2012 (12) TMI 216 - HC - Income Tax

Validity of Provisional attachment of Assets u/s 281B - Escapement of Income - held that - This Power can be exercised during the pendency of any proceeding for assessment, so that the assessee does not fritter away or secrete his resources out of the reach of the department when the assessment is completed - provisional attachment order shall still remain in force for six months from date of assessment - 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. during the pendency of any assessment proceeding or proceedings in pursuance to reassessment that in order to safeguard the interests of the revenue, after recording reasons for the same in writing and seeking the approval from the concerned authority, an order for provisional attachment can be passed. In the present case, Assessment order was passed on 8.11.2012 and demand notice u/s 156 of the Act was issued on the same day granting 30 days time to the assessee to deposit the tax due - petitioner that the appeal has been filed against the said assessment order on 9.11.2012 and stay application has also been filed at a later date before the Income Tax Appellate Tribunal, New Delhi - to safeguard the interests of the revenue till the expiry of 30 days period allowed to discharge the liability of a huge amount of Rs. 2,10,57,87,648/-, learned counsel for the petitioner submitted that till 8.12.2012, the assets to the extent of Rs. 100 crores which are lying with the Bank shall not be utilised - Accordingly, while holding that the provisional attachment order Annexure P.2 dated 1.11.2012 and notices/letters dated 2.11.2012, appended collectively as Annexure P.9 shall also cease to operate after 8.11.2012, it is directed that in terms of the statement made by the Senior counsel for the petitioner, the assets to the extent of Rs. 100 crores shall not be utilised and shall remain in the same form till 31.12.2012. - It shall however, be open for the petitioner to approach the Tribunal for stay of recovery or for the revenue to take proceedings for recovery in accordance with law.

Summary

Issues Involved:
1. Validity of the provisional attachment order under Section 281B of the Income Tax Act, 1961.
2. Legal sustainability of the order and notices issued by the Deputy Commissioner of Income Tax (DCIT) and the Commissioner of Income Tax (CIT).
3. Impact of the assessment order passed during the pendency of the writ petition on the provisional attachment order.

Issue-wise Analysis:

1. Validity of the provisional attachment order under Section 281B of the Income Tax Act, 1961:
The petitioner, a private limited company, challenged the provisional attachment order dated 1.11.2012 issued by the DCIT under Section 281B of the Income Tax Act, 1961. The petitioner argued that Section 281B was inserted to safeguard the interests of the revenue during the pendency of assessment proceedings to prevent the assessee from secreting assets. The petitioner contended that the provisional attachment order becomes inoperative after the passing of the assessment order, drawing support from observations in the Madras High Court judgment in Devarajan and others v. Tamil Nadu Farmers Service Cooperative Federation and others, 1981 (51) Company Cases 682. The court noted that Section 281B empowers the Assessing Officer to attach property provisionally to protect revenue interests during the pendency of assessment proceedings. However, the attachment ceases to have effect after six months unless extended by the Chief Commissioner or Commissioner.

2. Legal sustainability of the order and notices issued by the DCIT and the CIT:
The respondents justified the provisional attachment, stating it was necessary to protect the revenue's interests, as the petitioner had substantial liquid funds and other assets. The respondents argued that the attachment would not cause irreparable damage to the petitioner. The court examined the scope and effect of Section 281B, noting that the provision allows for provisional attachment during the pendency of assessment proceedings to prevent the assessee from thwarting the collection of demand. The court referred to Circular No.179 dated 30.9.1975, which clarified that Section 281B was intended to protect revenue interests when the raising of demand might take time due to investigations.

3. Impact of the assessment order passed during the pendency of the writ petition on the provisional attachment order:
The petitioner argued that the provisional attachment order ceased to operate after the assessment order was passed on 8.11.2012. The court agreed, stating that the provisional attachment order remains in force only until the actual demand is created by passing an assessment order. The court rejected the revenue's interpretation that the provisional attachment order continues to be valid for six months even after the assessment order. The court held that since the assessment order was passed on 8.11.2012, the provisional attachment order and related notices ceased to operate after that date. The court directed that the assets to the extent of Rs. 100 crores shall not be utilized and shall remain in the same form till 31.12.2012, allowing the petitioner to approach the Tribunal for stay of recovery or for the revenue to take recovery proceedings in accordance with law.

Conclusion:
The court disposed of the writ petition, holding that the provisional attachment order and related notices ceased to operate after the passing of the assessment order on 8.11.2012. The court directed that the petitioner's assets to the extent of Rs. 100 crores shall remain in the same form till 31.12.2012, allowing for further legal proceedings as necessary.