High Court overturns attachment order under Income Tax Act, stresses fair process

The High Court of Madras set aside an interim order regarding the attachment of properties under Section 132(9B) of the Income Tax Act, 1961, in favor of two writ petitioners. The court emphasized the importance of providing the Department with a reasonable opportunity to present facts and address merit-based arguments through a counter affidavit. Following the court's decision, the Department withdrew the warrant of attachment, and the Fixed Deposits were directed to remain untouched until the main writ petitions are resolved. The Department was granted time to file a counter affidavit, and the writ petitions were scheduled for a hearing before the appropriate Single Bench.

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Issues:
1. Challenge to interim order granted in writ petitions regarding attachment of properties under Section 132(9B) of the Income Tax Act, 1961.
2. Adequacy of opportunity given to the Department to present facts in the form of a counter affidavit.
3. Consideration of grounds raised in Writ Appeals regarding the scope of provisional attachment and merits of the matter.
4. Decision on lifting the attachment forthwith and its implications on the main relief sought in the writ petition.
5. Compliance with court directions and subsequent actions by the Department.

Analysis:
1. The High Court of Madras heard Writ Appeals challenging the correctness of an interim order regarding the attachment of properties under Section 132(9B) of the Income Tax Act, 1961. The interim order favored two writ petitioners who had not been subjected to search and seizure under Section 132 of the Act, leading to a finding that there was no justification for the provisional attachment of their assets.
2. The Department argued that they were not granted a reasonable opportunity to present facts through a counter affidavit. The court noted that the Department was directed to file a counter affidavit, and the lack of such an opportunity led to interference with the impugned order.
3. Several grounds were raised in the Writ Appeals concerning the scope of provisional attachment and the ongoing investigation into unaccounted income. The court emphasized that these merit-based arguments should be addressed in the writ petitions with the submission of a counter affidavit by the Department.
4. The court highlighted that lifting the attachment forthwith would essentially grant the main relief sought in the writ petition prematurely, emphasizing the importance of completing pleadings and hearing arguments before granting interim relief.
5. Following the court's decision to set aside the impugned order, the Department withdrew the warrant of attachment against the respondents. The court directed the Fixed Deposits to remain in the bank, prohibiting the respondents from withdrawing or liquidating them until the main writ petitions are resolved. The Department was granted eight weeks to file a counter affidavit, and the writ petitions were scheduled for hearing after twelve weeks before the appropriate Single Bench.

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