2022 (4) TMI 1449 - HC - Income Tax

Attachment of bank accounts as well as trade receivables - orders passed u/s 132 (9B) - HELD THAT - Petitioner has not granted access to its books of accounts to the officials of the respondents and has repatriated Rs.750 crores to its holding company in the last year. Respondents have been granted complete access to the Company s Accounting Enterprise Planning (ERP) system. He states that ERP system is a primary source of transaction undertaken by the Petitioner and comprises of data pertaining to ledger accounts expenditure remittances receivables payables related party transactions fixed assets etc. States that due to the impugned orders the Petitioner has defaulted in making payment of statutory dues like GST and TDS. He also states that the Petitioner has not been able to pay salary to its 400 (approx.) permanent employees and 190 contractual employees as well as clear dues of its vendors/ suppliers. This Court is of the view that the present matter requires a detailed examination. Petitioner shall prepare a Fixed Deposit Receipt of Rs.100 crores in DBS Bank Account No.820200251860 which shall be renewed automatically from time to time. A photocopy of the said FDR shall be filed with the Assessing Officer within a week. The Banker is also directed to ensure that the Petitioner and/or any of its officials/nominees/authorised representatives do not deal with the FDR in any manner. Respondents are directed not to release any refund which is stated to be to the tune of Rs.30 crores (approx.) to the Petitioner till further orders .

Summary

Issues:
Challenging provisional attachment of bank accounts and trade receivables under Section 132(9B) of the Income Tax Act, 1961.
Challenge against rejection of release request for funds.
Alleged disproportionate attachment affecting business operations.
Non-compliance with procedural requirements under Section 132(9B) and Second Schedule of the Act.
Interpretation of necessity for provisional attachment.
Impact on statutory dues, employee salaries, and vendor payments.
Balancing equity in the matter.

Analysis:

1. The petitioner filed a writ petition challenging the provisional attachment of bank accounts and trade receivables under Section 132(9B) of the Income Tax Act, 1961. The impugned orders dated February and March 2022 were contested, alleging that the attachments severely constricted business operations in a disproportionate manner.

2. Additionally, the petitioner challenged the rejection of a release request for its bank accounts and trade debtors attached provisionally. The Letter dated March 2022 denying the release was a subject of dispute, highlighting the financial constraints faced by the petitioner.

3. The petitioner's counsel argued that the attachments exceeded the scope of Section 132(9B) as there was no existing demand against the petitioner. The conditions of 'reasons' and 'necessity' for protecting the revenue's interest were said to be unsatisfied, emphasizing the adverse impact on the petitioner's financial activities.

4. The counsel further contended that procedural requirements under Section 132(9B) and the Second Schedule of the Act were disregarded during the attachment process. The petitioner's inability to receive foreign remittances showcased the wide-reaching effects of the attachment orders.

5. Citing the judgment in Radha Krishan Industries vs. State of Himachal Pradesh, the petitioner relied on the necessity for tangible material to justify provisional attachments. The judgment emphasized that whimsical exercise of attachment powers should be avoided to safeguard revenue interests effectively.

6. During the proceedings, the respondents highlighted the petitioner's lack of cooperation in providing access to accounting records and alleged repatriation of funds abroad. The complexity of the matter necessitated a detailed examination by the Court to ensure a fair balance between the parties' interests.

7. In response, the petitioner's counsel clarified that access to the Company's ERP system was granted, containing essential transaction data. The petitioner's financial distress, including defaults in statutory payments and employee salary issues, was attributed to the impugned orders' impact.

8. After hearing both parties, the Court stayed the impugned orders with specific conditions to maintain equity. These conditions included a fixed deposit receipt, restrictions on refunds, repatriation of funds abroad, and filing of monthly payment statements, ensuring provisional relief pending further orders.

9. The provisional arrangement was subject to review, with a scheduled hearing in July 2022 to address the ongoing dispute. The Court aimed to strike a balance between the petitioner's operational needs and the revenue's interest, emphasizing the provisional nature of the relief granted.