2020 (1) TMI 1160 - HC - Income Tax

Violation of principles of natural justice - demand notice under Section 156 - attachment notice that was issued under Section 281B prior to passing of the assessment order - HELD THAT - Income tax officer has not acted without jurisdiction. Whether such jurisdiction has been exercised incorrectly and/or there is an error in such exercise is a different issue to be tested under the statutory appeal available under the Act. The Supreme Court in Balmiki Prasad Singh 2018 (9) TMI 1936 - SUPREME COURT upheld the order of the High Court setting aside the assessment order on the grounds of violation of the principles of natural justice. In the present case, there is no such violation of principles of natural justice, and therefore, the judgment has no precedential value in the present case. The extra ordinary jurisdiction under Article 226 of the Constitution is required to be sparingly used only when the Court finds that the action of the State is completed without jurisdiction, in violation of the principles of natural justice and/or the order passed is palpably illegal. In my view, none of the above conditions are applicable in the present case. Accordingly, I do not find any reason to interfere with the assessment order. With regard to the provisional attachment, the reasons recorded by the officer and the explanation given by Mr. Trivedi are not acceptable to me as this is a provision to be used only in rare situations where the bona fide of the assessee is in question or there has been a clear case of evasion of tax. Taxability of ₹ 74.5 crores is a debatable issue. The Income Tax officer has himself changed the goal post by first charging the amount under Section 28(iv), and thereafter, under Section 28(ii)(a). In a situation wherein the officer is himself not certain of the taxability, the use of a drastic provision such as Section 281B is not tenable. Moreover, no reasons have been provided in the attachment notice. Submission of Mr. Trivedi that the amount of tax being large, and therefore, the provisional attachment was resorted to, is not a good enough reason and is rejected by this Court. If the above reason were accepted then in all cases of high demands, provisional attachment would become the norm. I am unable to accept the logic, and therefore, the attachment order is quashed and set aside. Writ petition is disposed of with liberty given to the petitioner to file an appeal and stay petition before the Commissioner of Income Tax (Appeals) within a period of 30 days from date. The Commissioner of Income Tax (Appeals) is directed to grant an opportunity of hearing and thereafter pass a reasoned order in respect to the stay petition forthwith

Summary

Issues:
1. Challenge to assessment order and demand notice under Income Tax Act, 1961.
2. Legality of attachment notice issued under Section 281B of the Act.
3. Interpretation of taxability under Section 28(ii)(a) of the Act.
4. Validity of provisional attachment under Section 281B of the Act.

Issue 1: Challenge to Assessment Order and Demand Notice:
The petitioner challenged an assessment order and demand notice under the Income Tax Act, 1961, issued on December 29, 2019. The petitioner contended that the assessment process was flawed, with discrepancies in the taxability determination. The petitioner's representative cited various judgments to support the argument that certain amounts received should not be taxable under the Act. The High Court, after considering the arguments, declined to interfere at that stage, emphasizing that statutory appeal remedies should be pursued unless the order is completely without jurisdiction.

Issue 2: Legality of Attachment Notice under Section 281B:
The petitioner contested the provisional attachment of their bank account under Section 281B of the Act, arguing that it was unwarranted and contrary to established legal principles. The Revenue justified the attachment due to the substantial sum involved. However, the Court found the reasons provided for the attachment unsatisfactory, especially considering the debatable taxability issue. The Court referenced a Bombay High Court judgment to emphasize that such drastic powers must be exercised judiciously. Consequently, the Court quashed the attachment order.

Issue 3: Interpretation of Taxability under Section 28(ii)(a) of the Act:
The petitioner's counsel argued that the taxability of a specific amount should not fall under Section 28(ii)(a) of the Act based on various legal precedents. The Court noted the changing taxability categorization by the Income Tax officer and the lack of certainty in tax treatment. This uncertainty led the Court to question the validity of the provisional attachment, ultimately ruling in favor of the petitioner and setting aside the attachment order.

Issue 4: Validity of Provisional Attachment under Section 281B:
The Court scrutinized the legality of the provisional attachment under Section 281B, emphasizing that such measures should be reserved for exceptional cases involving revenue protection or tax evasion. In this case, the Court found the taxability issue debatable and the reasons for attachment insufficient. Rejecting the Revenue's argument based on the amount involved, the Court quashed the attachment order, directing the petitioner to file an appeal and stay petition within 30 days.

In conclusion, the High Court disposed of the writ petition, granting the petitioner the right to appeal and stay petition before the Commissioner of Income Tax (Appeals). The Court instructed the authorities not to take coercive steps against the petitioner until the stay petition's disposal. The judgment highlighted the importance of statutory appeal remedies and the limited scope of interference under Article 226 of the Constitution, emphasizing the need for justifiable reasons in exercising drastic powers like provisional attachment under the Income Tax Act.