2022 (12) TMI 650 - HC - Income Tax

Attachment of the HSBC Bank and DBS Bank accounts of the petitioner u/s 132(9B) - bank account of DBS Bank was released and the balance fund as on 18.11.2021 remained under attachment u/s 281(B) until further order - whether in absence of any material and any reasons recorded in writing that such a harsh step of attachment of the property of the petitioner had been taken and that shall need to be straightway answered in negation? - HELD THAT - As held that permitting the department to provisionally attaching the petitioner s refund for the current year on the ground that in the final assessment, the demands are likely to be confirmed, would amount to ignoring the hard fact that for the earlier assessment years, Tribunal has suspended the recoveries arising out of the demands made by the assessing officer on similar issues. As held that looking it from any angle, the occasion for the competent authority to exercise the drastic power u/s 281(B) has not arisen, therefore, there was no justification to exercise such powers. Going by the decision of Vodafone Idea Limited 2019 (9) TMI 447 - BOMBAY HIGH COURT . we can surely say that the assessing officer, for the purpose of protecting interest of the Revenue, in the instant case, with the prior approval of the higher authority has passed an order in writing recording the reasons and provisionally attaching the property belonging to the assessee. These are though drastic powers in a given circumstances, we are satisfied that for the petitioner assessee to continue its business, the continuation of provisional attachment is not necessary and even otherwise, the interest of the Revenue can be safeguarded by directing a particular amount to be furnished by way of a bank guarantee to the authority concerned, that would sub-serve the purpose. We are conscious of the fact that the order has came to be passed in relation to the two of the companies which is said to be the shell companies adding the commission and the main company of Taiwan is said to be benefiting. It is also alleged that the modus is adopted to shift the profit to the Chinese Company. We also have taken note of some of the details which have been culled out from the file which, for the purpose of secrecy pleaded by the respondent, we choose not to reveal the same as that may prove to be deleterious for the on-going assessment proceedings. However, if the past case of the respondent is taken into consideration along with its on-going proceedings, in our opinion, the fixed deposit which has been made by the respondent of the DBS Bank would suffice to protect the interest of the Revenue for now. We also would like to make a mention of the fact that except one Director, the rest are from Taiwan and therefore, the Indian Director along with the Taiwan Directors are also required to give the undertaking that in the eventuality if the assessment is more than the amount which is permitted to be provisionally attached, they shall fulfill the obligations even from their own personal funds. The said undertaking shall be filed before this Court within a period of one week from the date of receipt of copy of this judgment. They shall also furnish the disclosure of the immovable assets of the company. At this stage, Standing Counsel upon instruction has informed that the matter has been already referred to the Transfer Pricing Officer and therefore, the Court shall need to regard the interest of the Revenue Authority. On furnishing the above aspect, once having verified the details in a week s time thereafter, the attachment of the HSBC bank account bearing account no. 101040608001 shall be then released. The original file is returned to the respondent.

Issues Involved:
1. Legality of the attachment of bank accounts under Section 132(9B) and Section 281(B) of the Income Tax Act, 1961.
2. Continuation of the attachment beyond the statutory period.
3. Allegations of tax evasion and involvement with shell companies.
4. Impact of attachment on the business operations of the petitioner.
5. Compliance with procedural requirements and provision of reasons for attachment.

Detailed Analysis:

1. Legality of the Attachment of Bank Accounts:
The petitioner challenged the attachment of its bank accounts under Section 132(9B) of the Income Tax Act, 1961, initiated by the Deputy Director of Income Tax (Inv) on 18.11.2021 and continued indefinitely. The petitioner argued that the attachment was "ex-facie bad in law" and lacked any basis or reason, seriously jeopardizing its business operations. The respondent justified the attachment, citing the search and seizure operation conducted on 17.11.2021 and 18.11.2021, which revealed alleged tax evasion activities involving unaccounted cash sales and transactions through shell companies.

2. Continuation of the Attachment Beyond the Statutory Period:
The petitioner contended that the continuation of the attachment beyond six months from the date of the order was contrary to Section 132(9C) of the Act. The respondent, however, extended the attachment under Section 281(B) of the Act, with the necessary approval from the Principal Commissioner of Income Tax. The court noted that the initial attachment was made on 13.05.2022 and extended on 11.11.2022, following the required procedural steps.

3. Allegations of Tax Evasion and Involvement with Shell Companies:
The respondent alleged that the petitioner was involved in tax evasion through transactions with shell companies, M/s. Tianchao Import Export Trading Private Limited and M/s. Pipeguard Trading Private Limited, which were used to layer transactions and divert funds to the parent company in Taiwan. The petitioner denied these allegations, asserting that it was a wholly owned subsidiary of a Taiwanese company and had complied with all legal requirements under the FDI policy and FEMA Act.

4. Impact of Attachment on Business Operations:
The petitioner argued that the attachment of over Rs. 13 crores in its bank accounts severely impacted its ability to pay wages, purchase raw materials, and cover day-to-day expenses, leading to a halt in business operations. The court acknowledged the need to balance the protection of revenue interests with the petitioner's right to continue its business.

5. Compliance with Procedural Requirements and Provision of Reasons for Attachment:
The petitioner claimed that the reasons for the attachment were not provided, causing serious prejudice. The court, however, found that the respondent had recorded reasons for the attachment, which were sufficient for the petitioner to understand the basis of the action. The court emphasized the importance of the assessing officer's satisfaction and the procedural compliance in such cases.

Conclusion:
The court concluded that while the attachment of the petitioner's bank accounts was legally justified based on the recorded reasons and procedural compliance, the continuation of the attachment was not necessary to protect revenue interests. The court directed the release of the HSBC bank account upon the petitioner furnishing a bank guarantee and an undertaking to fulfill any eventual tax liability. The fixed deposit in DBS Bank was deemed sufficient to protect the revenue's interest. The court also required the petitioner to disclose its immovable assets and provide an undertaking from its directors to cover any additional tax liability from their personal funds if necessary.

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