Tax authorities’ search powers curtailed

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In a judgment passed by the High Court of Orissa in UK Mahapatra & Co v ITO, it was decided that the income tax authority did not have any power to enter the business premises of a chartered accountant (CA), lawyer or tax practitioner, to conduct a survey of the premises under section 133A of the Income Tax Act, 1961 (ITA). The authority would only be able to do so if the person being surveyed has stated that their accounts, documents and records are kept in the office of their CA, lawyer or tax practitioner.

In this case, the petitioners, a group of CAs, challenged the action of the tax authorities which had conducted a survey in the petitioners’ business premises, impounding and retaining books of accounts and documents belonging to their clients.

The CAs alleged that the survey was conducted illegally and that all consequential action violated the provisions of section 133A of the ITA.

The court held that section 133A of the ITA clarifies that income tax authorities can only enter premises within the limit of the area under their jurisdiction; or any place occupied by any person over which the authority exercises jurisdiction. In either case, the place should be one where the business or profession of the assessee is undertaken.

It is immaterial whether the place is the principal, additional or subsidiary business location of a person being surveyed under section 133A. However, the explanation below sub-section (1) of section 133A of the ITA states that a place where a business or profession is undertaken also includes any other place in which accounts, documents, cash, stock or other valuable articles relating to a person’s business or profession are kept (even if no business is directly conducted from this location).

Unless a person states that his accounts, documents and records are kept in the office of his CA, lawyer or tax practitioner, the income tax authority is not permitted to enter the business premises of that professional to conduct a survey of his or her client under section 133A of the ITA. The court held that the survey operation in the petitioners’ premises and the impounding and retention of numerous documents was illegal, and entitled the petitioners to recover those documents.

The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at [email protected] Readers should not act on the basis of this information without seeking professional legal advice.