2014 (6) TMI 11 - HC - Income Tax

Validity of attachment of bank account u/s 220(6) of the Act - Prior notice not served Whether it was proper on the part of the AO to attach and debit a sum without serving a copy of the notice of attachment on the assessee - Held that - The section does not postulate that before an action is set into motion, a notice is required to be served on the assessee but what is held is that if such an action is contemplated, the notice should also be served to the assessee and, therefore, this Court finds that the judgement rendered in the case of Golam Momen (2003 (4) TMI 60 - CALCUTTA High Court) depicts the correct proposition of law. - Decided against the assessee. A special fact is required to be narrated - The assessee is carrying on the business as a civil contractor and have purchased a flat on a hire purchase basis assessee contended that it would be an unjust hardship on the part of his client if the amount which was deposited in the bank account for the purpose of meeting out the liability under the order of the Supreme Court is allowed to continue under the order of attachment issued by the department - The parties are unison on the fact that out of the total demand a sum of Rs.1 lac have already been paid by the petitioner - While considering the unjust hardship which may be caused to the assessee, the Court shall also bear in mind the interest of the revenue as well - the last date for making the instalment is due on 5th March 2014 the Court to mitigate the situation and to render justice between the parties, directed the assessee to pay a further sum of Rs.1 lac - For such limited purposes, the bank shall allow the assessee to operate the bank account, under attachment Decided partly in favour of Assessee.

Issues:
1. Challenge to notice under section 226(3) of the Income Tax Act, 1961.
2. Action of authorities in attaching bank account without prior notice.
3. Delay in disposing of application for stay under section 220(6).
4. Interpretation of section 226(3) regarding serving notice before attachment.
5. Consideration of unjust hardship on the assessee due to attachment.

Issue 1: Challenge to notice under section 226(3) of the Income Tax Act, 1961:
The petitioner challenged the notice issued under section 226(3) primarily on the ground of lack of prior notice before the order of attachment. The petitioner relied on a coordinate bench decision emphasizing the importance of fair procedures and timely consideration of applications. The division bench of the Bombay High Court highlighted the necessity for quasi-judicial authorities to objectively evaluate stay applications before resorting to coercive measures like attachment. The court emphasized that fairness to the assessee is integral to quasi-judicial functions.

Issue 2: Action of authorities in attaching bank account without prior notice:
The petitioner argued that the authorities proceeded hastily in passing the order of attachment without considering the application for stay filed nearly two years prior. The court noted the importance of timely disposal of applications for stay and criticized the authorities for proceeding with attachment without due consideration. The petitioner contended that the authorities should have issued a prior notice before resorting to section 226(3) of the Act.

Issue 3: Delay in disposing of application for stay under section 220(6):
The petitioner highlighted the statutory obligation of quasi-judicial authorities to objectively consider applications for non-default status. The court referenced a division bench judgment emphasizing the need for expeditious disposal of stay applications to balance the interests of the revenue and the assessee. The court criticized the authorities for keeping the application pending for an extended period before proceeding with the attachment.

Issue 4: Interpretation of section 226(3) regarding serving notice before attachment:
The court examined the requirement of serving a notice before attachment under section 226(3) of the Act. The petitioner cited a coordinate bench decision emphasizing the mandatory nature of serving notice before taking action. The court analyzed the legislative intent behind the provision and upheld the necessity of serving a notice to prevent the assessee from being caught off guard.

Issue 5: Consideration of unjust hardship on the assessee due to attachment:
The court considered the potential hardship on the assessee due to the attachment of funds meant for meeting obligations under a Supreme Court order. To mitigate the hardship, the court directed the petitioner to make specified payments to the department, leading to the recall of the attachment order. The court balanced the interests of the revenue and the assessee while providing a timeline for resolving the appeal before the CIT (appeals).

In conclusion, the judgment addressed various issues related to the challenge of the notice under section 226(3) of the Income Tax Act, the importance of fair procedures, timely disposal of applications, interpretation of statutory provisions, and considerations of unjust hardship on the assessee.

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