Court orders refund to Bank due to improper attachment and recovery proceedings, stresses adherence to guidelines

The court found the attachment and recovery proceedings initiated by the respondent hasty and not in compliance with established guidelines and principles of due process. The court directed the respondents to refund the amount to the appellant Bank upon submission of a Bank Guarantee covering the sum. The Bank Guarantee was to be retained until the appeal's resolution, with the refund deadline set at two weeks from its submission. The court emphasized the importance of adhering to guidelines in attachment and recovery proceedings and modifying the Single Judge's judgment accordingly.

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Issues:
Challenge to notice of attachment and recovery for realization of amounts due from the appellant Bank, compliance with section 226(3) of the Income-tax Act, consideration of pendency of appeal in recovery proceedings, guidelines for recovery of tax pending appeal, verification of factual situations under section 80P of the Income-tax Act, modification of judgment for refund with Bank Guarantee.

Analysis:
The writ petitioner, a cooperative bank, challenged a notice of attachment and recovery issued to a garnishee bank for amounts due. The petitioner contended that the recovery was initiated without considering the pending appeal and without serving notice as required by section 226(3) of the Income-tax Act. The Single Judge directed the respondent to consider the appeal but did not address the claim for refund, leading to the writ appeal.

The appellant argued that the recovery was made before serving notice to the assessee, violating due process under section 226(3). Reference was made to a judgment emphasizing cautious exercise of power under section 226(3) and the need for strict compliance. The court noted that recovery was swift, without considering the appeal, and failed to follow guidelines for garnishee proceedings.

Citing precedents, the court highlighted the duty of tax authorities to act judiciously and mitigate hardship to the assessee. The court found the attachment and recovery hasty, not in line with established guidelines. The liability of the appellant bank for income tax was discussed, referring to a Full Bench decision on the need for factual inquiry by the Assessing Officer.

The court acknowledged that the verification process was lacking in this case, emphasizing the need for adherence to guidelines in garnishee attachment and recovery. Despite the collection of the amount, the court declined immediate release without a Bank Guarantee covering the sum. The Single Judge's judgment was deemed in need of modification to address these aspects.

The writ appeal was disposed of by directing the respondents to refund the amount if the appellant furnished a Bank Guarantee for the entire sum. The Bank Guarantee was to be kept until the appeal's disposal, with realization subject to the appellate order. The refund deadline was set at two weeks from the Bank Guarantee submission, while the direction on appeal disposal from the Single Judge's judgment remained in force.

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