Court quashes jurisdictional notice under Income-tax Act, emphasizes procedural fairness

The court held that the notice issued under Section 226(3) of the Income-tax Act was without jurisdiction and against statutory provisions as no prior notice was sent to the petitioner. It emphasized the necessity of issuing a notice before initiating garnishee proceedings and found the petitioner was condemned unheard, violating procedural requirements. The court quashed the notice, accepted the writ petition with costs, and held the Department accountable for procedural lapses, awarding costs of Rs. 5,000 in each petition.

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Issues Involved:
1. Legality of the notice issued under Section 226(3) of the Income-tax Act, 1961.
2. Jurisdiction and procedure followed by the Assessing Officer.
3. Relationship between the petitioner and Transholding Private Limited.
4. Compliance with procedural requirements under the Income-tax Act.

Detailed Analysis:

1. Legality of the Notice Issued Under Section 226(3) of the Income-tax Act, 1961:
The petitioner challenged the notice issued by the Assistant Commissioner of Income-tax under Section 226(3) of the Income-tax Act, 1961, directing the bank to pay any amount due from the bank or held by it on account of the petitioner up to Rs. 5,53,920. The petitioner argued that no proceedings were pending against it nor was any amount due to the Income-tax Department. The court found that the notice was issued without jurisdiction and against the provisions of the Act, as no notice was sent to the petitioner before attaching its bank account. The issuance of notice under Section 226(3) is a sine qua non for initiating garnishee proceedings.

2. Jurisdiction and Procedure Followed by the Assessing Officer:
The court emphasized that the mode of collection and recovery of tax is provided under Chapter XVII of the Act, starting with Section 190. Section 226(3) specifies that the Assessing Officer or Tax Recovery Officer may require any person from whom money is due to the assessee to pay the amount due. The court highlighted that no valid initiation of garnishee proceedings can occur without issuing a notice to the concerned person. In this case, no notice was sent to the petitioner under Section 226(3)(i), and the petitioner was condemned unheard, violating the procedural requirements.

3. Relationship Between the Petitioner and Transholding Private Limited:
The respondents claimed that the petitioner was a sister concern of Transholding Private Limited and that a sum of Rs. 16 lakhs was due from S. K. Gupta, associated with Standard Carriers, to whom Transholding Private Limited owed money. The petitioner clarified that it had no connection with Transholding Private Limited, and both companies were separate legal entities managed by different boards of directors. The court found no material evidence to substantiate the claim that the petitioner was a sister concern of Transholding Private Limited. The petitioner admitted owing Rs. 92,982 to Transholding Private Limited but denied any liability to S. K. Gupta, the defaulting assessee.

4. Compliance with Procedural Requirements Under the Income-tax Act:
The court detailed the procedural requirements for recovery under Section 226(3) of the Act, including the necessity of issuing a notice to the concerned person. The petitioner had the right to object to the notice by a statement on oath, denying liability. The court found that the petitioner was deprived of this opportunity as no notice was issued to it. The proceedings were held to be without jurisdiction, resulting in harassment and deprivation of the petitioner's funds without following due process. The court quashed the notice and awarded costs to the petitioner.

Conclusion:
The writ petition was accepted with costs, and the notice, annexure "P-1", was quashed. The court held the Department responsible for the procedural lapses and quantified the costs at Rs. 5,000 in each petition.

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