2022 (7) TMI 1092 - HC - Income Tax

Validity of order as exercise of power u/s 281 - Certain transfers to be void - validity of purchase of property being land and farm house - Certain transfers to be void - validity of purchase of property being land and farm house - t the order impugned in declaring th - pendency of the assessment proceedings against the assessee - assessee had created a charge on the said property and parted with the possession by way of sale deed in favour of the Petitioner during the pendency of the assessment proceedings against the assessee and was, therefore, void in terms of Section 281(1) of the Income Tax Act - HELD THAT - Incidentally, a Division Bench of this Court in the case of Ms. Ruchi Mehta V/s Union of India 2007 (8) TMI 270 - BOMBAY HIGH COURT which is also impugned in the present petition, followed the ratio of the judgment in Gangadhar s case and declared the order passed by the TRO in terms of Section 281 of the Act, 1961 as void and without jurisdiction. The order was also held to be bad on the ground that no opportunity was at all given to the Petitioner in the said case before exercising jurisdiction under Section 281, which was thus held to be in violation of principles of the natural justice. Be that as it may, following the ratio of the Supreme Court judgment in the case of Tax Recovery Officer V/s. Gangadhar Vishwanath Ranade 1998 (9) TMI 1 - SUPREME COURT as also the view already expressed by the co-ordinate bench in the case of Ms. Ruchi Mehta V/s Union of India, we hold that the order impugned in declaring the transfer of the property in favour of the Petitioner as void in terms of Section 281 of the Act, 1961, is without jurisdiction and is, accordingly, set aside. Respondents would be entitled to proceed in the matter by following the due procedure.

Summary

Issues:
Challenge to order under Section 281 of the Income Tax Act, 1961.

Analysis:
The Petitioner challenged the order dated 27th June, 2007, passed by Respondent No. 2 under Section 281 of the Income Tax Act, 1961. The Petitioner claimed to have purchased a property comprising land and a farmhouse, with Vendor No. 1 transferring the land and Vendor No. 2 transferring the farmhouse. The Respondent alleged that a charge was created on the property during the assessment proceedings against the assessee, rendering the transfer void under Section 281(1) of the Act. The section states that any charge or transfer made during the pendency of proceedings shall be void unless made for adequate consideration or with the permission of the Assessing Officer.

The Petitioner contended that the impugned order was contrary to the Supreme Court judgment in Tax Recovery Officer v. Gangadhar Vishwanath Ranade (1998), where it was held that the Tax Recovery Officer's jurisdiction is limited to examining possession and not determining the validity of transfers under Section 281. A Division Bench of the Bombay High Court in a similar case also declared an order under Section 281 as void and without jurisdiction, emphasizing the need for due process and adherence to natural justice principles.

In light of the Supreme Court judgment and the previous decision of the co-ordinate bench, the High Court held that the impugned order declaring the transfer as void under Section 281 was without jurisdiction and set it aside. However, the Court clarified that the Respondents could proceed in the matter by following the due procedure, indicating that the matter should be handled in accordance with the law and principles of natural justice.