Section 133A of the Income Tax Act Post Finance Act 2022: Survey Approval Framework & Legal Challenges

Introduction

The Finance Act 2022 introduced significant amendments to Section 133A of the Income Tax Act, 1961, fundamentally altering the landscape of survey operations conducted by income tax authorities in India. These amendments, which came into effect from April 1, 2022, have created a structured collegium approval framework while simultaneously raising concerns about unauthorized surveys and jurisdictional challenges. Section 133A empowers income tax authorities to enter business premises, verify books of account, and gather information relevant to tax proceedings. However, the recent modifications have transformed this provision from a relatively straightforward investigative tool into a complex mechanism requiring multiple layers of approval, creating what can be termed a “collegium approval paradox.”[1]

The legislative intent behind these amendments was to introduce greater accountability and prevent misuse of survey powers, which are considered intrusive in nature. The Central Board of Direct Taxes (CBDT) issued detailed orders under Section 119 of the Income Tax Act to operationalize these amendments, specifying which authorities can conduct surveys and mandating approval from senior officers or collegiums comprising Principal Chief Commissioners or Director Generals.[2] While these safeguards aim to protect taxpayers from arbitrary action, they have simultaneously created practical challenges in survey authorization, raising questions about the validity of surveys conducted without proper approval and the evidentiary value of materials gathered during such operations.

Legislative Framework of Section 133A

Section 133A of the Income Tax Act, 1961, grants income tax authorities the power to enter any place of business or profession within their jurisdiction to verify books of account, documents, cash, stock, or other valuable articles that may be useful for any proceeding under the Act. Unlike Section 132 which deals with search and seizure operations commonly known as raids, Section 133A governs survey operations which are less intrusive but nonetheless significant investigative tools. The key distinction lies in the fact that survey operations must be conducted during business hours at business premises, whereas search operations under Section 132 can be conducted at any time and at any location including residential premises.[3]

Prior to the Finance Act 2022 amendments, the Explanation to Section 133A defined “income-tax authority” as any authority subordinate to the Principal Director General of Income Tax (Investigation), Director General of Income Tax (Investigation), Principal Chief Commissioner of Income Tax (TDS), or Chief Commissioner of Income Tax (TDS). This limitation was introduced through the Taxation and Other Laws (Amendment and Relaxation of Certain Provisions) Act, 2020, which restricted survey powers exclusively to officers in Investigation Wings and TDS charges, removing these powers from regular assessment officers.

The Finance Act 2022 further amended the Explanation to Section 133A by providing that the income tax authority shall be subordinate to the Principal Director General, Director General, Principal Chief Commissioner, or Chief Commissioner as may be specified by the Board. This amendment broadened the scope while simultaneously requiring explicit specification by the CBDT, creating a two-tier authorization structure. The proviso to sub-section six of Section 133A mandates that no action under this section shall be taken by an income tax authority without the approval of the Principal Director General, Director General, Principal Chief Commissioner, or Chief Commissioner.[4]

The CBDT Collegium Framework

Following the Finance Act 2022 amendments, the CBDT issued a critical order dated November 22, 2022, under Section 119 of the Income Tax Act, which established a detailed framework for conducting surveys under Section 133A. This order superseded previous orders and created a collegium-based approval mechanism for different categories of charges within the Income Tax Department. The order specified that authorization for action under Section 133A shall be issued by an income tax authority not below the rank of Joint Director or Joint Commissioner with prior approval from the Director General or Chief Commissioner for Investigation Wings and Central charges, and from the Principal Chief Commissioner for all other charges.[5]

The collegium framework operates differently for various departmental charges. For TDS charges, any verification or survey under Section 133A shall be conducted by officers of the TDS charge itself, with approval from the Principal Chief Commissioner of the region or Chief Commissioner (TDS), as applicable. For Central charges reporting to the Director General (Investigation), surveys must be approved by that authority and conducted by Investigation Wing officers including officers from the Central charge. However, for Central charges headed by Chief Commissioner (Central), approval must come from a collegium consisting of the Chief Commissioner (Central) as one member and the Director General (Investigation) of the region as the other member.

For the International Taxation Division, TDS surveys require approval from a collegium comprising the Principal Chief Commissioner (International Taxation and Transfer Pricing) or Chief Commissioner (International Taxation and Transfer Pricing) as one member, and Chief Commissioner (TDS) or Principal Chief Commissioner of the region as the other member. Non-TDS surveys by the International Taxation Division require approval from a collegium of the Principal Chief Commissioner (International Taxation and Transfer Pricing) or Chief Commissioner (International Taxation and Transfer Pricing) and Director General (Investigation). Similar collegium requirements exist for surveys initiated by the National e-Assessment Centre, National Faceless Appeal Center, Exemption Charge, and the Information and Central Intelligence Charges.[6]

The CBDT order clarifies that collegiums shall consist of two officers at the level of Principal Chief Commissioner, Chief Commissioner, or Director General, and shall operate only where more than one such officer is available to make decisions regarding surveys. The means and mechanism for collegium functioning, including details about meetings, shall be decided by the senior officer of the collegium. In cases of disagreement between collegium members, the issue shall be resolved by the Principal Chief Commissioner of the region. The order reiterates that surveys can be conducted only by officers of Investigation Wings or TDS charges and shall be taken only as a last resort when all other means of verification, obtaining details online, or recovery are exhausted.[7]

The Collegium Approval Paradox

The collegium approval framework, while designed to introduce accountability, has created several practical challenges that constitute what can be termed the “collegium approval paradox.” The fundamental paradox lies in the fact that the very mechanism intended to prevent unauthorized surveys may itself render many surveys technically unauthorized if the complex approval requirements are not meticulously followed. Given the multi-layered approval structure involving collegiums of senior officers, delays in obtaining approvals can hamper timely action in cases requiring urgent intervention. Furthermore, the requirement for collegium approval creates jurisdictional ambiguities when officers from different charges need to coordinate for survey operations.

The paradox becomes particularly acute in cases where surveys need to be conducted urgently based on time-sensitive intelligence. The elaborate approval mechanism may result in loss of crucial evidence or provide assessed parties with opportunities to conceal relevant materials. Additionally, the collegium framework requires coordination between Investigation Wings and other departmental charges such as TDS, International Taxation, or Exemption charges, which may not always function seamlessly. The order specifies that surveys must include officers from both the requesting charge and the Investigation Wing, creating logistical challenges in team composition and operational coordination.

Another dimension of this paradox emerges from the retrospective application concerns. Surveys conducted between April 1, 2022 (when the Finance Act 2022 amendments took effect) and November 22, 2022 (when the detailed CBDT order was issued) may face challenges regarding their validity if they were not conducted in compliance with the collegium framework that was subsequently specified. This creates uncertainty about the evidentiary value of materials gathered during that interim period. The requirement that surveys be conducted only as a last resort after exhausting all other means of verification also introduces subjective elements into the authorization process, potentially leading to disputes about whether this condition was satisfied before initiating survey action.[8]

Unauthorized Survey Challenges

The stringent approval requirements introduced post-Finance Act 2022 have heightened concerns about unauthorized surveys and their legal consequences. An unauthorized survey can arise from multiple scenarios including conducting a survey without obtaining the requisite approval from the Principal Director General, Director General, Principal Chief Commissioner, or Chief Commissioner as mandated by the proviso to Section 133A. Surveys conducted by officers who are not subordinate to the authorities specified by the CBDT in its order would also constitute unauthorized action. Similarly, surveys conducted without collegium approval in cases where such approval is mandatory under the CBDT framework would be technically unauthorized. Surveys conducted by charges other than Investigation Wings or TDS charges would violate the specific restriction imposed by the amended Section 133A.[9]

The legal challenges arising from unauthorized surveys are significant. Courts have consistently held that compliance with statutory procedures is mandatory and not merely directory. Any survey conducted in violation of the approval requirements would be liable to be quashed as being without jurisdiction. The Supreme Court has emphasized in numerous judgments that jurisdictional conditions precedent must be strictly complied with, and non-compliance renders the subsequent proceedings void. In cases involving unauthorized surveys, taxpayers can challenge the validity of the survey itself through writ petitions before High Courts under Article 226 of the Constitution.

The consequences of conducting unauthorized surveys extend beyond jurisdictional invalidity to questions about the evidentiary value of materials gathered during such operations. Even if materials are impounded or statements are recorded during an unauthorized survey, their admissibility and weight as evidence in subsequent assessment proceedings become highly questionable. The Supreme Court judgment in CIT v. S. Khader Khan & Son established that statements recorded during survey proceedings under Section 133A do not have the same evidentiary value as statements recorded under oath during search operations under Section 132(4). Building upon this principle, statements or materials obtained through unauthorized surveys would have even more tenuous evidentiary status.[10]

The challenges posed by potentially unauthorized surveys have practical implications for both the Department and taxpayers. From the Department’s perspective, there is a risk that significant resources expended in conducting survey operations may be wasted if those surveys are subsequently found to be unauthorized. Assessment proceedings based on unauthorized surveys could be challenged successfully, leading to deletion of additions made on the basis of such surveys. From the taxpayer’s perspective, being subjected to an unauthorized survey represents an infringement of rights without legal sanction, potentially causing business disruption and reputational harm without valid authority.

Judicial Perspectives on Survey Powers and Evidentiary Value

Indian courts have developed substantial jurisprudence regarding the scope, limitations, and evidentiary value of survey operations under Section 133A. The landmark judgment in Commissioner of Income Tax v. S. Khader Khan & Son by the Madras High Court, which was subsequently affirmed by the Supreme Court, established foundational principles governing survey proceedings. The High Court held that Section 133A does not empower any Income Tax Officer to examine any person on oath, and therefore statements recorded under Section 133A have no evidentiary value and cannot by themselves form the basis for additions to income. The Court distinguished between Section 132(4), which specifically authorizes officers to examine persons on oath during search operations with such statements being admissible as evidence, and Section 133A, which contains no such provision for oath-taking.[11]

The Supreme Court upheld this reasoning, observing that the word “may” used in Section 133A(3)(iii) which states that an income tax authority may “record the statement of any person which may be useful for, or relevant to, any proceeding under this Act” clarifies beyond doubt that materials collected and statements recorded during surveys are not conclusive pieces of evidence by themselves. The Supreme Court emphasized that while an admission made during a survey is an important piece of evidence, it cannot be said to be conclusive, and it is open to the person who made the admission to show that it is incorrect. This principle has been consistently followed by various High Courts and the Income Tax Appellate Tribunal in subsequent cases.

The Delhi High Court in CIT v. Dhingra Metal Works followed the S. Khader Khan & Son precedent and held that survey officers are not authorized to administer an oath and record a sworn statement under Section 133A. The Court noted that this is in sharp contrast with Section 132(4) which specifically authorizes an officer to examine a person on oath. The Court further observed that the material collected and statements recorded during surveys clarify beyond doubt that such materials are not conclusive pieces of evidence by themselves. The Chhattisgarh High Court in a recent decision reiterated these principles, holding that additions based solely on statements recorded during survey proceedings cannot be sustained, particularly when the assessee retracts the statement and no independent evidence is brought on record.[12]

Courts have also addressed the issue of conversion of survey operations into search and seizure operations. The Punjab and Haryana High Court examined this issue and held that conversion of a survey action into search is illegal when the survey at residential premises of an assessee is converted into search and seizure without tax authorities recording that the assessee failed to cooperate or without there being suspicion that income had been concealed by the assessee warranting resort to search and seizure. Similarly, the Delhi High Court held that if a survey is converted into search without fulfillment of conditions precedent for initiating search, or without application of mind or satisfaction by the higher authority eligible to initiate search, then the search will be illegal. These judgments underscore the principle that different provisions of the Income Tax Act confer different powers with different procedural safeguards, and one cannot be converted into another without strict compliance with statutory requirements.

The CBDT itself has issued instructions recognizing the limitations on relying solely on statements recorded during surveys. Instruction No. 286/2/2003-IT(Inv.) dated March 10, 2003, specifically states that assessments ought not to be based merely on confessions obtained at the time of search and seizure and survey operations but should be based on evidence and material gathered during the course of such operations or thereafter while framing relevant assessments. This instruction has been consistently referred to by courts when examining additions made solely on the basis of survey statements. The instruction reflects an administrative recognition that statements obtained during surveys, particularly when made under pressure or for buying peace of mind, should not automatically be treated as gospel truth without corroboration.

Implications for Tax Administration and Compliance

The post-Finance Act 2022 framework for Section 133A surveys has significant implications for both tax administration and taxpayer compliance. From an administrative perspective, the collegium approval mechanism introduces additional checks and balances but also creates bureaucratic layers that may slow down investigative actions. The requirement to coordinate between different charges and obtain collegium approvals necessitates more planning and documentation before initiating surveys. This can be beneficial in preventing hasty or ill-conceived survey actions but may also reduce the Department’s ability to respond swiftly to emerging intelligence about tax evasion.

The restriction that surveys can be conducted only as a last resort after exhausting other means of verification represents a significant policy shift toward less intrusive tax administration. This aligns with the broader vision of faceless assessment and minimal physical interface with taxpayers. However, it also places the burden on field officers to demonstrate that they have indeed exhausted other avenues before seeking approval for surveys. The documentation requirements for establishing that surveys are the last resort add to the administrative workload and create potential points of challenge for taxpayers who may argue that adequate alternative measures were not attempted.

For taxpayers, the enhanced procedural safeguards provide greater protection against arbitrary survey actions. The knowledge that surveys require high-level approvals and collegium decisions may deter casual or routine use of survey powers for minor verification purposes. However, these safeguards also create opportunities for procedural challenges. Taxpayers subjected to surveys now have grounds to question whether proper approvals were obtained, whether the collegium mechanism was followed, and whether the last resort condition was satisfied. These challenges can be raised both during the survey itself and subsequently in assessment or appellate proceedings.

The evidentiary challenges arising from the S. Khader Khan & Son line of cases provide taxpayers with strong grounds to contest additions based primarily on survey statements. Taxpayers can retract statements made during surveys and demand corroborating evidence from the Department. This shifts the evidentiary burden and makes it more difficult for the Department to rely on survey findings unless supported by documentary or material evidence discovered during the survey. Tax professionals advising clients should be aware of these protections and assert them effectively when dealing with survey situations.

The interaction between the collegium approval framework and judicial interpretations regarding evidentiary value creates a compound protection for taxpayers. Even if a survey is conducted with proper approvals, the materials gathered still face the evidentiary limitations established by case law. Conversely, if a survey lacks proper authorization, it faces both jurisdictional challenges and evidentiary challenges. This dual layer of protection represents a significant shift in the balance between departmental powers and taxpayer rights.

Regulatory Compliance and Best Practices

Given the complex framework governing Section 133A surveys post-Finance Act 2022, both tax authorities and taxpayers need to adopt careful compliance practices. For tax authorities, the foremost requirement is strict adherence to the approval mechanisms specified in the CBDT orders. Officers seeking to conduct surveys must ensure they obtain approvals from the appropriate authority or collegium as specified for their particular charge. Documentation of the approval process is essential, as this may be subject to scrutiny in subsequent legal challenges. Officers should maintain records showing that alternative means of verification were attempted and exhausted before resorting to survey action, as required by the last resort principle.

Survey teams should be properly constituted with officers from the designated charges as per CBDT orders. For instance, when the Investigation Wing conducts a survey on behalf of another charge, both Investigation Wing officers and officers from the requesting charge must be included in the survey team. The survey authorization should be in writing, clearly specifying the premises to be surveyed, the reasons necessitating the survey, and the approval obtained. During the survey itself, officers must conduct themselves within the boundaries of Section 133A, which permits verification of books, impounding of documents, recording of statements, and inventory of cash and stock, but does not permit removal of cash or valuables from the premises.

When recording statements during Section 133A surveys, officers should clearly inform the persons being questioned that they are not under oath and that the statements being recorded are not on oath. This is important because subsequent disputes often arise regarding the binding nature of survey statements. Officers should avoid creating undue pressure or coercion to obtain statements, as CBDT instructions specifically caution against recording statements under duress. The survey report should be detailed, documenting all actions taken, materials impounded, statements recorded, and relevant findings. This report must be uploaded on the Income Tax Business Application (ITBA) as per the Survey Module, and copies should be provided to officers from requesting charges if applicable.

For taxpayers subjected to surveys, the first step is to verify the authority of the officers conducting the survey. Taxpayers have the right to ask for and examine the survey authorization order to confirm that proper approvals have been obtained. During the survey, taxpayers should cooperate with reasonable requests for production of books and documents, as non-cooperation can lead to adverse consequences and potential conversion to search proceedings. However, taxpayers should be aware of their rights and limitations of survey powers. The survey team cannot remove cash or stock from the premises, cannot examine residential premises unless business is conducted from there, and cannot conduct the survey outside business hours.

When questioned during surveys, taxpayers should exercise caution in making statements. While there is no legal compulsion to answer questions during a survey (unlike during a search under Section 132(4) where examination on oath is authorized), refusing to cooperate may create practical difficulties. Taxpayers should avoid making admissions regarding undisclosed income or surrendering amounts for peace of mind under pressure. If any statements are made under pressure or based on incomplete information, taxpayers should retract such statements at the earliest opportunity through written communication. Given the holding in S. Khader Khan & Son that survey statements are not conclusive and can be retracted, prompt retraction supported by evidence is an important protective measure.

Following a survey, taxpayers should obtain copies of all documents impounded and the statements recorded. If the survey findings are disputed, taxpayers can make written submissions to the assessing officer explaining discrepancies or providing context for materials found during the survey. In cases where taxpayers believe the survey was unauthorized or conducted in violation of procedural requirements, they can challenge the survey through writ petitions in High Courts. Such challenges should be filed promptly, supported by documentation showing the procedural violations. Legal advice from experienced tax counsel should be sought when dealing with survey situations, particularly if significant additions are likely to be made based on survey findings.

Conclusion

The Finance Act 2022 amendments to Section 133A of the Income Tax Act, 1961, along with the subsequent CBDT orders establishing the collegium approval framework, represent a significant evolution in the legal landscape governing tax surveys in India. These changes reflect a policy orientation toward greater accountability, higher-level oversight, and protection against arbitrary use of intrusive investigative powers. The collegium mechanism ensures that survey decisions involve senior officers with broader perspective and experience, reducing the likelihood of hasty or inappropriate survey actions. The last resort principle emphasizes that surveys should be used sparingly, only when less intrusive methods have proven inadequate.

However, these enhanced safeguards have created what we term the collegium approval paradox – a situation where the very mechanisms designed to prevent unauthorized surveys may render many surveys technically unauthorized if the complex procedural requirements are not meticulously satisfied. The multi-layered approval structure, while providing checks and balances, also creates potential grounds for jurisdictional challenges and raises questions about the validity of surveys conducted during transitional periods or without strict adherence to the specified procedures. The requirement for coordination between different departmental charges adds logistical complexity to survey operations.

The judicial developments, particularly the Supreme Court’s affirmation of the Madras High Court judgment in S. Khader Khan & Son, provide an additional layer of protection for taxpayers by establishing that statements recorded during surveys lack the evidentiary weight of statements recorded under oath during searches. This jurisprudence, combined with the procedural safeguards introduced through the Finance Act 2022 amendments, creates a robust framework of taxpayer protections. However, it also creates challenges for tax administration in effectively utilizing survey findings for assessment purposes, as corroborating evidence beyond mere statements becomes essential.

Moving forward, the success of this framework will depend on how effectively it balances the twin objectives of preventing tax evasion through effective investigation and protecting taxpayer rights against arbitrary action. The Income Tax Department will need to develop streamlined processes for obtaining collegium approvals while ensuring that the approval mechanism does not become a merely procedural exercise devoid of substantive oversight. Training and capacity building for officers regarding the proper conduct of surveys and the evidentiary limitations of survey findings will be crucial. Clear documentation practices and adherence to CBDT instructions will be necessary to withstand judicial scrutiny of survey actions and subsequent assessments based on survey findings.

For taxpayers and tax professionals, understanding the procedural requirements for valid surveys and the evidentiary limitations of survey findings is essential for effective representation in survey situations and subsequent proceedings. The framework creates opportunities for challenging unauthorized surveys and contesting additions based solely on survey statements. However, taxpayers should also recognize that properly conducted surveys with adequate corroborating evidence can still result in valid additions, and their best protection lies in maintaining proper books of account and documentary support for all transactions.

The Section 133A framework post-Finance Act 2022 thus represents a nuanced attempt to modernize tax administration while strengthening taxpayer safeguards. Its ultimate effectiveness will be determined by how tax authorities and taxpayers adapt to its requirements and how courts interpret and apply these provisions in specific cases. As with many aspects of tax law, the devil lies in the details of implementation, and careful attention to both the letter and spirit of these provisions will be necessary to achieve the intended balance between effective tax administration and protection of taxpayer rights.

References

[1] Finance Act 2022, Section 133A amendments. Available at: https://taxguru.in/income-tax/latest-amendments-relating-survey-u-s-133a-income-tax-act.html 

[2] CBDT Order F.No. 282/15/2022-IT(Inv-V) dated November 22, 2022. Available at: https://www.taxmann.com/post/blog/cbdt-specifies-income-tax-authorities-for-the-purpose-of-authorisation-of-survey-u/s-133a/ 

[3] Income Tax Act, 1961, Section 133A. Available at: https://www.aubsp.com/section-133a-income-tax-act/ 

[4] Finance Act 2022, amendments to Section 133A Explanation. Available at: https://taxguru.in/income-tax/income-tax-authorities-purposes-section-133a-act.html 

[5] CBDT Order under Section 119 dated November 22, 2022. Available at: https://taxguru.in/income-tax/latest-amendments-relating-survey-u-s-133a-income-tax-act.html 

[6] CBDT Order dated October 19, 2020, superseded by November 2022 order. Available at: https://taxguru.in/income-tax/cbdt-issues-guideline-power-survey-section-133a.html 

[7] CBDT Order F.No. 187/3/2020-ITA-I dated August 13, 2020. Available at: https://taxguru.in/income-tax/cbdt-notifies-officers-survey-section-133a.html 

[8] Analysis of Finance Act 2022 amendments. Available at: https://www.taxmann.com/post/blog/amendments-made-by-the-finance-act-2022-highlights 

[9] Taxation and Other Laws (Amendment and Relaxation of Certain Provisions) Act, 2020. Available at: https://corpbiz.io/learning/income-tax-authority-has-a-power-of-survey-under-section-133a-as-notified-by-cbdt/ 

[10] Commissioner of Income Tax v. S. Khader Khan & Son, (2008) 300 ITR 157 (Madras), affirmed by Supreme Court in (2013) 352 ITR 480. Available at: https://itatonline.org/digest/cit-v-s-khader-khan-son-2012-210-taxman-248-79-dtr-184-254-ctr-228-2013-352-itr-480-sc/ 

[11] Commissioner of Income Tax v. S. Khader Khan & Son, (2008) 300 ITR 157 (Madras). Available at: https://indiankanoon.org/doc/1415109/ 

[12] CIT v. Dhingra Metal Works, 196 Taxman 488 (Delhi); Recent Chhattisgarh High Court judgment. Available at: https://www.taxscan.in/top-stories/statement-recorded-during-survey-has-no-evidentiary-value-chhattisgarh-hc-quashes-additions-on-excess-stock-cash-based-on-sc-decision-1437638