2021 (5) TMI 361 - HC - Income Tax

Stay of Recovery proceedings - Other modes of recovery - Prayer quashing 226(3) notice - assessment passed u/s 144 bringing to tax the entirety of the bank balance as unexplained investment and income along with applicable penalty - HELD THAT - On the basis of the information received from the Kumbakonam Central Co-operative Bank, the details of the bank accounts and deposits made during demonetization were obtained and reply was sought for from the assessee in regard to certain deposits made during the relevant financial year. Admittedly, the petitioner did not respond to notice issued under Section 142(1). A pre-assessment show cause notice was also issued on 27.08.2019, to which also there was no response - thus order of assessment has come to be passed under Section 144 records total non-co-operation on the part of the petitioner during the assessment proceedings. The petitioner has admittedly challenged the same by way of first appeal, which is pending disposal. No application for stay has been placed before this Court though the affidavit filed in support of the Writ Petition mentions the stay application filed before the Income Tax Officer. In such circumstances, I see no illegality in the coercive recovery proceedings that have been initiated, save, of course, that the Section 226 notice ought to have been issued on the petitioner simultaneous with service upon the bank manager. This has admittedly not been done. However, this is not fatal to the proceedings, seeing as the petitioner is aware of the coercive recovery proceedings initiated as early as in March, 2020, but has chosen to do nothing till date. The prayer sought for by the petitioner, for a certiorarified mandamus quashing 226(3) notice, is thus not liable to be granted. Had an application for stay been filed, one could have considered the disposal of that application pending appeal. However, that has also not been done. Thus, the petitioner, at this juncture, can only be permitted to seek appropriate interim protection from the appellate/administrative authorities, pending appeal.

Summary

Issues:
Challenge to notice under Section 226(3) of the Income Tax Act, 1961 for illegal appropriation of funds without serving a copy to the petitioner, non-filing of return of income by the petitioner, order of assessment under Section 144 of the Act, lack of response to notices issued under Section 142(1), coercive recovery proceedings initiated, absence of stay application before the Court, pending first appeal challenging the assessment order.

Analysis:
The petitioner, a Primary Agricultural Cooperative Credit Society, challenged a notice issued under Section 226(3) of the Income Tax Act, 1961, alleging it was illegal as a copy was not served upon them. The notice led to the appropriation of funds without proper communication. The petitioner sought a refund of the amount. The order of assessment under Section 144 of the Act was based on the petitioner's failure to file a return of income despite notices. The assessment brought the entire bank balance under tax along with penalties due to non-cooperation during proceedings.

The petitioner's challenge was made in a first appeal, pending disposal, without an application for stay before the Court. The Court noted the absence of illegality in the recovery proceedings initiated, except for the failure to issue the Section 226 notice to the petitioner simultaneously with the bank manager. However, the Court deemed this procedural lapse not fatal as the petitioner was aware of the recovery proceedings but took no action. The Court denied the prayer to quash the Section 226(3) notice, suggesting seeking interim protection pending appeal.

A direction was issued for the expeditious disposal of the petitioner's appeal within twelve weeks by the National Faceless Appeals Centre. No further coercive recovery proceedings were permitted until the appeal's disposal, considering a partial recovery already made. The Writ Petition was disposed of with no costs, emphasizing the need for appropriate interim protection through administrative authorities pending appeal.