Court partially allows petition challenging provisional attachment order under Income Tax Act, sets aside order, imposes conditions.

The court partially allowed the petition challenging the provisional attachment order under Section 281B of the Income Tax Act. The impugned order was set aside due to lack of valid reasons and failure to comply with legal requirements. Specific conditions were imposed, including prohibiting certain payments from fixed deposits, allowing overdrafts for payments to foreign entities, and directing completion of draft assessment proceedings by a specified date. The approval by the Principal Commissioner of Income Tax was deemed non-speaking and unreasoned, leading to the order's invalidation.

---

---

Issues Involved:
1. Validity of the provisional attachment order under Section 281B of the Income Tax Act, 1961.
2. Compliance with the legal requirements and preconditions for passing the provisional attachment order.
3. Application of the doctrine of proportionality in the provisional attachment order.
4. Validity of the approval granted by the Principal Commissioner of Income Tax.
5. Admissibility of additional reasons provided by the respondents in support of the provisional attachment order.

Detailed Analysis:

1. Validity of the Provisional Attachment Order under Section 281B of the Income Tax Act, 1961:
The petitioner sought the quashing of the impugned order dated 11.08.2022, passed by the Deputy Commissioner of Income Tax, provisionally attaching the petitioner's fixed deposits worth INR 3,700 crores. The court scrutinized whether the order met the statutory requirements under Section 281B of the Income Tax Act.

2. Compliance with Legal Requirements and Preconditions:
The court emphasized that the provisional attachment order must be preceded by the formation of an opinion that it is necessary to protect the interest of the revenue, based on tangible material. The court referenced the Apex Court's judgment in Radha Krishan Industries vs. State of Himachal Pradesh, which outlines the mandatory requirements for such orders, including the necessity of a proximate and live link between the need for attachment and the purpose it is intended to secure. The court found that the impugned order lacked valid or cogent reasons and failed to establish the necessity for attachment, thus not complying with the statutory preconditions.

3. Application of the Doctrine of Proportionality:
The doctrine of proportionality requires that the attachment must be necessary to protect the revenue and that there must be a balance between the nature and extent of the attachment and its purpose. The court found that the impugned order did not meet this requirement, as it was based on borrowed satisfaction from the findings of the Investigation Wing and TPO, without independent opinion formation by the Assessing Officer.

4. Validity of the Approval by the Principal Commissioner of Income Tax:
The approval granted by the Principal Commissioner of Income Tax was found to be non-speaking and unreasoned, reflecting complete non-application of mind. The court reiterated that such approvals should not be mechanical and must reflect independent application of mind, as held in the case of Chhugamal Rajpal vs. S.P. Chaliha & Others. Consequently, the approval did not satisfy the jurisdictional precondition for passing a provisional attachment order.

5. Admissibility of Additional Reasons:
The court rejected the respondents' attempt to supplement the impugned order with additional reasons, citing the Apex Court's ruling in Mohinder Singh Gill vs. Chief Election Commissioner, which states that the validity of an order must be judged by the reasons mentioned in the order itself and cannot be supplemented by fresh reasons later.

Conclusion:
The court concluded that the impugned order was arbitrary, lacked necessary reasons, and did not comply with the legal requirements and preconditions. The order was set aside with specific conditions:
- The petitioner is prohibited from making payments from the fixed deposits in the form of royalty or any other form to entities outside India.
- The petitioner is allowed to take overdrafts from the fixed deposits and make payments to foreign entities from such overdrafts.
- The respondents are directed to complete the draft assessment proceedings for the Assessment Years 2019-20, 2020-21, and 2021-22 by 31.03.2023.

Order:
1. Petition partly allowed.
2. Provisional attachment order dated 11.08.2022 set aside with conditions on payment and overdrafts.
3. Respondents to complete draft assessment proceedings by 31.03.2023.

---