Court rules Income Tax Department's actions arbitrary, orders refund, imposes costs on both parties.

The court found the Income Tax Department's actions under Section 226(3) of the Income Tax Act, 1961, to be arbitrary and unjustified in attaching the petitioner's bank account to recover tax liability of the District Mining Officer. The court held the petitioner was not liable for the amount and directed the Income Tax Department to refund the deducted sum with interest. Costs were imposed on both departments for their lapses, with the Income Tax Department instructed to pursue recovery from the Mines and Geology Department as per the law.

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Issues Involved:
1. Legality of the Income Tax Department's action under Section 226(3) of the Income Tax Act, 1961.
2. Responsibility for the Tax Collected at Source (TCS) liability.
3. Arbitrary exercise of power by the Income Tax Department.
4. Liability of the petitioner after surrender of the mining lease.
5. Corrective measures and refund of the amount deducted from the petitioner's bank account.

Detailed Analysis:

1. Legality of the Income Tax Department's action under Section 226(3) of the Income Tax Act, 1961:
The petitioner, a registered company, was subjected to a garnishee proceeding initiated by the Income Tax Department under Section 226(3) of the Income Tax Act, 1961, to recover the tax liability of the District Mining Officer, Bhagalpur. The court found that the action of the Income Tax Department in attaching the petitioner's bank account and recovering Rs. 73,75,559/- was arbitrary and unjustified. The court noted that the petitioner was not liable for this amount, which was the responsibility of the District Mining Officer.

2. Responsibility for the Tax Collected at Source (TCS) liability:
The court acknowledged that the primary responsibility for the TCS liability lay with the Mines and Geology Department, which failed to deposit the TCS collected from various settlees, including the petitioner. The court noted that the Income Tax Department had previously attached the bank account of the District Mining Officer but later released it without ensuring the TCS was deposited. The court criticized the Income Tax Department for not taking action against the Mining Department under Sections 276B and 276BB of the Income Tax Act.

3. Arbitrary exercise of power by the Income Tax Department:
The court held that the Income Tax Department's action of attaching the petitioner's bank account and recovering the tax liability of the Mining Department was an arbitrary exercise of power. The court emphasized that the petitioner could not be held liable for the failures of the Mining Department. The court found that the Income Tax Department acted unreasonably by not conducting a factual enquiry to determine the actual liability of the petitioner.

4. Liability of the petitioner after surrender of the mining lease:
The petitioner had surrendered the mining lease on 14.10.2017, which was accepted by the State Government on 20.10.2017. The court found that the petitioner was not a debtor of the Mines and Geology Department after the surrender of the lease. The court noted that the Income Tax Department's order dated 23.10.2017, which declared the petitioner as an assessee in default, did not consider the surrender of the lease and the acceptance by the State Government.

5. Corrective measures and refund of the amount deducted from the petitioner's bank account:
The court directed the Income Tax Department to refund the amount recovered from the petitioner's bank account with interest at the rate applied by the Department while calculating the dues. The court ordered that the refund be made within three months, failing which a cost of Rs. 1 lakh would be imposed, to be recovered from the pocket of the Income Tax Officer. The court also directed the Mines and Geology Department to pay a cost of Rs. 1 lakh to the petitioner for the ordeal faced due to the Department's lapses. The court allowed the Income Tax Department to pursue recovery from the Mines and Geology Department in accordance with the law.

Conclusion:
The court allowed the writ application, declaring the actions of the Income Tax Department as illegal, arbitrary, and unauthorized. The court ordered the refund of the amount deducted from the petitioner's bank account with interest and imposed costs on both the Income Tax Department and the Mines and Geology Department for their lapses.

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