2020 (5) TMI 308 - HC - Income Tax

Provisional attachment of FDRs - search action under Section 132 - HELD THAT - Having considered the suggestions put forward by both sides we dispose of this writ application with the following directions (i) The impugned order of provisional attachment dated 10.12.2019 shall continue to operate in accordance with law. (ii) As the bank accounts have not been freezed or attached by the department, it shall be open for the writ applicant to operate such bank accounts / limits in accordance with law. (iii) If the department wants to initiate any fresh action including the action of further provisional attachment, it shall be open for them to do so in accordance with law. With the aforesaid directions, this writ application stands disposed of. It shall be open for the writ applicant to inform the concerned department of the order passed by this Court by E-mail.

Summary

Issues:
Challenge to order passed under Section 132(9B) of the Income Tax Act, 1961 - Provisional attachment of Fixed Deposit Receipts (FDRs) - Consensus between writ applicant and Income Tax Department - Permission to operate bank accounts while FDRs remain attached - Future actions by the department.

Analysis:
The writ application was filed under Article 226 of the Constitution of India by a Hong Kong-based company, a subsidiary of an Indian company, challenging the order passed under Section 132(9B) of the Income Tax Act, 1961, which provisionally attached FDRs worth USD 9.02 million. The search action was carried out in connection with the Priya Blue group of companies, leading to the provisional attachment of the FDRs of two banks. The department's stance was to protect revenue interests by attaching the FDRs due to the writ applicant's alleged tax liability in India.

The department justified the provisional attachment as necessary to secure the tax amount owed by the writ applicant. To resolve the matter, the writ applicant's counsel proposed a solution allowing the operation of bank accounts while maintaining the attachment of the FDRs. The department, through its senior counsel, agreed to this arrangement, emphasizing the continuation of the FDR attachment and reserving the right to take further legal actions as deemed fit in the future.

After considering the arguments and suggestions from both parties, the court issued directions for the case. The court ordered the continuation of the provisional attachment of FDRs in accordance with the law. However, it permitted the writ applicant to operate its bank accounts within legal boundaries. Additionally, the department was given the liberty to take any future actions, including further provisional attachments, as per the law. The court disposed of the writ application with these directions, allowing the writ applicant to inform the concerned department of the court's order and providing copies of the order to the respective counsels involved.

This judgment highlights the importance of balancing the interests of both parties in tax-related matters and the significance of consensus in resolving legal disputes efficiently. The court's decision to allow bank account operations while maintaining the attachment of FDRs demonstrates a practical approach to address the concerns raised by the parties involved. The clear directives provided by the court ensure transparency and compliance with legal procedures in handling such cases, emphasizing the authority's role in overseeing fair and just outcomes in tax disputes.