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2021 (4) TMI 25 - HC - Income TaxRecovery proceedings - attachment orders - transfer made by the assessee during the pendency of proceedings under the Act - petitioner had approached both the Income Tax Officer and the second respondent Tax Recovery Officer-VII. However, both the officers remained mute and therefore the petitioner was compelled to approach the first respondent to intervene and invited an adverse order though the petitioner had purchased the property prior to the impugned provisional attachment - HELD THAT - Rule 11 of the Schedule-II of the Income Tax, Act 1961 prescribes a method for a proper redressal of all the issues by a Tax Recovery Officer-VII, namely the second respondent herein. Therefore, the claim of the petitioner that the provisional attachment and the consequential final attachment pursuant to assessment orders dated 30.03.2013, 30.12.2011 and 31.03.2013 purportedly passed under Section 144 read with Section 147 for the Assessment Years 2005-2006 to 2008-2009 and under Section 144 of the Income Tax Act for the Assessment Years 2009-2010 and 2010-11 are required to be seen. The machinery prescribed under the provisions of the Income Tax Act, 1961 to deal with situation arising out of wrongful attachment of property for the buyer is to approach Tax Recovery Officer-VII under Rule 11 of the Schedule-II to the Income Tax Act, 1961. Therefore, it is the second respondent Tax Recovery Officer-VII who was the competent authority to pass proper order under the circumstances. Further, as per Section 281 of the Income Tax Act, 1961, where an assessee creates a charge or parts with possession by way of sale, mortgage, gift, exchange or any other mode of transfer whatsoever of any asset by an assessee in favour of any other person during the pendency of any proceeding under the Act is void. Proviso to the said Section contains an exception. That exception provided in clause (i) applies to a situation where there is transfer for adequate consideration and without notice of the pendency of such proceedings or, as the case may be, without notice of such tax or sum payable by the assessee. Use of the expression without notice of such tax or sum payable by the assessee indicates the absence of the knowledge of a third party. The language in the clause (i) to the said proviso can apply only to a bona fide purchaser and not the assessee himself. The impugned order also does not state that there were any pending proceedings on the date when the sale was made and completed in favour of the petitioner on 06.05.2011. The assessments were completed only on 30.03.2013, 31.12.2011 and 31.03.2013 under Section 144 read with Section 147 of the Income Tax Act, 1961 for the Assessment Years 2005-2006 to 2010- 2011. The impugned order of the first respondent seems to indicate that the third respondent had either failed to make returns required under Sub-Section (1) to Section 139 or had failed to file a revised written under Sub-Section (4) or 5 of these aforesaid Section or had failed to comply with all the terms of notices issued under Sub-Section (1) to Section 142 or failed to comply with the directions issued under Sub- Section (2A) of Section 142 or having filed a return, failed to comply with all the terms of the notice issued under Sub-Section (2) of Section 143 of the Act. Copies of these assessment orders are also not available for perusal. Therefore, without seeing the content of these orders and the background, the relief claimed by the petitioner cannot be granted in this writ petition contrary to the mandate of Rule 11 of the Schedule-II of the Income Tax Act, 1961. The issue as to whether the case of the petitioner would fall within the proviso to Section 281 of the Income Tax Act is also to be decided by the second respondent Tax Recovery Officer-VII. Therefore, while setting aside the impugned order and the observation contained therein, I remit the case back to the said second respondent Tax Recovery Officer to pass appropriate orders on merits in accordance with Rule 11 of the Schedule-II to the Income Tax Act, 1961.
Issues Involved:
1. Legality of the attachment of the property purchased by the petitioner. 2. Applicability of Section 281 of the Income Tax Act, 1961. 3. Bona fide nature of the petitioner’s purchase. 4. Procedural compliance by the Income Tax Department. Issue-wise Detailed Analysis: 1. Legality of the attachment of the property purchased by the petitioner: The petitioner purchased the property on 06.05.2011 from the third respondent, unaware of the income tax proceedings against the said company. The property was later attached by the Deputy Commissioner of Income Tax on 31.03.2013 due to tax arrears of ?1,52,66,841/- for the Assessment Year 2010-2011. The petitioner contended that the attachment was contrary to Section 281 of the Income Tax Act, 1961, as there were no pending proceedings against the third respondent at the time of purchase. The court noted that the petitioner had obtained an Encumbrance Certificate showing no encumbrance/charge over the property at the time of purchase. 2. Applicability of Section 281 of the Income Tax Act, 1961: The petitioner argued that the attachment was contrary to Section 281 of the Income Tax Act, 1961, as the purchase was made without notice of any pending proceedings or tax arrears. The court examined the proviso to Section 281, which protects transfers made for adequate consideration and without notice of pending proceedings or tax dues. The court found that the petitioner’s case was prima facie covered by this proviso, as there were no pending proceedings on the date of purchase. 3. Bona fide nature of the petitioner’s purchase: The petitioner claimed to be a bona fide purchaser, having examined the records and obtained an Encumbrance Certificate before purchasing the property. The court noted that the impugned order did not state any pending proceedings on the date of sale. The assessments were completed only after the purchase. The court emphasized that the proviso to Section 281 applies to bona fide purchasers, indicating the absence of knowledge of pending proceedings or tax dues. 4. Procedural compliance by the Income Tax Department: The court highlighted the procedural requirements under Rule 11 of the Schedule-II of the Income Tax Act, 1961, for addressing wrongful attachment claims. The court found that the petitioner had approached the Income Tax Officer and the Tax Recovery Officer but received no response, compelling the petitioner to approach the first respondent. The court held that the impugned order deserved to be set aside as it did not consider the petitioner’s pleas and remitted the case back to the second respondent Tax Recovery Officer to pass appropriate orders on merits. Conclusion: The court quashed the impugned order dated 26.10.2016 and remitted the case back to the second respondent Tax Recovery Officer to pass appropriate orders on merits. The fifth respondent Deputy Commissioner of Income Tax was directed to furnish copies of the assessment orders for the period in dispute to the petitioner. The petitioner was allowed to file an additional representation, and the second respondent was directed to pass final orders on merits after considering the petitioner’s representation within ninety days. The court emphasized compliance with all procedural requirements and safeguards under the Income Tax Act, 1961, and the Rules before passing such orders. The writ petition was allowed, and the connected Miscellaneous Petition was closed.
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