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Issues Involved:
1. Validity of the rejection of the stay application under section 220(6) of the Income-tax Act, 1961. 2. Legitimacy of the garnishee proceedings under section 226(3) of the Income-tax Act, 1961. 3. Validity of the search and seizure conducted under section 132 of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Validity of the Rejection of the Stay Application under Section 220(6): The petitioner challenged the rejection of their stay application, arguing that the opportunity given at the time of assessment under section 158BC is different from the opportunity that should be given for staying the demand during the appeal process. The court observed that section 220(6) confers discretion upon the Assessing Officer to stay the demand until the appeal is disposed of, subject to conditions deemed fit. This discretion must be exercised judiciously, implying that the assessee should be given an opportunity to be heard. The court emphasized that the discretion is not absolute and must be exercised reasonably, taking into account factors such as the prima facie case, tax amount involved, the assessee's capacity to pay, undue hardship, and security offered. The court found that the Assessing Officer's refusal to grant the stay lacked proper reasoning and did not meet the required standards of judicious discretion. 2. Legitimacy of the Garnishee Proceedings under Section 226(3): The petitioner argued that the garnishee proceedings under section 226(3) could not be sustained if the stay application was improperly rejected. The court noted that the power to initiate garnishee proceedings is valid if the demand is not stayed and there is a default by the assessee. However, since the rejection of the stay application was found to be improper, the court ordered that the garnishee proceedings should remain stayed and the amount demanded should remain attached until a fresh order is passed by the Assessing Officer after giving the petitioner an opportunity to be heard. 3. Validity of the Search and Seizure under Section 132: The petitioner challenged the validity of the search and seizure on the grounds that the prerequisites for invoking section 132 were not met. The court decided that no interim order could be granted at this stage regarding the search and seizure. The validity of the search and seizure would be determined based on the material produced before the court or the appropriate forum, and the matter would proceed after the exchange of affidavits. Order: The court set aside the impugned order dated March 8, 2002, rejecting the stay application, and directed the Assessing Officer to reconsider the stay application after providing an opportunity for the petitioner to be heard. The garnishee proceedings were ordered to remain stayed, and the amount demanded was to remain attached until a fresh order was passed by the Assessing Officer. The writ petition was disposed of concerning the stay and garnishee proceedings, but it would continue regarding the validity of the search and seizure under section 132 after the exchange of affidavits. The appellate authority was instructed to decide the appeal within three months from the date of communication of this order.
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