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2017 (7) TMI 617 - HC - Income TaxNotice to the Petitioner u/s 226 (3) issued by Income Tax Department prior to issuing a notice to the garnishee, i.e., the Branch Manager, HSBC under Section 226(3)(i) - Held that - In the present case there was no illegality committed by the Department in not issuing to the Assessee a notice under Section 226 (3) (iii) of the Act simultaneously with or prior to the notice issued to its bank under Section 226 (3) (i) of the Act for recovery of the tax demand from its account. The Court accepts the submission of the Revenue that requirement under Section 226(3)(iii) is only that a copy of the notice should be forwarded to the assessee and not that a copy should be served on the Assessee in advance or simultaneously.
Issues Involved:
1. Whether it was mandatory for the Income Tax Department to issue a notice to the Petitioner under Section 226 (3) (iii) of the Income Tax Act, 1961, prior to issuing a notice to the garnishee under Section 226 (3) (i) of the Act. Detailed Analysis: Background Facts: The Petitioner, a wholly-owned subsidiary of the GE Group, filed its return of income for AY 2014-15, declaring an income of ?21,37,610. The return was scrutinized, and an addition of ?2,14,78,118.90 was made to the Petitioner’s income, resulting in a tax demand of ?94,51,390. The Petitioner filed an appeal before the CIT(A) but did not file a stay application. Subsequently, the AO issued a notice under Section 226 (3) (i) to HSBC Bank to recover the tax demand from the Petitioner’s account, and the amount was recovered before the notice was dispatched to the Petitioner. Submissions on behalf of the Assessee: The Assessee argued that the Department should have issued a notice to the Assessee prior to or simultaneously with the notice to the Bank, allowing the Assessee an opportunity to contest the default status. The Assessee relied on CBDT Instruction No. 1914 and various High Court judgments, asserting that recovery should not exceed 15% of the disputed demand pending appeal. Submissions on behalf of the Revenue: The Revenue contended that the Assessee was deemed in default under Section 220 (4) for not paying the demand within 30 days and not filing a stay application. The Revenue argued that Section 226 (3) (iii) only required forwarding a copy of the notice to the Assessee, not prior or simultaneous service. They cited judgments supporting the non-mandatory nature of prior notice under Section 226 (3) (iii). Analysis and Reasons: The Court examined the statutory provisions and relevant case law. It noted that under Section 156, the AO must serve a notice of demand, which was done in this case. Under Section 221 (1) read with Section 220 (4), the Assessee is deemed in default if the demand is not paid within 30 days. The Assessee did not file a stay application, justifying the Department's action to recover the demand. The Court discussed CBDT Instruction No. 1914 and the OM dated 29th February 2016, which pertain to stay applications. Since the Assessee did not file a stay application, these guidelines were inapplicable. The Court distinguished the cited High Court judgments, noting that they involved stay applications, which were absent in this case. The Court emphasized the Supreme Court's decision in *Third ITO v. Damodar Bhat* and the Madras High Court's ruling in *P.P. Kanniah Chetty v. Income Tax Officer*, which held that prior service of notice under Section 226 (3) (iii) is not mandatory. The Court found these decisions correctly stated the law. Conclusion: The Court concluded that there was no illegality in the Department's action of not issuing a notice under Section 226 (3) (iii) to the Assessee prior to or simultaneously with the notice to the Bank under Section 226 (3) (i). The requirement was only to forward a copy of the notice to the Assessee. Consequently, the writ petition was dismissed with no order as to costs.
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