2017 (11) TMI 920 - HC - Income Tax

Recovery of dues - Obligation to pay only 20% of the outstanding dues - validity of garnish notice to the ICICI Bank - Held that - The assessee in light of the circulars issued by CBDT was under an obligation to pay only 20% of the outstanding dues and as the same was not done, the department has started proceeding under Section 226(3) of the Income Tax Act, 1961. In the considered opinion of this Court, the department has rightly raised a demand by passing a speaking order. The issue regarding levy of tax of lease premium is not a subject matter of the present writ petition. The issue has to be decided by the authorities where an appeal is pending i.e. CIT(Appeal) and as the assessee has failed to pay 20% of the outstanding dues, this Court is of the opinion that the Department was justified in issuing a demand notice and was also justified in issuing letter dated 04/10/2017. The ICICI Bank has filed an application for intervention and the same is also allowed. The Bank has been heard by this Court. It has been stated by the ICICI Bank that on 05/10/2017, this Court has passed an interim order and it has been observed that there will be no coercive action against the petitioner Company and a legal notice was given by the lawyer of the petitioner Company to the ICICI Bank under the provisions of Contempt of Courts Act, 1971. The ICICI Bank in order to avoid any contempt has permitted transaction in the account which was freezed. It is really strange that in case there was some confusion in respect of interim order passed by this Court, nothing prevented the ICICI Bank to approach this Court. Merely because the learned counsel for the Company has given a legal notice to initiate contempt proceedings, the ICICI Bank has permitted withdrawal of the amount and therefore, in the considered opinion of this Court, the Income Tax Department shall certainly be free to take appropriate steps against the ICICI Bank strictly in accordance with law. This Court in light of the aforesaid as 20% of the demand has not been deposited by the petitioner Company, is of the opinion that no case for interference is made out in the matter and accordingly, the admission is declined.

Summary

Issues Involved:
1. Legality of the garnish notice issued by the Income Tax Department.
2. Compliance with CBDT circulars regarding the stay of demand.
3. Validity of the demand raised by the Income Tax Department.
4. Separate legal entities and their tax liabilities.
5. Actions of ICICI Bank in response to the legal notice.

Issue-wise Detailed Analysis:

1. Legality of the Garnish Notice Issued by the Income Tax Department:
The petitioner, Madhya Pradesh Audyogik Kendra Vikas Nigam Limited, challenged the garnish notice dated 04/10/2017 issued by the Income Tax Department to ICICI Bank. The petitioner argued that they had already deposited more than the required 20% of the outstanding demand, making the garnish notice unlawful. The Court noted that the petitioner had indeed deposited ?12 Crores but this was against a different entity, SEZ Indore Ltd., and not the petitioner itself. Therefore, the garnish notice was deemed lawful as the petitioner had not fulfilled the requirement of depositing 20% of its own outstanding demand.

2. Compliance with CBDT Circulars Regarding the Stay of Demand:
The petitioner sought relief based on CBDT circulars dated 29/02/2016 and 31/07/2017, which allow for a stay of demand upon payment of 20% of the disputed amount. The Court highlighted that the petitioner did not comply with this requirement. The assessment order dated 28/04/2017 raised a demand of ?48,71,99,640/-, and the petitioner failed to pay the 20% of this demand. Consequently, the Income Tax Department's actions were in compliance with the CBDT circulars.

3. Validity of the Demand Raised by the Income Tax Department:
The assessment order under Section 143(3) of the Income Tax Act assessed the petitioner's income at ?1,26,99,79,660/- against the declared income of ?57,01,03,020/-. The petitioner contested this assessment, but the Court found that the petitioner had not paid any amount towards the demand raised. The Court upheld the validity of the demand, stating that the petitioner had not met the obligation to pay 20% of the outstanding dues as required by the CBDT circulars.

4. Separate Legal Entities and Their Tax Liabilities:
The Court emphasized that M.P. Audyogik Kendra Vikas Nigam Limited and SEZ Indore Ltd. are separate legal entities with distinct tax liabilities. The ?12 Crores deposited by MPAKVN could not be credited towards the tax liability of SEZ Indore Ltd. The Court found that the petitioner had misrepresented facts by claiming that the amount paid by MPAKVN should be considered for SEZ Indore Ltd.'s tax liability.

5. Actions of ICICI Bank in Response to the Legal Notice:
ICICI Bank's intervention was allowed, and the Court addressed the actions taken by the bank following a legal notice from the petitioner's counsel. The bank had unfrozen the account to avoid contempt of court, but the Court noted that the bank should have sought clarification from the Court regarding the interim order. The Court allowed the Income Tax Department to take appropriate steps against ICICI Bank in accordance with the law.

Conclusion:
The Court dismissed the writ petitions, concluding that the petitioner had not complied with the requirement to deposit 20% of the outstanding demand, and the actions of the Income Tax Department were justified. The Court also allowed the Income Tax Department to take action against ICICI Bank for permitting transactions in the frozen account. The judgments in both the connected writ petitions were governed by the same reasoning and outcome.