Court Quashes Tax Attachment, Upholds Assessment Order in High-Stakes Income Tax Dispute

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Case Name:

Abul Kalam Vs Assistant Commissioner of Income Tax & Ors. (High Court of Calcutta)

WP 25 of 2020

Date: 27th January 2020

Key Takeaways:

1. The court emphasized the limited use of writ jurisdiction in tax matters, especially when statutory appeals are available.

2. Provisional attachment under Section 281B of the Income Tax Act should be used sparingly and only in cases of clear tax evasion or questionable assessee integrity.

3. The court highlighted the importance of providing proper reasons for provisional attachments.

4. The judgment underscores the need for tax authorities to be certain about the grounds of taxation before resorting to drastic measures like attachment.

Issue: 

Should the High Court interfere with the Income Tax Department's assessment order and provisional attachment of the petitioner's bank account under its writ jurisdiction?

Facts:

1. The Income Tax Department issued a notice for assessment under Section 143(3) of the Income Tax Act on August 13, 2018, for the Assessment Year 2017-18.

2. Multiple queries and notices were exchanged between December 5-28, 2019.

3. An assessment order was passed on December 29, 2019, determining the total assessed income as Rs.77,61,50,670/-.

4. A demand notice under Section 156 was issued for Rs.35,95,82,634/-.

5. A provisional attachment order under Section 281B was issued on December 26, 2019, attaching the petitioner's bank account.

Arguments:

Petitioner's Arguments:

1. The amount received was due to a family arrangement/re-arrangement and should be treated as a capital receipt, not taxable income.

2. The provisional attachment was unjustified as the petitioner had cooperated with the tax authorities.

Revenue's Arguments:

1. The attachment was necessary due to the large sum of money involved.

2. The transaction involved the petitioner losing control over a company where he was a main manager/director.

Key Legal Precedents:

1. Commissioner of Income Tax vs. Kay Arr Enterprises (2008) 299 ITR 348 (Madras)

2. Commissioner of Income Tax-II, Jalandhar vs. Ashwani Chopra (2013) 352 ITR 620 (P&H)

3. Commissioner of Income Tax vs. AL. Ramanathan (2000) 245 ITR 494 (Madras)

4. Commissioner of Income Tax, Mumbai vs. Sachin P. Ambulkar (2014) 221 Taxman 67 (Bombay) (MAG.)

5. Assistant Commissioner of Income-tax vs. Balmiki Prasad Singh (2018) 259 Taxman 372 (SC)

6. Union of India vs. Guwahati Carbon Ltd 2012 (278) ELT 26(SC)

7. Commissioner of Income Tax vs. Chhabil Dass Agarwal (2014) 1 SCC 603

8. Vodafone Idea Ltd. vs. Commissioner of Income Tax (2019 SCC OnLine Bom 1786)

Judgement:

1. The court refused to interfere with the assessment order, stating that the Income Tax officer had not acted without jurisdiction.

2. The court quashed and set aside the provisional attachment order, finding it untenable and without proper reasons.

3. The petitioner was given liberty to file an appeal and stay petition before the Commissioner of Income Tax (Appeals) within 30 days.

4. The Commissioner of Income Tax (Appeals) was directed to hear the stay petition and pass a reasoned order promptly.

5. The Income Tax authorities were directed not to take coercive steps against the petitioner until the disposal of the stay petition.

FAQs:

1. Q: Why did the court refuse to interfere with the assessment order?

  A: The court found that the Income Tax officer had not acted without jurisdiction, and interfering with the order at this stage was not deemed appropriate.

2. Q: On what grounds was the provisional attachment quashed?

  A: The court found the attachment unjustified, as the taxability of the amount was debatable and no proper reasons were provided for the attachment.

3. Q: What options does the petitioner have now?

  A: The petitioner can file an appeal and stay petition before the Commissioner of Income Tax (Appeals) within 30 days of the judgment.

4. Q: Does this judgment set any precedent for future cases?

  A: Yes, it emphasizes the limited use of writ jurisdiction in tax matters and the need for proper justification for provisional attachments under Section 281B of the Income Tax Act.

5. Q: What happens if the petitioner doesn't file an appeal within the given time?

  A: If the petitioner doesn't file the appeal and stay petition within one month, the tax department will be at liberty to act in accordance with the law.

1. This is an application under Article 226 of the Constitution of India. The petitioner is aggrieved by an assessment order dated December 29, 2019 passed by the income tax department and subsequent demand notice under Section 156 of the Income Tax Act, 1961 (in short “the Act”). The writ petitioner is also aggrieved by an attachment notice that was issued under Section 281B of the Act prior to passing of the assessment order.

2. Mr. Ratnanko Banerji, Senior Advocate appearing on behalf of the petitioner, submits that notice for assessment under Section 143(3) of

the Act was issued on August 13, 2018 for the Assessment Year 2017-18. During the assessment hearings, several queries were raised upon the assessee petitioner wherein the assessee furnished its reply on December 5, 2019. Upon perusal of the response of the assessee, notice was issued under Section 142(1) on December 12, 2019. To the said notice, the assessee furnished a reply on December 19, 2019. On the basis of the said reply, a show-cause notice was issued on the assessee on 25th December, 2019. It is to be noted that in the earlier show-cause notice, taxability of a sum of Rs.75.4 crore had been raised under Section 28(iv) of the Act. Subsequently, the notice issued on December 25, 2019 stated that the amount of Rs.75.4 crore was taxable under Section 28(ii)(a) of the Act. To this show-cause notice, the assessee responded on December 28, 2019. Hearing was granted to the assessee and after perusal of the records and on consideration of the judgments relied upon by the assessee, assessment was completed under Section 143(3) of the Act on December 29, 2019 holding the total assessed income to be Rs.77,61,50,670/-. Subsequent to the same, computation was completed and computation order was also issued on the same date seeking a demand of Rs.35,95,82,634/-. Notice under Section 156 was also issued for the above sum and the petitioner was directed to deposit the said sum of money within 30 days from the date of the notice. In the meantime an order for provisional attachment was issued under Section 281B of the Act on December 26, 2019 attaching the bank account of the petitioner.

3. Mr. Ratnanko Banerji, Senior Advocate has relied upon several judgments being Commissioner of Income Tax vs. Kay Arr Enterprises reported in (2008) 299 ITR 348 (Madras); Commissioner of Income Tax-II, Jalandhar vs. Ashwani Chopra reported in (2013) 352 ITR 620 (P&H); Commissioner of Income Tax vs. AL. Ramanathan reported in (2000) 245 ITR 494 (Madras) and Commissioner of Income Tax, Mumbai vs. Sachin P. Ambulkar reported in (2014) 221 Taxman 67 (Bombay) (MAG.) to buttress his argument that amounts received on account of a family arrangement/re-arrangement are capital receipts and are not taxable in any manner whatsoever. He further submits that neither is capital gains payable on the sum nor can the sum be taxable under Section 28(ii)(a) of the Act. Mr. Banerji further relies upon Assistant Commissioner of Income-tax vs. Balmiki Prasad Singh reported in (2018) 259 Taxman 372 (SC) to support his argument that an assessment order can be challenged in writ proceedings in spite of the fact that there may be an alternative and efficacious remedy.

4. With regard to the attachment, Mr. Banerji has submitted that the provisional attachment made under Section 281B of the Act is completely unjustified as the assessee cooperated with the Income Tax Officer at all times and the assessee not being a fly by night operator there was no need for any attachment whatsoever. He submits that not only is the attachment completely untenable and without jurisdiction, but the attachment is absolutely unknown to law and contrary to the principles established in law. Mr. Trivedi, Advocate appearing for the Revenue submits that the attachment was done as the amount that would become due was a very large sum of money.

5. Mr. Dhiraj Trivedi, Advocate appearing on behalf of the Revenue, relying on the assessment order passed, has placed B.A. Mohota Textiles Traders (P.) Ltd. vs. Deputy Commissioner of Income-tax, Special Range-2 reported in (2017) 248 Taxman 490 (Bombay) and Padmanabha Udupa vs. Income-tax Officer, Ward-3, Division-II, Ernakulam reported in (2010) 189 Taxman 408 (Kerala) to submit that the assessee cannot lift the corporate veil as and when he wants to for his own benefit. He submits that the entire transaction in the present case is that of the petitioner loosing his control over the company as he was one of the main managers and/or director of the company.

6. Considered the above arguments placed on behalf of the Counsels.

7. Having perused the assessment order, I am of the view that I should not interfere with the same at this stage. Without going into the merits of the said order, I find that the officer has dealt with the contentions raised by the petitioner and come to a particular finding. Interfering with the same at this stage may not be the correct course of action. The Hon’ble Supreme Court in several judgments including the judgment in Union of India vs. Guwahati Carbon Ltd reported in 2012 (278) ELT 26(SC) and Commissioner of Income Tax vs. Chhabil Dass Agarwal reported in (2014) 1 SCC 603 has held that in the event a statutory appeal is available, the writ court should not interfere unless an order is passed completely without jurisdiction. In the present case, I am of the prima facie view that the income tax officer has not acted without jurisdiction. Whether such jurisdiction has been exercised incorrectly and/or there is an error in such exercise is a different issue to be tested under the statutory appeal available under the Act. The Supreme Court in Balmiki Prasad Singh (supra) upheld the order of the High Court setting aside the assessment order on the grounds of violation of the principles of natural justice. In the present case, there is no such violation of principles of natural justice, and therefore, the judgment has no precedential value in the present case. The extra ordinary jurisdiction under Article 226 of the Constitution is required to be sparingly used only when the Court finds that the action of the State is completed without jurisdiction, in violation of the principles of natural justice and/or the order passed is palpably illegal. In my view, none of the above conditions are applicable in the present case. Accordingly, I do not find any reason to interfere with the assessment order.

8. With regard to the provisional attachment, the reasons recorded by the officer and the explanation given by Mr. Trivedi are not acceptable to me as this is a provision to be used only in rare situations where the bona fide of the assessee is in question or there has been a clear case of evasion of tax. The Bombay High Court in Vodafone Idea Ltd. vs. Commissioner of Income Tax bearing Writ Petition No. 2036 of 2019 reported in 2019 SCC OnLine Bom 1786 while examining a similar case of attachment under Section 281B of the Act, held as follows:

“16. Under sub-section (1) of section 281B of the Act thus, where during the pendency of any proceedings for assessment or reassessment, the assessing officer is of the opinion that for the purposes of protecting the interest of revenue, it is necessary so to do, he may with the previous approval of the higher authority pass an order in writing provisionally attaching the property belonging to the assessee. These are drastic powers permitting the assessing officer to attach any property of an assessee even before the completion of assessment or reassessment. These powers are thus in the nature of attachment before judgment. They have provisional applicability and in terms of sub-section (2) of section 281B of the Act, a limited life. Such powers must, therefore, be exercised in appropriate cases for proper reasons. Such powers cannot be exercised merely by repeating the phraseology used in the section and recording the opinion of the officer passing such order that he was satisfied for the purpose of protecting the interest of revenue, it was necessary so to do.”

9. In the present factual matrix, it is crystal clear that the taxability of Rs. 74.5 crores is a debatable issue. The Income Tax officer has himself changed the goal post by first charging the amount under Section 28(iv), and thereafter, under Section 28(ii)(a). In a situation wherein the officer is himself not certain of the taxability, the use of a drastic provision such as Section 281B is not tenable. Moreover, no reasons have been provided in the attachment notice. Submission of Mr. Trivedi that the amount of tax being large, and therefore, the provisional attachment was resorted to, is not a good enough reason and is rejected by this Court. If the above reason were accepted then in all cases of high demands, provisional attachment would become the norm. I am unable to accept the logic, and therefore, the attachment order is quashed and set aside.

10. With the above directions, this writ petition is disposed of with liberty given to the petitioner to file an appeal and stay petition before the Commissioner of Income Tax (Appeals) within a period of 30 days from date. The Commissioner of Income Tax (Appeals) is directed to grant an opportunity of hearing and thereafter pass a reasoned order in respect to the stay petition forthwith. The Commissioner of Income Tax (Appeals) is also request to hear out the appeal at the earliest, preferably within a period of two months from date. The income tax authorities are directed not to take any coercive steps against the petitioner till the disposal of the said stay petition by the CIT (Appeals). In the event, the petitioner does not file the appeal and the stay petition within the aforesaid one month, the department shall be at liberty to act in accordance with law.

11. Accordingly, WP 25 of 2020 is disposed of.

12. Since no affidavit has been called for, the allegations in the application are deemed not to have been admitted.

13. It is made clear that I have not gone into the merits of the case and the authorities below should not take notice of any of the comments made hereinabove in relation to the merits of the case.