2023 (4) TMI 154 - HC - Income Tax

Recovery proceedings - notice u/s 226 (3) addressed by the Respondent No. 1 to the Respondent No. 4 (R.B.I) declaring the Petitioner as an assessee in default for non-compliance of the notice u/s 226(3)(x) and calling upon Respondent No. 4 (R.B.I) to attach all the bank accounts including FDs/RDs or any other type of deposits, held by the Petitioner with Respondent No. 4 to effect recovery due from Sinhgad Technical Education Society in respect of arrears of income-tax - Petition also seeks setting aside the notice u/s 226(3) and the impugned order declaring the Petitioner an assessee in default - Respondent No. 5 urged that account held in the name of Sinhgad Technical Education Society and others had also turned Non-Performing Assets and it owed ₹ 74.45 crores to them therefore their interest also be protected. HELD THAT - Be that as it may, we are unable to protect the interest of the Respondent No. 5 at this point. We are of the view that the impasse between the Petitioner and Respondent No. 1 can be resolved by directing the Petitioner to forthwith and in any event by the end of the day remit electronically a sum of ₹ 43 Crores to the Respondent No.1 in the account, details of which would be submitted by Mr. Kumar. Upon such remittance, nothing remains in the Petition and can therefore be disposed off. We pass the following order i. The impugned notice dated 9th March 2023 u/s 226(3), the impugned order dated 28th March 2023, and impugned notice dated 28th March 2023 issued to Respondent No. 4 are quashed and set aside and all further action in respect thereof is prohibited; ii. Rule made absolute in above terms. No costs.

Issues involved:
The issues involved in the judgment are the quashing of a notice under section 226(3) of the Income Tax Act, 1961, declaring the petitioner as 'an assessee in default' and seeking attachment of bank accounts for recovery of due amounts.

Summary:

Issue 1: Quashing of notice under section 226(3) of the Income Tax Act, 1961

The petitioner, a Multi-State Scheduled Urban Co-operative Bank, filed a petition under Article 226 of the Constitution of India seeking to quash a notice under section 226(3) of the Income Tax Act, 1961. The notice dated 28th March 2023 declared the petitioner as 'an assessee in default' for non-compliance with a previous notice and called for the attachment of bank accounts to recover due amounts. The petitioner also challenged the earlier notice dated 9th March 2023 and the subsequent order declaring them 'an assessee in default'.

Issue 2: Compliance and response to notices

The petitioner responded to the notices by informing about a 'Debit freeze' on certain accounts and engaging with the tax authorities through summons and providing necessary information. Despite the response and explanations provided, the petitioner was declared 'an assessee in default' leading to the legal challenge.

Issue 3: Resolution of the impasse

During the proceedings, the petitioner offered to pay a significant amount to the tax authorities to resolve the matter. The respondent agreed not to implement the notice and order if the payment was made by the end of the day. Concerns were raised about the status of accounts held by another entity, but the court directed the petitioner to remit a specific sum to the tax authorities to resolve the issue.

In the final judgment, the court quashed the impugned notices and orders, prohibiting further actions in that regard. The rule was made absolute with no costs, and all parties were directed to act based on the court's order for resolution.

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