2010 (6) TMI 371 - HC - Income Tax

Recovery of tax - attachment notice Notice prior to attachment mandatory - disposal of the stay application without proceeding further with the attachment notices - sum of money debited illegally without disposing of the stay application and without serving notice - petition is allowed

Summary

Issues:
Challenge to attachment notices under Income-tax Act, refund of appropriated amount, legality of attaching bank account, consideration of appeal in attachment process, service of notice of attachment, discretion of Assessing Officer in pending appeal, withdrawal of attachment orders.

Analysis:

1. The petitioner, an assessee under the Income-tax Act, challenged the attachment notices issued by the Assistant Commissioner of Income-tax and sought a refund of Rs. 1,66,000 debited from a bank account. The petitioner argued that attaching the bank account of a partnership firm due to her partnership is illegal and arbitrary. The petitioner also contended that the action of the respondent in attaching the amount without disposing of the stay application and without serving a notice was against the law.

2. The Assessing Officer passed an assessment order for the relevant year, which the petitioner appealed. The petitioner then filed a stay application, but the bank account was attached before the stay application was disposed of. The petitioner's advocate argued that the attachment and debiting of the amount were improper as the appeal was pending, and the stay application was not yet decided. The Revenue's advocate justified the actions, stating that the attachment notices were issued before the stay petition was filed and that the withdrawal of the attachment notices later indicated fairness.

3. The bank, represented by its advocate, stated that their actions were based on orders from the income-tax authorities. The advocate for the partnership firm, a pro forma respondent, argued that the firm suffered prejudice due to the debiting of the amount and requested a refund. The court noted the timeline of events, including the issuance of notices, debiting of the amount, and subsequent withdrawal of attachment notices.

4. The court analyzed the legal aspects, focusing on the requirement of serving a copy of the notice of attachment to the assessee before taking action. The court emphasized that the mandatory service of notice before attachment is essential to prevent the assessee from being taken off guard. It was concluded that the Assessing Officer did not exercise discretion judiciously and failed to consider the pending appeal and stay application properly.

5. The court found that the withdrawal of the attachment orders was not based on any court order but was done suo motu by the respondent. As a result, the court set aside and quashed the action of debiting the amount, directing the respondent to credit the sum back to the account of the partnership firm. The writ petition was allowed, and costs were imposed on the concerned respondent.

6. In summary, the judgment addressed various legal issues related to the attachment of bank accounts under the Income-tax Act, emphasizing the importance of following due process, considering pending appeals, and exercising discretion judiciously by the Assessing Officer. The court's decision focused on upholding the rights of the assessee and ensuring fair treatment in such matters.