2012 (4) TMI 475 - HC - Income Tax

Search and seizure - Block assessment - Undisclosed income - Provisional attachment to protect revenue in certain cases - it is stated that the block assessment proceedings were to be completed by 25th August, 2007 but in view of the stay granted by the Supreme Court, the proceedings were still pending - The third proviso was inserted in 2009 by Finance (No. 2) Act of 2009 with retrospective effect from 1st April, 1988 is as under - Provided also that the period during which the proceedings for assessment or reassessment are stayed by an order or injunction of any court shall be excluded from the period specified in the first proviso - The contention relating to communication of the order also need not be decided as there is no order extending the provisional attachment under Section 281B on or after 24th January, 2008 - It is not the contention of the Revenue and it was not urged and in our opinion rightly that the third proviso incorporates a deeming provision, which has the effect of continuation or extension of the last order under Section 281B dated 19th July, 2007 which was upto and valid till 24th January, 2008 - It does not stipulate that the provisional attachment order issued, shall be deemed to be effective and continue beyond the stipulated period mentioned in the order, when there is an injunction or an order by a Court staying the assessment/reassessment proceedings The contention of the petitioner is that there is no connection between the block assessment proceedings and the refunds which are due to the petitioner - The connection mentioned in the said order has reference to the reasons stated in the order of provisional attachment and whether the said reasons have any nexus or connection with the assessment/reassessment proceedings, which have been stayed by the Supreme Court Whether the Revenue can pass a fresh order under Section 281B in view of the third proviso to the said Section introduced/inserted by Finance (No. 2) Act of 2009 with retrospective effect from 1st April, 1988 - The petitioner in fact had filed an application CM No. 2845/2010 challenging the retrospective amendment, which was dismissed as withdrawn vide order dated 26th May, 2010.

Summary

Issues Involved:
1. Validity and extension of provisional attachment under Section 281B of the Income Tax Act, 1961.
2. Entitlement to refunds claimed by the petitioner.
3. Impact of the Supreme Court's stay on block assessment proceedings.
4. Applicability of the third proviso to Section 281B inserted by Finance (No. 2) Act, 2009 with retrospective effect.
5. Requirement of communication of extension orders under Section 281B.

Issue-wise Detailed Analysis:

1. Validity and Extension of Provisional Attachment under Section 281B:
The petitioner challenged the order dated 28th July, 2005, which provisionally attached refunds due to the petitioner under Section 281B of the Income Tax Act, 1961. The initial order was valid for six months, expiring on 25th January, 2006. The petitioner contended that they were not informed about any extensions beyond this date. The court noted that the first attachment order was issued on 28th July, 2005, and the total period for which extension can be granted under Section 281B is two years and six months. Therefore, the provisional attachment period ended on 24th January, 2008. No further orders extending the provisional attachment were passed after this date.

2. Entitlement to Refunds Claimed by the Petitioner:
The petitioner claimed refunds amounting to Rs. 3,85,35,158/- for various assessment years. The court observed that the petitioner had not challenged the extensions of the provisional attachment and noted that the petitioner had not been communicated about these extensions. The court also highlighted that the petitioner argued the spirit behind Section 281B is not to deprive the assessee of the refund beyond the maximum period of attachment.

3. Impact of the Supreme Court's Stay on Block Assessment Proceedings:
The block assessment proceedings against the petitioner were stayed by the Supreme Court, and it was directed that no final assessment order would be passed until the disposal of the appeal. The court noted that the block assessment proceedings were to be completed by 25th August, 2007, but due to the stay granted by the Supreme Court, the proceedings were still pending. The court acknowledged the connection between the block assessment proceedings and the refunds due to the petitioner.

4. Applicability of the Third Proviso to Section 281B Inserted by Finance (No. 2) Act, 2009:
The third proviso to Section 281B, inserted by Finance (No. 2) Act, 2009, with retrospective effect from 1st April, 1988, states that the period during which assessment/reassessment proceedings are stayed by a court order shall be excluded from the period specified in the first proviso. The court noted that no order under Section 281B was passed after the insertion of the third proviso. Therefore, the court did not examine the applicability of the third proviso in detail, leaving it to be addressed in an appropriate case if a fresh order under Section 281B is passed by the Revenue.

5. Requirement of Communication of Extension Orders under Section 281B:
The petitioner argued that extension orders under Section 281B were required to be communicated, citing various judicial decisions. The court did not delve into this aspect as no extension orders were passed after 24th January, 2008. The court also noted that the Revenue did not argue that the third proviso incorporates a deeming provision for the continuation of the provisional attachment order beyond the stipulated period.

Conclusion:
The court concluded that there was no surviving order under Section 281B as of the date of the judgment. The court accepted the respondents' prayer that the writ petition should not be treated as dismissed but recorded that no order under Section 281B was in operation. The respondents were given the liberty to proceed in accordance with the law, and the writ petition was disposed of without costs.