2015 (3) TMI 366 - HC - Income Tax

Recovery notice - letter issued to the Oriental Bank of Commerce to release an amount of ₹ 1,67,16,160/- (plus interest) payable to the respondent/Income Tax Department pursuant to the assessment completed on 13.03.2014 for Assessment Year (AY) 2011-12 - Held that - At this stage we cannot express any opinion on the merits of the appeal and/or feasibility of the demand. At the same time, the Court is not oblivious to the circumstance that if any order is made, the assessee/petitioner is likely to suffer irreparable loss. Balancing the hardship, the Court is of the opinion that the respondent should vacate the garnishee order/letter to the extent of 50%, keeping in mind the condition imposed in the letter dated 03.02.2015. The bank is directed to - within next four days ensure that the letter addressed to the bank on 24.02.2015 is withdrawn and a suitable letter directing the payment of half the amount is issued at the same time. Consequently, the assessee and the bank would be at liberty to service the petitioner's account to the extent of the balance. The CIT (Appeals) is directed to hear and consider the matter on the merits and render final decision thereon at the earliest preferably in four months from today. This arrangement shall be applicable till the disposal of the appeal by CIT (Appeals). It is open to the petitioner to deposit the corresponding amount of 50% of the sum (i.e. ₹ 1,67,16,160/-) demanded with the Income Tax Department and seek necessary variation.

Summary

Issues:
1. Interpretation of Section 226(3) of the Income Tax Act, 1961.
2. Validity of demand under Section 156 of the Act during pendency of appeal.
3. Legality of garnishee order issued to a bank for payment of tax dues.
4. Consideration of hardship faced by the petitioner in balancing the orders.

Analysis:
1. The petitioner challenged a letter issued to a bank under Section 226(3) of the Income Tax Act, 1961, directing the release of a specified amount to the Income Tax Department. The petitioner's assessment returns for the relevant year were considered, resulting in a tax liability. An appeal against this assessment is pending, and during this time, a demand was made under Section 156 of the Act. The court acknowledged the need to balance the interests of both parties and directed the respondent to vacate the garnishee order to the extent of 50% of the demanded amount, allowing partial access to the petitioner's account.

2. The Assessing Officer issued a demand under Section 156 of the Act for tax dues while the appeal was pending. The petitioner sought a stay of the demand under Section 220(6), but conditions were imposed on the stay application. Failure to comply led to the issuance of a garnishee order on the bank. The court recognized the potential irreparable loss to the petitioner and ordered the respondent to withdraw 50% of the amount demanded, providing relief to the petitioner while ensuring the tax department's interests were not entirely compromised.

3. The legality of the garnishee order was questioned by the petitioner, citing hardship and potential irreparable loss. The court, after considering the arguments from both parties, decided to modify the order, allowing partial access to the funds held by the bank. The court directed the bank to withdraw the original letter and issue a new directive for the payment of half the amount, providing temporary relief to the petitioner until the appeal is resolved by the CIT (Appeals).

4. In balancing the hardship faced by the petitioner with the tax department's legitimate claim, the court decided to grant partial relief by directing the withdrawal of 50% of the demanded amount through the garnishee order. This decision aimed to alleviate the immediate financial burden on the petitioner while ensuring that the tax dues were addressed in a fair and reasonable manner. The court emphasized the need for a swift resolution of the appeal by the CIT (Appeals) to bring finality to the matter and directed the petitioner to deposit the corresponding 50% of the sum demanded with the Income Tax Department if desired.