2023 (12) TMI 138 - HC - Income Tax

Validity of attachment orders u/s 281B - power of the Department to issue fresh attachment order again and again, i.e. for the fourth time - as argued impugned orders u/s 281B have been issued in a mechanical manner for the fourth time and in a routine fashion stating that 'For the purpose of protecting the interest of the Revenue, it is necessary to attach the immovable properties of the petitioners'' - HELD THAT - First charge holders of the properties are the Bankers and the respondent-Income Tax Department are only the second charge holders of the petitioners properties. Therefore, the first charge holders of the petitioner's properties, being the Bankers, the petitioner has to first satisfy the Bankers, for availing loan facility and only the Bankers are satisfied they would come forward to lend loan facility to the petitioners. This Court would like to point out that, if it had been the real intention of the the respondent-Department to protect the interest of the revenue, they would acted in a way, as pointed out by this Court in the preceding para, however, the way the respondent-Department has acted, i.e. issuing attachment orders again and again, that too, without assigning any valid reason, in respect of similar properties of the petitioners, would only go to show that the respondent with a view to put a spoke to the petitioner's business activities, has passed such impugned orders, since, by means of the impugned orders of attachments, the properties that were mortgaged with the Bankers were attached, due to which, the Bankers would obviously, deprive themselves from extending the working capital loan to the petitioners and the petitioners, owing to non-extension of working capital loan, would find it difficult to run their business, resulting in financial crisis and consequently, the petitioner would be not in a position either to continue the business or repay the loan, ultimately, resulting in closure of business and 5000 workers employed in the petitioner-Company would loose their job, which would automatically affect the welfare of the State. Therefore, this Court is of the view that the respondent-Department under the guise of impugned attachment orders, shall not cause any unnecessary hardships to the Bankers in getting back their loans, which were lent by them to the petitioners. Section 281B(1) of I.T. Act grants power AO to provisionally attach the property of an assessee during the pendency of any proceedings for assessment or reassessment of any income or for imposition of penalty, and in terms of Sub-section 2 of Section 281B, every such provisional attachment shall cease to have effect after the expiry of six months, however, the total period shall not exceed 2 years or 60 days after the order of assessment, whichever is later and such power of extension is subject to the condition that the Principal Commissioner should record his reasons in writing for granting such extension. In the present case, whenever, the attachment orders were passed, the respondent-Department has mentioned the reason for issuance of such attachment order, by stating that ''To protect the interest of the Revenue.'' instead of stating so, the respondent- Department ought to have formed an opinion and pass orders not affecting the business activities of the petitioner in any way. In the present case, attachment orders, which are under challenge in these Writ Petitions are only provisional attachment orders and the same have been passed before quantification of final assessment of tax. Thus, the respondent-Department, while passing such provisional attachment order shall bear in mind the following aspects - 1) Running Business Activities of an Assessee should not come to stand still by virtue of the provisional attachment. 2) The interest of the Bankers, who are the first charge holders, should not get affected. 3) The welfare of the workers should not be get affected. Thus, for all aforesaid reasons, this Court is inclined to pass the following orders - i) The petitioners are directed to file a modification application within a period of one week from the date of receipt of a copy of this order to modify the order of provisional attachment issued by the respondent dated 16.08.2023. ii)Thereafter, the concerned respondent is directed to consider the modification applications and directed to pass orders to the extent of lifting the provisional attachment orders dated 16.08.2023 to enable the petitioners to avail the working capital facilities as per the business plan/plan of action, etc., submitted to the bank or to the extent of additional working capital facilities as sanctioned by the Banks to the petitioners, as requested from time to time. iii) The petitioners are directed to file an affidavit/undertaking/status report as required by the respondent-Department, so as to ensure that the fund allotted to the petitioners by the Banks are utilized by the petitioners/has been utilized only for the purpose of working capital facilities.

Summary

Issues Involved:
1. Legality of issuing multiple fresh attachment orders under Section 281B of the Income Tax Act.
2. Impact of attachment orders on the petitioners' business operations and banking facilities.
3. Consideration of the interests of the petitioners' employees and the overall welfare of the State.

Summary:

Issue 1: Legality of Multiple Fresh Attachment Orders
The petitioners challenged the repeated issuance of fresh attachment orders by the respondent-Department under Section 281B of the Income Tax Act. The petitioners argued that the respondent-Department issued fresh attachment orders for the fourth time without providing valid reasons, which is against the statutory requirements. The petitioners contended that each provisional attachment order should be in force for only six months and can be extended up to two years with proper justification. The respondent-Department, however, maintained that they have the authority to issue fresh attachment orders multiple times within the statutory period to protect the interest of the revenue.

Issue 2: Impact on Business Operations and Banking Facilities
The petitioners highlighted that the attachment orders adversely affected their business operations. The attached properties were mortgaged with various banks for loans, and the attachment hindered the banks from providing further working capital, jeopardizing the petitioners' business. The petitioners emphasized that the banks, as the first charge holders, were perplexed and unable to renew loan agreements, potentially leading to the closure of the business and loss of jobs for 5000 workers.

Issue 3: Interests of Employees and State Welfare
The petitioners argued that the attachment orders, if not lifted, would have a cascading effect, leading to the closure of their business and rendering 5000 workers jobless, which would affect their families and the overall welfare of the State. The court noted that the respondent-Department should act in a manner that protects the interest of the revenue without causing unnecessary hardships to the petitioners or affecting the welfare of the workers.

Court's Observations and Directions:
The court observed that the respondent-Department issued the attachment orders in a routine and mechanical manner without valid reasons. The court emphasized that the respondent-Department should consider the running business activities of the petitioners, the interests of the banks as first charge holders, and the welfare of the workers before issuing such orders. The court directed the petitioners to file a modification application to modify the provisional attachment order dated 16.08.2023. The respondent-Department was instructed to consider the modification applications and pass orders to lift the attachment to enable the petitioners to avail working capital facilities. The petitioners were also directed to file an affidavit/undertaking to ensure that the funds allotted by the banks are utilized for working capital purposes.

Conclusion:
The court disposed of the writ petitions with the above directions, ensuring that the petitioners' business operations and the welfare of their employees are not adversely affected by the attachment orders. The court emphasized the need for the respondent-Department to act in a manner that protects the interest of the revenue while considering the broader implications on the petitioners' business and the welfare of the State.