Court quashes order, remits case for review, petitioner granted submission opportunity

The court quashed the impugned order and remitted the case back to the Tax Recovery Officer for proper consideration. The Deputy Commissioner of Income Tax was directed to provide assessment order copies to the petitioner. The petitioner was granted the opportunity to submit additional representations, with the Tax Recovery Officer instructed to make a final decision within ninety days. The court stressed adherence to procedural requirements under the Income Tax Act and Rules. The writ petition was allowed, and the related Miscellaneous Petition was closed.

---

---

Issues Involved:
1. Legality of the attachment of the property purchased by the petitioner.
2. Applicability of Section 281 of the Income Tax Act, 1961.
3. Bona fide nature of the petitioner’s purchase.
4. Procedural compliance by the Income Tax Department.

Issue-wise Detailed Analysis:

1. Legality of the attachment of the property purchased by the petitioner:
The petitioner purchased the property on 06.05.2011 from the third respondent, unaware of the income tax proceedings against the said company. The property was later attached by the Deputy Commissioner of Income Tax on 31.03.2013 due to tax arrears of Rs. 1,52,66,841/- for the Assessment Year 2010-2011. The petitioner contended that the attachment was contrary to Section 281 of the Income Tax Act, 1961, as there were no pending proceedings against the third respondent at the time of purchase. The court noted that the petitioner had obtained an Encumbrance Certificate showing no encumbrance/charge over the property at the time of purchase.

2. Applicability of Section 281 of the Income Tax Act, 1961:
The petitioner argued that the attachment was contrary to Section 281 of the Income Tax Act, 1961, as the purchase was made without notice of any pending proceedings or tax arrears. The court examined the proviso to Section 281, which protects transfers made for adequate consideration and without notice of pending proceedings or tax dues. The court found that the petitioner’s case was prima facie covered by this proviso, as there were no pending proceedings on the date of purchase.

3. Bona fide nature of the petitioner’s purchase:
The petitioner claimed to be a bona fide purchaser, having examined the records and obtained an Encumbrance Certificate before purchasing the property. The court noted that the impugned order did not state any pending proceedings on the date of sale. The assessments were completed only after the purchase. The court emphasized that the proviso to Section 281 applies to bona fide purchasers, indicating the absence of knowledge of pending proceedings or tax dues.

4. Procedural compliance by the Income Tax Department:
The court highlighted the procedural requirements under Rule 11 of the Schedule-II of the Income Tax Act, 1961, for addressing wrongful attachment claims. The court found that the petitioner had approached the Income Tax Officer and the Tax Recovery Officer but received no response, compelling the petitioner to approach the first respondent. The court held that the impugned order deserved to be set aside as it did not consider the petitioner’s pleas and remitted the case back to the second respondent Tax Recovery Officer to pass appropriate orders on merits.

Conclusion:
The court quashed the impugned order dated 26.10.2016 and remitted the case back to the second respondent Tax Recovery Officer to pass appropriate orders on merits. The fifth respondent Deputy Commissioner of Income Tax was directed to furnish copies of the assessment orders for the period in dispute to the petitioner. The petitioner was allowed to file an additional representation, and the second respondent was directed to pass final orders on merits after considering the petitioner’s representation within ninety days. The court emphasized compliance with all procedural requirements and safeguards under the Income Tax Act, 1961, and the Rules before passing such orders. The writ petition was allowed, and the connected Miscellaneous Petition was closed.

---