Court orders release of bank accounts with guarantees, discloses assets for tax liability

The court found the attachment of the petitioner's bank accounts justified but deemed the continuation unnecessary for revenue protection. The court ordered the release of the HSBC account upon a bank guarantee and tax liability undertaking. The fixed deposit in DBS Bank sufficed for revenue protection. The petitioner must disclose immovable assets and ensure directors cover any additional tax liability personally if needed.

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Issues Involved:
1. Legality of the attachment of bank accounts under Section 132(9B) and Section 281(B) of the Income Tax Act, 1961.
2. Continuation of the attachment beyond the statutory period.
3. Allegations of tax evasion and involvement with shell companies.
4. Impact of attachment on the business operations of the petitioner.
5. Compliance with procedural requirements and provision of reasons for attachment.

Detailed Analysis:

1. Legality of the Attachment of Bank Accounts:
The petitioner challenged the attachment of its bank accounts under Section 132(9B) of the Income Tax Act, 1961, initiated by the Deputy Director of Income Tax (Inv) on 18.11.2021 and continued indefinitely. The petitioner argued that the attachment was "ex-facie bad in law" and lacked any basis or reason, seriously jeopardizing its business operations. The respondent justified the attachment, citing the search and seizure operation conducted on 17.11.2021 and 18.11.2021, which revealed alleged tax evasion activities involving unaccounted cash sales and transactions through shell companies.

2. Continuation of the Attachment Beyond the Statutory Period:
The petitioner contended that the continuation of the attachment beyond six months from the date of the order was contrary to Section 132(9C) of the Act. The respondent, however, extended the attachment under Section 281(B) of the Act, with the necessary approval from the Principal Commissioner of Income Tax. The court noted that the initial attachment was made on 13.05.2022 and extended on 11.11.2022, following the required procedural steps.

3. Allegations of Tax Evasion and Involvement with Shell Companies:
The respondent alleged that the petitioner was involved in tax evasion through transactions with shell companies, M/s. Tianchao Import Export Trading Private Limited and M/s. Pipeguard Trading Private Limited, which were used to layer transactions and divert funds to the parent company in Taiwan. The petitioner denied these allegations, asserting that it was a wholly owned subsidiary of a Taiwanese company and had complied with all legal requirements under the FDI policy and FEMA Act.

4. Impact of Attachment on Business Operations:
The petitioner argued that the attachment of over Rs. 13 crores in its bank accounts severely impacted its ability to pay wages, purchase raw materials, and cover day-to-day expenses, leading to a halt in business operations. The court acknowledged the need to balance the protection of revenue interests with the petitioner's right to continue its business.

5. Compliance with Procedural Requirements and Provision of Reasons for Attachment:
The petitioner claimed that the reasons for the attachment were not provided, causing serious prejudice. The court, however, found that the respondent had recorded reasons for the attachment, which were sufficient for the petitioner to understand the basis of the action. The court emphasized the importance of the assessing officer's satisfaction and the procedural compliance in such cases.

Conclusion:
The court concluded that while the attachment of the petitioner's bank accounts was legally justified based on the recorded reasons and procedural compliance, the continuation of the attachment was not necessary to protect revenue interests. The court directed the release of the HSBC bank account upon the petitioner furnishing a bank guarantee and an undertaking to fulfill any eventual tax liability. The fixed deposit in DBS Bank was deemed sufficient to protect the revenue's interest. The court also required the petitioner to disclose its immovable assets and provide an undertaking from its directors to cover any additional tax liability from their personal funds if necessary.

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