Court quashes tax order, emphasizes fairness in asset attachment during appeals.

The court quashed the order attaching bank accounts and rental income under Section 226(3) of the Income Tax Act, 1961, due to lack of reasoning and non-compliance with Section 220(6) requirements. The Assessing Officer was directed to issue a new order within 15 days, emphasizing procedural fairness and legal compliance in cases involving asset attachment during pending appeals.

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Issues:
1. Writ petition under Articles 226 and 227 of the Constitution of India for quashing order attaching bank accounts and rental income under Section 226(3) of the Income Tax Act, 1961.
2. Claim of the petitioner regarding income, tax demand, and disallowances.
3. Defence by respondents regarding the availability of alternative remedies, payment details, and financial position of the assessee.
4. Justification of passing order under Section 226(3) of the Act while appeal was pending before the Appellate Authority.
5. Compliance with Section 220(6) of the Act regarding stay of demand during appeal.

Analysis:
1. The petitioner, engaged in IT-enabled services, filed a writ petition challenging the attachment of bank accounts and rental income under Section 226(3) of the Income Tax Act, 1961. The tax demand was raised significantly higher than the declared income, mainly due to disallowances under Section 10B and Section 14A of the Act. The petitioner had filed appeals against these additions, seeking a stay of demand pending appeal, which was rejected without a speaking order. The defence argued that the petitioner had alternative remedies available and failed to provide a payment schedule, questioning the financial position and substantiation of claims by the petitioner.

2. The respondents contended that the petitioner failed to pay the entire outstanding demand, with only partial payments made, and had not proven a weak financial position. The order under Section 226(3) was justified based on non-compliance with payment requirements and lack of evidence supporting the petitioner's claims. The attachment of bank accounts and rental income was deemed necessary for recovery, considering the substantial outstanding demand.

3. The Court noted that the petitioner's appeal against the assessment order was pending, and as per Section 220(6) of the Act, the Assessing Officer should treat the assessee as not in default during the appeal. However, the order passed by respondent no. 2 lacked reasoning and did not fulfill the requirements of a speaking order under Section 220(6). Consequently, the order attaching bank accounts and rental income was quashed, granting the Assessing Officer the opportunity to pass a fresh speaking order within 15 days.

4. In conclusion, the writ petition was disposed of with the directive for a new order to be issued in compliance with the law. The judgment emphasized the importance of following procedural requirements, especially in cases involving the attachment of assets during pending appeals, to ensure fairness and proper legal considerations.

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