accepted. The absence of cross verification u/s 133(6) of the Act thus should not be taken as sole and conclusive basis to disregard the nature and expediency of such expenses. Looking holistically, we find reasonable merit in the contentions put forth by the assessee before the lower authorities. We thus consider just and proper to set aside the action of the lower authorities and delete the disallowance."

ITAT`s Observation and Verdict: The Tribunal took into account:

1. Business Nature & Operations: The assessee`s expansive goods transport business across Delhi-Bihar and the essential role of commission agents.

2. Evidence Presented: TDS provisions, commission payment calculations, and return of income for agents were presented.

3. Reasonable Expense Link: A connection between the expenditure and business purpose was established.

4. Verification Issues: Despite the absence of cross-verification under Section 133(6), the nature and necessity of the expenses cannot be ignored.

Power to collect certain information- Section 133B

"133B. (1) Notwithstanding anything contained in any other provision of this Act, an income-tax authority may, for the purpose of collecting any information which may be useful for, or relevant to, the purposes of this Act, enter—

(a) any building or place within the limits of the area assigned to such authority ; or

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

at which a business or profession is carried on, whether such place be the principal place or not of such business or profession, and require any proprietor, 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 to furnish such information as may be prescribed.

(2) An income-tax authority may enter any place of business or profession referred to in sub-section (1) only during the hours at which such place is open for the conduct of business or profession.

(3) For the removal of doubts, it is hereby declared that an income-tax authority acting under this section 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 or thing.

Explanation.—In this section, "income-tax authority" means a Joint Commissioner, an Assistant Director or Deputy Director or an Assessing Officer, and includes an Inspector of Income-tax who has been authorised by the Assessing Officer to exercise the powers conferred under this section in relation to the area in respect of which the Assessing Officer exercises jurisdiction or part thereof."

This section cannot be used to search documents or to make inventory of items or for counting of cash available at the premise of assessee. This section has a limited purpose of gathering information and an officer is only allowed to enter the premises only during the business hours.

Power to call for information by prescribed income-tax authority- Section 133C

"133C. (1) The prescribed income-tax authority may, for the purposes of verification of information in its possession relating to any person, issue a notice to such person requiring him, on or before a date to be specified therein, to furnish information or documents verified in the manner specified therein, which may be useful for, or relevant to, any inquiry or proceeding under this Act.

(2) Where any information or document has been received in response to a notice issued under sub-section (1), the prescribed income-tax authority may process and utilise such information and document in accordance with the scheme notified under sub-section (3) or the provisions of section 135A.

(3) The Board may make a scheme for centralised issuance of notice and for processing of information or documents and making available the outcome of the processing to the Assessing Officer.

(4) The scheme made under sub-section (3) shall cease to have effect from the date on which the scheme notified under section 135A in respect of this section comes into effect.

Explanation.—In this section, the term "proceeding" shall have the meaning assigned to it in clause (b) of the Explanation to section 133A."