2012 (4) TMI 278 - HC - Income Tax

Power of attachment u/s 281B - abuse of power - attachment of various deposits lying in the bank as well as the immovable property - petitioner contended that Department did not proceed to determine the liability of the petitioner, which should have been done only within 21 months from the date of getting the incriminating documents under the search and seizure operation in the financial year when the search was conducted under Section 132 of the Income Tax Act. - held that - It is true that there may be complex and voluminous documentary evidence, which may have been obtained by the Revenue Department and though documents may be in haphazard manner, which may require skilled expert opinion, for which the special audit can be ordered and if the Department could have proceeded, it could have done so. Be that as it may, the delay in the proceeding cannot be said to be fatal in all cases because of the reason that any time the Revenue may form opinion that there is possibility of shifting of money by the assessee. Though the powers are wide but should be exercised by the Assessing Officer only if there is reasonable apprehension that the assessee may thwart the ultimate collection of the demand, i.e., likely to be raised on completion of the assessment. The power of attachment under this section is in the nature of attachment before judgment under the C.P.C. It is a drastic power. It should therefore, be exercised with extreme care and caution. The attachment of the property should be made to the extent it is required to achieve the object. Obviously it must have some co-relation, which cannot be exact amount of future liability, but this does not mean that power under section 281B is absolutely arbitrary power and therefore,it is not necessary to form opinion about liability to maximum of possible liability and also this power cannot be such arbitrary that the Assessing Officer need not to indicate or know that properties of asessese which is being attached is of what value? The order does not disclose any reason for attachment - attaching the property of the writ petitioner lying with the J.S.E.B cannot be sustained and liable to be set aside.

Summary

Issues Involved:
1. Legitimacy of the attachment order under Section 281B of the Income Tax Act, 1961.
2. Delay in the completion of proceedings under Section 153A following a search and seizure.
3. Justification for multiple attachment orders impacting the petitioner's working capital.
4. Compliance with procedural requirements and the necessity for forming an opinion before attachment.

Issue-wise Detailed Analysis:

1. Legitimacy of the attachment order under Section 281B of the Income Tax Act, 1961:
The petitioner contested the attachment of payments against outstanding bills with the Jharkhand State Electricity Board (J.S.E.B.) under Section 281B of the Income Tax Act, 1961. The petitioner argued that the attachment was a clear abuse of power and a colorable exercise by the Revenue. The court noted that the Revenue had attached the petitioner's various deposits, bank accounts, insurance policies, and immovable properties without specifying the amount attached in the subsequent order dated 22nd September 2011. The court found that the Revenue could not justify the extent of the attachment, and the orders lacked sufficient reason, making them unsustainable.

2. Delay in the completion of proceedings under Section 153A following a search and seizure:
The petitioner highlighted that the search and seizure operation under Section 132 of the Income Tax Act was conducted on 31st October 2009, and the proceedings should have been completed within 21 months. However, the first notice was served 17 months later, on 30th March 2011, and the order of attachment followed on 30th August 2011. The court observed that the Revenue delayed the proceedings and invoked Section 142(2A) for a special audit just before the expiry of the limitation period. The court criticized the Revenue for not determining the petitioner's liability within the stipulated time and for arbitrary actions.

3. Justification for multiple attachment orders impacting the petitioner's working capital:
The petitioner argued that the Revenue's attachment of working capital, including payments against bills outstanding with J.S.E.B., amounted to Rs. 17 Crores, which was essential for business operations. The court acknowledged that this amount likely represented the petitioner's working capital and not profit. The court referenced judgments from the Bombay High Court and Allahabad High Court, emphasizing that attachment should be exercised with extreme care and only if there is a reasonable apprehension of thwarting the ultimate collection of demand. The court found no justification for the second attachment order, which severely impacted the petitioner's business.

4. Compliance with procedural requirements and the necessity for forming an opinion before attachment:
The court scrutinized the records and found that the Revenue's recommendation for attachment lacked specific reasons or evidence of the petitioner's intention to dispose of property to thwart tax collection. The communications merely stated a "likelihood of raising substantial demand" without detailing the extent of liability or the value of the attached properties. The court concluded that the orders were arbitrary and did not comply with the procedural requirements for forming an opinion before attachment, as required under Section 281B.

Conclusion:
The court quashed and set aside the orders dated 31st August 2011 and 27th September 2011, which attached the petitioner's property and payments with J.S.E.B. The court allowed the writ petition, emphasizing that any future actions by the Revenue must comply with legal requirements and the observations made in relevant judgments.