2020 (4) TMI 370 - HC - Income Tax

Attachment and recovery for realization of amounts due from the appellant Bank - petitioner Bank sought direction for refund of the amount paid by the 4th respondent to the Income-tax Department pursuant to Ext.P7 - Contention of the petitioner was mainly that the assessment made with respect to the amount sought to be recovered through Ext.P7 was under challenge in an appeal and that the recovery steps from the garnishee was initiated without taking into consideration of pendency of the appeal and the stay petition - whether garnishee proceedings was initiated and the amount was recovered without issuing any notice to the appellant as required under section 226(3) ? - HELD THAT - No hesitation to hold that the attachment and recovery was effected at a great haste without taking into consideration of the parameters enshrined in all the decisions cited as above. Further we take note of the fact that the issue pertaining to liability of the appellant bank for payment of income tax remains now settled through the decision of a Full Bench of this court in Mavilayi Service Co-operative Bank v. CIT 2019 (3) TMI 1580 - KERALA HIGH COURT . It is held therein that by the reason of sub-section (4) of section 80P the Assessing Officer has to conduct an enquiry into the factual situations with respect to the activities of the society in order to satisfy himself to the conclusions arrived at and also as to whether the benefits under section 80 can be extended or not. According to the learned counsel for the appellant such a verification has not been done in the case. But the learned Standing Counsel appearing for the respondents 1 to 3 had pointed out that even in the original assessment itself those aspects were considered by the appellate authority. As observed above recovery from the 4th respondent garnishee bank has been done in a manner depriving the interest of the assessee and without following the guidelines which ought to have been followed in the matter of garnishee attachment and recovery. However since the amount has already been collected against the existing demand we are not inclined to direct release of the amount unless the appellant society furnishes Bank Guarantee for the entire amount. We take note of the fact that the above aspects were not considered by the learned Single Judge while disposing of the writ petition. Hence the impugned judgment requires modification. Writ appeal is hereby disposed of by directing the respondents 1 to 3 to make refund of the amount to the appellant society in case the appellant society furnishes Bank Guarantee to the tune of the entire amount recovered to the satisfaction of the first respondent. The Bank Guarantee is directed to be kept in tact until disposal of the appeal filed by the appellant before the 2nd respondent. Realization of the Bank Guarantee shall be made only after communicating the appellate order to the appellant society. The refund shall be effected within a period of 2 weeks from the date of furnishing of the Bank Guarantee. The direction issued by the learned Single Judge in the impugned judgment with respect to disposal of the appeal shall survive.

Summary

Issues:
Challenge to notice of attachment and recovery for realization of amounts due from the appellant Bank, compliance with section 226(3) of the Income-tax Act, consideration of pendency of appeal in recovery proceedings, guidelines for recovery of tax pending appeal, verification of factual situations under section 80P of the Income-tax Act, modification of judgment for refund with Bank Guarantee.

Analysis:
The writ petitioner, a cooperative bank, challenged a notice of attachment and recovery issued to a garnishee bank for amounts due. The petitioner contended that the recovery was initiated without considering the pending appeal and without serving notice as required by section 226(3) of the Income-tax Act. The Single Judge directed the respondent to consider the appeal but did not address the claim for refund, leading to the writ appeal.

The appellant argued that the recovery was made before serving notice to the assessee, violating due process under section 226(3). Reference was made to a judgment emphasizing cautious exercise of power under section 226(3) and the need for strict compliance. The court noted that recovery was swift, without considering the appeal, and failed to follow guidelines for garnishee proceedings.

Citing precedents, the court highlighted the duty of tax authorities to act judiciously and mitigate hardship to the assessee. The court found the attachment and recovery hasty, not in line with established guidelines. The liability of the appellant bank for income tax was discussed, referring to a Full Bench decision on the need for factual inquiry by the Assessing Officer.

The court acknowledged that the verification process was lacking in this case, emphasizing the need for adherence to guidelines in garnishee attachment and recovery. Despite the collection of the amount, the court declined immediate release without a Bank Guarantee covering the sum. The Single Judge's judgment was deemed in need of modification to address these aspects.

The writ appeal was disposed of by directing the respondents to refund the amount if the appellant furnished a Bank Guarantee for the entire sum. The Bank Guarantee was to be kept until the appeal's disposal, with realization subject to the appellate order. The refund deadline was set at two weeks from the Bank Guarantee submission, while the direction on appeal disposal from the Single Judge's judgment remained in force.