2024 (5) TMI 449 - HC - Income Tax

Court Orders Immediate Defreezing of Bank Accounts After Illegal Extension Beyond 60-Day Limit Under Income Tax Act.

M/s. Pooja Trading Co. and Rama Trading Co. Versus Deputy Director of Income Tax (INV) & Anr.

The HC ruled that the freezing of the petitioners' bank accounts beyond sixty days was unsustainable under the Income Tax Act, 1961, as no extension order ... Seeking directions to de-freeze the bank accounts - Number of days for which order of freezing the bank accounts stays - whether the action of the respondents in freezing the accounts of the petitioners beyond a period of sixty days is sustainable under the provisions of the Act? - HELD THAT:- Undisputedly, a plain reading of sub-section (8-A) to Section 132 would unambiguously signify that in the instant case, the order of freezing the bank accounts could not remain in force for a period exceeding sixty days from the date of the order. Admittedly, the said period of sixty days had already expired before the filing of the present petitions and no subsequent order appears to have been passed for extending the freezing of accounts. Since the order in question was issued on 30.04.2023, the rigour period stood concluded by 30.06.2023, therefore, the perpetuation of freezing of the bank accounts is completely unsustainable and dehors the provisions of the Act. The aforesaid legal position was noticed by us on the very first date of hearing. We, however, directed the Revenue to obtain instructions with respect to the issue under consideration. On the following date of hearing i.e., on 28.02.2024, a further three weeks’ time was granted to the Revenue to file a reply. As seen that despite being extended reasonable indulgence to explain the tenability of the impugned action, the Revenue has failed to tender any justification, much less a cogent explanation which could sustain such action. Since the letter dated 30.04.2023 has already lived out its life and ceases to have any significance by virtue of operation of law, the same is hereby declared to be unenforceable beyond a period of sixty days from its issuance. Consequently, the writ petitions are allowed with a direction to immediately defreeze the concerned bank accounts of the petitioners. Issues involved:The petitioners seek directions to de-freeze bank accounts and set aside a letter issued by the respondents. The main issue is whether the freezing of accounts beyond sixty days is sustainable under the provisions of the Income Tax Act 1961.Judgment Details:Issue 1: Freezing of Bank AccountsThe petitioners argued that the bank accounts were frozen unjustifiably and that the freezing ceases to have effect after sixty days u/s 132(8-A) of the Act. They emphasized that no subsequent order was passed to extend the freezing, making the action of the respondents arbitrary. Reference was made to a Karnataka High Court case to support this argument.Issue 2: Respondents' JustificationThe respondents contended that the freezing was done following a search and seizure operation under Section 132(1) of the Act, revealing hawala transactions. They stated that the freezing was to prevent revenue leakage and that the petitioners were asked to explain their transactions but did not respond. The respondents argued that the freezing was lawful and necessary during the search operation.Legal AnalysisThe court examined Sections 132(3) and 132(8-A) of the Act, which specify the duration of freezing orders. It was noted that the freezing order in this case expired after sixty days, and no subsequent order was issued to extend it. The court found that the continued freezing of the bank accounts beyond the sixty-day period was unsustainable and contrary to the Act.Court's DecisionDespite granting the Revenue multiple opportunities to justify the freezing, no satisfactory explanation was provided. The court declared the letter dated 30.04.2023 unenforceable beyond sixty days and directed immediate defreezing of the petitioners' bank accounts. The writ petitions were allowed, and pending applications were disposed of accordingly.