TaxTMI 
TaxTMI 
2022 (12) TMI 1022
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....n a sum INR 3,700 crores viz., i.e. INR 2,600 crores with HSBC Bank and INR 1,100 crores with City Bank. 2. The brief facts rising to the present petition are as under: - The petitioner is a private limited company engaged in the business of procurement, supply and distribution of Xiaomi products in India bearing various brand names including mobile phones, accessories, computers etc., as part of its business, petitioner has to pay royalty to Qualcomm and Beijing Xiaomi mobile software company Ltd., During the period from 2019 to March 2022, there were proceedings between the respondents and Income Tax Department and the proceedings in relation to alleged payment of income tax by the petitioner. Meanwhile, the Enforcement Directorate passed a seizure order dated 29.04.2022 seizing the bank accounts of the petitioner to an extent of INR 5,551 crores under the Foreign Exchange Management Act (for short 'FEMA'). The said order having been challenged by the petitioner in W.P.No.9182/2022, this Court passed an interim order dated 05.05.2022 staying the operation of the seizure order, subject to the condition that the petitioner was not entitled to make payments to foreign entities in ....
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....of the petitioner in the said petition, which is pending adjudication. 3. Heard Sri. Udaya Holla, learned Senior counsel appearing for the petitioner and Sri. M.B. Naragund, learned ASG for the respondents - revenue. 4. In addition to reiterating the various contentions urged in the petition and referring to the material on record, learned Senior counsel for the petitioner made the following submissions: - (i) That the impugned order passed by the 1st respondent is manifestly arbitrary and reflects premeditated conclusion whilst provisionally attaching the property of the petitioner without recording any opinion as to the necessity for attaching the property. (ii) The approval granted by the 3rd respondent is also silent and does not make out necessary reasons on the aspect of necessity of attaching the property and does not satisfy the jurisdictional precondition for passing a provisional attachment order. (iii) The impugned order also does not take into account the doctrine of proportionality comprising of both purpose and necessity to pass an order of provisional attachment. In this context, it is contended that proportionality mandates the existence of a proximate or li....
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....ement of objections and referring to the material on record, would support the impugned order and submit that the same does not warrant interference in the present petition which is liable to be rejected and submitted as under:- (i) The approval granted by the 3rd respondent is only an administrative action which does not require to be communicated to the petitioner and as such, non-quoting of the DIN number in the approval is not required and the same does not invalidate the approval which is otherwise in accordance with law; (ii) The approval not only refers to attachment of the entire fixed deposits of the petitioner and the same is not restricted to the royalty and accordingly, it cannot be said that the approval by the 3rd respondent is illegal or contrary to law; (iii) The impugned order contains sufficient and valid reasons and fulfils the parameters laid down by the Apex Court in Radha Krishan Industries' case (supra) and the petitioner who is guilty of defrauding the respondents and not paying taxes by shifting money outside India is not entitled to any relief in the present petition. (iv) Apart from the sufficient reasons contained in the impugned order, the other....
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....08,42,186/- and approximate tax ability of Rs. 10434,69,21,058 (excluding interest) in respect of the assessment years for which the assessment is pending. 6. Apart from the likely demand to be raised mentioned above the assesses will also be liable for interest U/s 234B and Penalty, as per provisions of the Income Tax act which will increase the likely tax dues of the assesses over and above the amount estimated above. 7. As per information received from the investigation wing, the assesses is maintaining fixed deposits of Rs. 3700 crores. The details of the same is as under: Sl.No. BANK Name Account Number Principal (in Rs.) 1. HSBC Bank Tech 073-16167-001 2600,00,00,000 2. CITI Bank-Tech 521656018 1100,00,00,000 Total 3700,00,00,000 8. In view of the above stated reasons, I am of the opinion that for purpose of protecting the interest of revenue it is necessary to provisionally attach the fixed deposits to the extent of Rs. 3,700 crores held by the assessee as mentioned in the table above along with the interest earned on the said fixed deposits. 9. I therefore attach the fixed deposits of Rs.3,700 crores held by the assesses as mentio....
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....nd (11) operate at different stages of the process. 49. Now in this backdrop, it becomes necessary to emphasise that before the Commissioner can levy a provisional attachment, there must be a formation of "the opinion" and that it is necessary "so to do" for the purpose of protecting the interest of the government revenue. The power to levy a provisional attachment is draconian in nature. By the exercise of the power, a property belonging to the taxable person may be attached, including a bank account. The attachment is provisional and the statute has contemplated an attachment during the pendency of the proceedings under the stipulated statutory provisions noticed earlier. An attachment which is contemplated in Section 83 is, in other words, at a stage which is anterior to the finalisation of an assessment or the raising of a demand. Conscious as the legislature was of the draconian nature of the power and the serious consequences which emanate from the attachment of any property including a bank account of the taxable person, it conditioned the exercise of the power by employing specific statutory language which conditions the exercise of the power. The language of the statute ....
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....isional attachment on the property of an assessee can be levied. The Commissioner must be alive to the fact that such provisions are not intended to authorise Commissioners to make pre-emptive strikes on the property of the assessee, merely because property is available for being attached. There must be a valid formation of the opinion that a provisional attachment is necessary for the purpose of protecting the interest of the government revenue. 51. These expressions in regard to both the purpose and necessity of provisional attachment implicate the doctrine of proportionality. Proportionality mandates the existence of a proximate or live link between the need for the attachment and the purpose which it is intended to secure. It also postulates the maintenance of a proportion between the nature and extent of the attachment and the purpose which is sought to be served by ordering it. Moreover, the words embodied in sub-section (1) of Section 83, as interpreted above, would leave no manner of doubt that while ordering a provisional attachment the Commissioner must in the formation of the opinion act on the basis of tangible material on the basis of which the formation of opinion i....
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....on formation of subjective satisfaction/opinion, the Commissioner may exercise the powers under Section 45 of the VAT Act." (emphasis supplied) 72. It is evident from the facts noted above that the order of provisional attachment was passed before the proceedings against the appellant were initiated under Section 74 of the Hpgst Act. Section 83 of the Act requires that there must be pendency of proceedings under the relevant provisions mentioned above against the taxable person whose property is sought to be attached. We are unable to accept the contention of the respondent that merely because proceedings were pending/concluded against another taxable entity, that is, GM Powertech, the powers of Section 83 could also be attracted against the appellant. This interpretation would be an expansion of a draconian power such as that contained in Section 83, which must necessarily be interpreted restrictively. Given that there were no pending proceedings against the appellant, the mere fact that proceedings under Section 74 had concluded against GM Powertech, would not satisfy the requirements of Section 83. Thus, the order of provisional attachment was ultra vires Section 83 of the Ac....
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....d by the Apex Court in the aforesaid decision, mere apprehension on the part of the respondents that huge tax demands are likely to be raised on completion of assessment is not sufficient for the purpose of passing a provisional order of attachment. It has also been held that apart from the fact that a writ petition under Article 226 of the Constitution of India challenging the provisional attachment order was maintainable, having regard to the fact that the provisional attachment order of a property of a taxable person including the bank account of such person is draconian in nature and the conditions which are prescribed by the statute for the valid exercise of power must be strictly fulfilled, the exercise of power for order of provisional attachment must necessarily be preceded by formation of an opinion by the authorities that it is necessary to do so for the purpose of protecting the interest of Government revenue. Before the order of provisional attachment, the Commissioner must form an opinion on the basis of the tangible material available for attachment that the assessee is not likely to fulfil the demand payment of tax and it is therefore necessary to do so for the purpo....
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....lects premeditated conclusion without recording either an opinion or necessary to attach the property; the doctrine of proportionality which is implicated in the purpose and necessity of provisional attachment mandates the existence of a proximate or a live link between the need for the attachment and the purpose which it is intended to secure. 13. Further, mere apprehension that huge tax demands are likely to be raised on completion of assessment is not sufficient for the purpose of passing a provisional attachment order and the exercise of the same must necessarily be preceded by the formation of an opinion that it was necessary to do so for the purpose of protecting the interest of Government revenue, that too on the basis of tangible material that the petitioner was not likely to fulfil the demand and on the other hand, was likely to defeat the demand, which is conspicuously missing and absent in the impugned order. 14. The impugned order also discloses that the same has been passed mechanically and is based on borrowed satisfaction and does not meet the test of formation of an opinion of the Assessing Officer who seems to have been influenced by the findings of the Investiga....
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....proval of the Commissioner under Section 281B of I.T.Act is not a mere empty formality and cannot be taken lightly. As stated supra, the approval granted by the 3rd respondent also reflects complete non-application of mind and is a non-speaking and unreasoned approval which is contrary to law and consequently, the impugned order based on the said approval deserves to be quashed. 18. The contention of the respondents that in addition to the reasons contained in the impugned order, the other material on record comprising of email correspondence, investigation reports, statements recorded during the course of investigation, etc., are sufficient to satisfy the requirements contemplated in law cannot be accepted in view of the well settled legal position as held by the Apex Court in Mohinder Singh Gills' case (supra), wherein the Constitution Bench held that when the respondent passed the impugned order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in a shape of an Affidavit or otherwise. At paragraph-8 of its judgment, the Apex Court held as under: - "8. The second equally relevant matter is that when a ....
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.... supra, the impugned order deserves to be quashed. However, in the facts and circumstances of the instant case, the specific contention of the respondents that right from the inception that the petitioner is indulging in diverting profits outside India and making payment to foreign entities under the guise of royalty cannot be lost sight of or glossed over by this Court. In fact, it is specifically contended that the TPO and the Investigation Wing have found that the royalty made by the petitioner to entities outside India was only a mode adopted by it to divert profits outside India. 23. A similar allegation was made by FEMA authorities against the petitioner in the proceedings which culminated in the order dated 05.07.2022 passed by this Court in W.P.No.9182/2022 wherein the earlier interim orders passed by this Court permitting the petitioner to operate the accounts and by restricting / limiting the same by directing the petitioner not to make payment in the form of royalty or in any other form to entities outside India was confirmed by this Court. Having said so, this Court also showed indulgence in favour of the petitioner by permitting petitioner to obtain / take overdrafts ....