2005 (7) TMI 69 - HC - Income Tax

Refund of amount recovered from bank account of petitioner arbitrarily petitioner has not been served with a notice u/s 226(3) before the recovery was made from its accounts with the Bank - notice was served only on April 11, 2005, whereas the amount has been realised/recovered by way of attachment of the two bank accounts on April 7, 2005. The entire action of Revenue appears to have been taken in a hasty and most arbitrary manner just to pre-empt and foreclose the option available to the petitioner to approach the higher authority for grant of interim relief - action of respondent No. 1 has, in fact, shaken a citizen s faith in the impartiality of public administration. Thus, the notice of demand dated March 29, 2005, reducing the period from 30 days to one day, cannot be sustained and is hereby quashed - the action of Revenue, in recovering the sum of Rs. 94,14,606.70 on April 7, 2005, from the bank accounts of the petitioner, is wholly arbitrary and illegal. Since the notice of demand issued under section 156 of the Act has been quashed, and there is no other notice of demand, as a consequence, the petitioner is entitled for the return of the entire amount which has been arbitrarily recovered. - As the petitioner is engaged in banking activities, the petitioner is also entitied for compensation of loss of Interest which it had to pay

Issues Involved:
1. Validity of the notice issued under section 226(3) of the Income-tax Act.
2. Entitlement to exemption under section 80P(2)(a)(i) of the Income-tax Act.
3. Legality of reducing the period for payment specified in the notice of demand.
4. The arbitrary and hasty recovery of tax from the petitioner's bank accounts.
5. Maintainability of the writ petition in the presence of alternative remedies.

Issue-wise Analysis:

1. Validity of the Notice Issued Under Section 226(3) of the Income-tax Act:
The petitioner argued that no notice under section 226(3) of the Act was issued or served before the recovery of the amounts from its bank accounts. The court found that the notice was indeed served on the petitioner only on April 11, 2005, whereas the amount was recovered on April 7, 2005. The court concluded that the entire action was taken in a hasty and arbitrary manner, pre-empting the petitioner from seeking interim relief from higher authorities. Consequently, the notice of demand dated March 29, 2005, reducing the period from 30 days to one day, was quashed.

2. Entitlement to Exemption Under Section 80P(2)(a)(i) of the Income-tax Act:
The petitioner claimed exemption under section 80P(2)(a)(i) of the Act, arguing that it is a co-operative society for the purposes of the Act and entitled to such exemption. The court noted that this issue was already sub judice before the Commissioner of Income-tax (Appeals) and thus refrained from adjudicating on the merits of the exemption claim in this writ petition.

3. Legality of Reducing the Period for Payment Specified in the Notice of Demand:
The court examined whether the Additional Commissioner had valid reasons to believe that allowing the full period of 30 days for payment would be detrimental to the Revenue. The reasons provided by the Additional Commissioner, such as the petitioner's history of disputing tax liability and its sound financial position, were deemed irrelevant. The court held that these reasons did not address the preliminary aspect of detriment to the Revenue if the full period was allowed. Therefore, the action of reducing the period to one day was set aside.

4. The Arbitrary and Hasty Recovery of Tax from the Petitioner's Bank Accounts:
The court found that the recovery of Rs. 94,14,606.70 from the petitioner's bank accounts was conducted in a most arbitrary and hasty manner, without adhering to proper norms and procedures. This action was intended to pre-empt the petitioner from seeking interim relief. The court emphasized that such arbitrary actions undermine the rule of law and the faith of citizens in public administration. As a result, the court ordered the return of the recovered amount along with interest at 12% per annum.

5. Maintainability of the Writ Petition in the Presence of Alternative Remedies:
The respondents argued that the writ petition was not maintainable due to the availability of alternative remedies. However, the court held that the petition was maintainable because it addressed the arbitrary and hasty actions of the tax authorities rather than the merits of the assessment order. The court cited precedents where gross violations of law and injustices warranted judicial intervention despite the existence of alternative remedies.

Conclusion:
The court allowed the writ petition, quashing the notice of demand and ordering the return of the recovered amount with interest. The petitioner's grievances regarding the arbitrary and hasty recovery actions were upheld, and the court emphasized the importance of adhering to the rule of law and proper procedures in tax recovery actions.

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