Court quashes Income Tax Act notice, Multi-State Bank wins challenge

The court quashed the notice under section 226(3) of the Income Tax Act, 1961, declaring the petitioner as 'an assessee in default' and seeking attachment of bank accounts for recovery of due amounts. The petitioner, a Multi-State Scheduled Urban Co-operative Bank, challenged the notice and subsequent order. Despite engaging with tax authorities, the petitioner was declared 'an assessee in default.' Ultimately, the court directed the petitioner to remit a specific sum to the tax authorities to resolve the issue, quashing the notices and orders and prohibiting further actions. The ruling was made absolute with no costs.

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Issues involved:
The issues involved in the judgment are the quashing of a notice under section 226(3) of the Income Tax Act, 1961, declaring the petitioner as 'an assessee in default' and seeking attachment of bank accounts for recovery of due amounts.

Summary:

Issue 1: Quashing of notice under section 226(3) of the Income Tax Act, 1961

The petitioner, a Multi-State Scheduled Urban Co-operative Bank, filed a petition under Article 226 of the Constitution of India seeking to quash a notice under section 226(3) of the Income Tax Act, 1961. The notice dated 28th March 2023 declared the petitioner as 'an assessee in default' for non-compliance with a previous notice and called for the attachment of bank accounts to recover due amounts. The petitioner also challenged the earlier notice dated 9th March 2023 and the subsequent order declaring them 'an assessee in default'.

Issue 2: Compliance and response to notices

The petitioner responded to the notices by informing about a 'Debit freeze' on certain accounts and engaging with the tax authorities through summons and providing necessary information. Despite the response and explanations provided, the petitioner was declared 'an assessee in default' leading to the legal challenge.

Issue 3: Resolution of the impasse

During the proceedings, the petitioner offered to pay a significant amount to the tax authorities to resolve the matter. The respondent agreed not to implement the notice and order if the payment was made by the end of the day. Concerns were raised about the status of accounts held by another entity, but the court directed the petitioner to remit a specific sum to the tax authorities to resolve the issue.

In the final judgment, the court quashed the impugned notices and orders, prohibiting further actions in that regard. The rule was made absolute with no costs, and all parties were directed to act based on the court's order for resolution.

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