2013 (10) TMI 656 - HC - Income Tax

Court Overturns Tax Authorities' Orders, Allows Petitioner's Bank Account Access with Restrictions. Stay on Recovery & Garnishee Notices.

The court set aside the orders of the Income Tax Officer and Addl. Director of Income Tax, directing the petitioner to file a stay application before the ... Stay of recovery - attachment of bank accounts - Following Precedent – Held that:- The orders of the Income Tax Officer (Exemptions) and 19 August 2013 of the Addl. Director of Income Tax (Exemptions) have ignored the directions contained in KEC International Ltd. v/s. B.R.Balkrishnan [2001 (3) TMI 32 - BOMBAY High Court] - besides being cryptic and deserve to be set aside - We are not inclined to remit the matter to the same authorities, because the petitioner has already filed an appeal before the Commissioner of Income Tax (Appeals) and therefore it would be in the fitness of things, if the petitioner is directed to file a stay application before the CIT (Appeals), who should hear and decide the stay application as expeditiously as possible and preferably within three months from the date of filing of the stay application. Interim Arrangement - What interim arrangement is to be made during the pendency of the application before the CIT (Appeals) – Held that:- The petitioner shall not withdraw or encash fixed deposit lying with ICICI Bank and another deposit lying with HDFC Bank - The petitioner shall also not withdraw any amount from the petitioner's account with HDFC , but it will be open to the petitioner to convert the amount lying in the saving/current account into fixed deposit - the petitioner will be at liberty operate the petitioner's account with ICICI Bank - In view of the interim arrangement, as a part of interim order, garnishee notices shall remain stayed during the pendency of the stay application before the CIT (Appeals) - No recovery shall be made during pendency of the said application before the CIT (Appeals) and for a period of three weeks, in case the order of CIT (Appeals) is adverse to the petitioner - As per the provisions of section 226(3) (x) of the Income Tax Act,1961, noncompliance by the HDFC Bank and ICICI Bank with garnishee notices on account of operation of this order, shall not be treated as a default on part of HDFC Bank or ICICI Bank. Issues:Challenge to order of Income Tax Officer and Addl. Director of Income Tax regarding stay against coercive recovery and garnishee notices.Analysis:The petitioner, a registered society, challenged orders refusing stay against coercive recovery and garnishee notices issued by the Income Tax Officer and Addl. Director of Income Tax. The petitioner had already filed an appeal against the assessment order. The petitioner's bank accounts were attached due to the alleged tax liability. The petitioner's counsel argued that the petitioner had a strong case but was unable to carry out daily activities due to the attachment orders. The counsel contended that the authorities did not follow the principles set in KEC International Ltd. v/s. B.R.Balkrishnan (2001) 251 ITR 158. On the other hand, the revenue's counsel opposed the petition, stating that the authorities had considered the stay application and no interference was warranted.The court considered the submissions and referred to the principles laid down in KEC International Ltd. case. It found that the authorities' orders were cryptic and did not adhere to the principles. The court set aside the orders and directed the petitioner to file a stay application before the Commissioner of Income Tax (Appeals) for expeditious decision, preferably within three months. The court also allowed the CIT (Appeals) to take up the appeal for final disposal if deemed appropriate.During the pendency of the stay application, the court made interim arrangements regarding the petitioner's bank accounts and fixed deposits. It prohibited withdrawal from certain accounts but allowed operations in others. The court stayed the garnishee notices and prohibited recovery during the pendency of the application and for a specified period after an adverse order. Noncompliance by banks with the garnishee notices due to the court's order was clarified. The CIT (Appeals) was empowered to issue consequential directions to the Income Tax Department based on their decision.In conclusion, the writ petition was disposed of with the above interim arrangements and directions for the CIT (Appeals) to decide on the stay application and appeal promptly.