TaxTMI 
TaxTMI 
2024 (6) TMI 74
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....rred to as 'HUF') assailing the auction of sale conducted by the respondents of the properties owned by the HUF and individually by the members of the HUF to recover the tax assessed against the HUF. 2. Briefly, the contentions raised by the petitioner are that the Rattan Trust was a non-charitable trust created by registered deed executed on 28.03.1942. It is asserted that besides other donations, donation for a sum of Rs. 5 Lakh was received by the trust in January, 1946 from Gokal Chand individual. The assessment for the years 1946-1947 of the HUF was completed on 06.09.1946, which reflected the receipt of the aforesaid donation of Rs. 5 Lakh. The Income Tax Officer (hereinafter referred to as 'the ITO') had completed the assessment of the trust for the years 1947-48 and exemptions certificates were duly granted to the trust on 14.06.1947, 08.01.1952 and 01.09.1959. 3. The original assessment of the years 1946-47 was completed on 06.09.1946 on a total income of Rs. 97,789/-. However, the ITO after seventeen years reopened the assessment order under Section 147 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') and held that the demand of Rs. 5 Lakh had emanated....
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....rtificate by calculating the interest from an earlier date and the proclamation of sale for recovery of Rs. 14,16,283/- was therefore, on the higher side. The public auction was sought to be cancelled by submitting that since the amount had become non-est, therefore, the subsequent sale of properties for recovery of tax of Rs. 14,16,283/- should be cancelled. It was also objected that from the amount mentioned in the recovery certificate, a sum of Rs. 2,45,000/- had already been deposited but the same was shown as outstanding wrongfully. Apart from Rs. 2,45,000/-, a sum of Rs. 1,20,000/- had also been recovered from the tenants by attachment of rent, therefore, the same was required to be deducted from the total as shown in the recovery certificate. Another objection was raised after the auction has been conducted of the properties which were held on 31.10.1985 and 15.11.1985, pointing out that (a) that the certificate issued by the ITO District VIII (3) dated 14.12.1979, for proclamation of sale was invalid and illegal; (b), the ITO had no jurisdiction to issue the certificate under Section 222 (1) of the Act; (c) tax paid at the time of original assessment had not been ....
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....ion was pending before this Court, the reference pending before the Delhi High Court was answered in favour of the assessee vide order dated 15.05.2008 and the entire proceedings initiated under Section 147 of the Act, 1961, were held to be bad in law and the reassessment order and consequential actions were also held to be bad in law. The ITAT accordingly in terms of the order of the Delhi High Court modified its order dated 11.04.1983 and the appeal of the revenue was dismissed and the order of the AAC passed in favour of the petitioner dated 27.07.1967, was upheld by its order dated 20.02.2009. 10. Learned senior counsel for the petitioner submits that the action of the TRO is wholly illegal and unjustified. It is submitted that the TRO could not have rejected the objections filed by the petitioner and he was bound to have passed an order by correcting the recovery certificate. Once, it was brought to his knowledge that the ex-parte order of the ITAT stood set aside, he should have referred the recovery certificate and the demand notice to the assessing officer for correcting the same and for evaluation to be calculated accordingly. More so, as part of the amount had already be....
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....ed in terms of Section 224 (3) and 224 of the Act, 1961. Learned counsel submits that after the ITAT passed a fresh order when the High Court remanded the case to it i.e. on 11.04.1983, it was necessary to issue a fresh demand notice to the petitioner as issuing of a fresh demand notice was a sine qua non before issuing orders of recovery but the respondents did not act in terms of Section 224 (3) of the Act, 1961 nor they provided 15 days notice in terms of Rule 12 (2) to pay the defaulted amount. Learned counsel relies on Ram Sarup Gupta vs. Bihari Lal Baldeo Prashad and others 95 ITR 339, which was upheld in Union of India vs. Jardine 118 ITR 112. She submits that the sale certificate deserves to be declared as nullity as the same was issued to enforce a fictitious demand which was already paid to certain extent as ultimately the Delhi High Court has found the tax demand to be non-existent, and the ITAT also passed a consequential order, the petitioner is entitled to the property which was illegally and wrongfully taken from him. She submits that since the sale auction conducted to realize the tax demand suffers from illegalities and mandatory rules were violated, the sale auct....
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....inal assessment order was passed on 31.10.1964 and on 27.07.1967, the 1st Appellate Authority had deleted the entire additions on merits and ITAT had affirmed the order of CIT (A) on 16.10.1968. On 23.12.1977, the Delhi High Court passed an order in reference against the assessee and on remand, the ITAT passed an ex-parte order under Section 260 (1) of the Act, 1961, on 07.03.1979. The same was recalled on 29.04.1980 by the ITAT, whereafter, on 11.04.1983, ITAT passed fresh order against the petitioner-assessee, which was taken up in reference by the assessee to the High Court. The High Court passed an order on 15.05.2008, in favour of the assessee setting aside the proceedings initiated against the assessee. On 20.02.2009, the ITAT passed consequential orders under Section 260(1) of the Act, 1961, upholding the CIT (A) order dated 27.07.1967. He further submits that the original assessment order cannot be termed as nullity as there is no such findings arrived at by the CIT (A) or by the Delhi High Court. He further submits that at the maximum it can be said that the assessment order was illegal as proper procedure was not adopted and the order of assessment was never declared nul....
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....ose proceedings have become final and conclusive before the date of auction sale made on 15.11.1985 and confirmed on 18.12.1985, therefore, Sections 224 (3), 225(2) or 225(3) were not invokeable in the present case. It is submitted that as on the date of confirmation of auction of sale, there was a demand due of Rs. 11,98,848/- and submits that there was nothing wrong in the auction when an amount of Rs. 11,98,848/- was due from the defaulter/petitioner. It is further submitted that the order waiving interest under Section 220 (2A) was passed after the auction taken place on 31.07.1987 while the auction had taken place and confirmed on 15.11.1985 and 18.12.1985 respectively. The power of waiver of interest under Section 220 (2A) of the Act, 1961, was given to the Commissioner on 01.04.1987 before that the powers were with the Board and the power was to be exercised with discretion. Thus, on the date of confirmation of sale, there was a valid demand due. He further submits that in terms of Section 265 of the Act, even if a reference has been made to the High Court, tax would be payable in terms of the assessment order. Rule 5 of the Second Schedule states that the interest on the a....
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....ished auction. Learned counsel further submits that once a sale has been effected and a third party interest is created, then the same ought to be protected by the Court. Learned counsel has relied on Sadashiv Prasad Singh vs. Harendra Singh 2015 (5) SCC 574, Samiro Alcantra Vaz vs. Ana Rita Sulochana, Law Finder Doc ID #1199182, Janak Raj vs. Gurdial Singh AIR 1967 SC 608, Sardar Govindrao Mahadik vs. Devi Sahi AIR 1982 SC 989, Nanhelal vs. Umrao Singh AIR 1931 PC 33. 14. Ms. Pridhi Sandhu, appearing for the revenue submits that the auction notice had been issued on 16.10.1985 and the auction was released on 31.10.1985 and 15.11.1985, relating to the properties situated at Link Road and Kwality Restaurant, Lawarance Road, Amritsar, respectively. There was no stay against auction of properties by the High Court. She relies on Sanjiv Kumar Singh vs. State of Bihar and others 2023 Live Law (SC) 63 and Collector of Customs, Bombay vs. M/s Krishan Sales (P) Ltd. AIR 1994 SC 1239, to submit that mere filing of an appeal would not operate as stay and as there was no stay in the petition filed by the assessee, therefore, the department has rightly auctioned the properties. The writ petit....
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....el for the parties. 17. While a plethora of judgments have been cited at bar by all the counsel, which we have gone through at length, but we do not propose to make this judgment more lengthy as then what it has already been and would propose to give our findings on the issues raised by the petitioner and respondents on the facts which have already been noticed hereinabove and based on the law which we find to be applicable to the facts of the present case. 18. Firstly we would deal with the maintainability issue raised by learned senior counsel for respondent No. 7. The argument of respondent No. 7 is that the present petition filed by HUF would not be maintainable because the objection petitions were filed by the coparceners who had in their objection petitions also contended that the properties do not belong to the HUF and could not therefore be sold in auction and relying on said contention, the auction purchaser/respondent No. 7 raises point of locus standi of petitioner -HUF. We are unable to accept such a contention raised by the auction purchaser/respondent No. 7 who has himself purchased the property in auction relating to a demand raised by the revenue against the HUF r....
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....tax Officer shall, when the order which was the subject-matter of such appeal or other proceeding has become final and conclusive, amend the certificate or withdraw it, as the case may be. Rule 61 of the Second Schedule to the Income Tax Act, 1961. 61. Application to set aside sale of immovable property on ground of non-service of notice or irregularity:- Where immovable property has been sold in execution of a certificate, [such Income-tax Officer as may be authorised by the [Principal Chief Commissioner or Chief Commissioner] or [Principal Commissioner or Commissioner] in this behalf], the defaulter, or any person whose interests are affected by the sale, may, at any time within thirty days from the date of the sale, apply to the Tax Recovery Officer to set aside the sale of the immovable property on the ground that notice was not served on the defaulter to pay the arrears as required by this Schedule or on the ground of a material irregularity in publishing or conducting the sale: Provided that:- (a) no sale shall be set aside on any such ground unless the Tax Recovery Officer is satisfied that the applicant has sustained substantial injury by reason of the non-service....
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.... the case may be, where subsequently the amount of outstanding demand is reduced. When it was informed that part of the amount had already been deposited i.e. Rs. 2,45,000/-, the same was required to be reduced from the total demand raised from the certificate of recovery drawn by the TRO under Section 220 (2) of the Act, 1961. We find that the action taken by the TRO of conducting auction based on the original demand due of Rs. 11,98,848/-, was wholly unjustified. We also find that the notice of demand dated 23.07.1979, was required to be corrected and the interest was also illegally calculated from 30.10.1964 instead of 11.04.1983 i.e. when the final adjudication of the so called addition was made. 25. The auction proceedings are very harsh proceedings and it is the last resort and one must be very-very careful and cautious before auctioning the property of a defaulter. The auction not only requires to be done with care and caution but it should also be done in a manner and procedure which is laid down in the rules. Any violation of the procedure would vitiate the entire proceedings of auction as has been held in Nazir Ahmad vs King Emperor 63 Indian Appeals 372. 26. We are in ....
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....ivy Council in the case of Nazir Ahmad's case (supra), has been followed consistently by this Court as well as Hon'ble the Supreme Court in catena of judgments. 31. We are also not agreed with the contentions of learned counsel for the respondents that the auction purchasers are only the strangers. On the other hand we find that the principle of 'buyer beware' is applicable in all cases of purchases and auctions and no person participating in the auction can state that he had no knowledge about the nature of the property and reasons for selling of the property in auction. Such an auction purchaser cannot be said to be ignorant to such facts of the property being in litigation. As discussed in the preceding paras, the rules were admittedly given a by-pass and as has come on record the auction purchasers are also related and, therefore, they cannot said that they are strangers. We, therefore, cannot accede to the submissions of learned counsel for the respondents that the auction purchasers ought not be made to suffer, as the entire fulcrum of the auction proceedings have been found to be void ab initio, therefore, consequential proceedings cannot be allowed to be maintained law. Ju....
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....lusion that the garnishee order was for a fictitious sum as it was not mentioned in the notice under Section 226 (3) of the Act, 1961, and after considering the law, it proceeded to hold as under:- "17. There can be no doubt that when an order is made for the Payment of a fictitious sum without giving any opportunity to a person, against whom the order is made, to show cause against the passing of such an order for the said sum, the order is a nullity. In other words, in the eye of law it will be deemed that there was no existence of such an order and any step taken pursuant to or in enforcement of such an order will also be a nullity. It will be tantamount to selling a property in execution of a decree when the decree has no factual existence. In such a case also, the sale will be null and void. The garnishee order that was passed by the IAC (Asst.), Rangell., Amritsar, for the sum of Rs. 8,56,377.55/0 is, therefore, null and void. 18. In this connection, we may refer to a decision of the Privy Council in Baijnath Sahai v. Ramgut Singh, Vol. 23 I.A. 45. In that case, a property was sold in execution of a certificate issued under the Bengal Public Demands Recovery Act, 1880, when....
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.... TRO could have confirmed the sale when the demands on account of tax for the recovery of which tax recovery certificate is issued, had ceased to exist' and observed as under:- "The term 'reduced' in sub-section (3) of Section 225 would include a case where the demand consequent upon an appeal or any proceedings under the Income-Tax Act has been reduced to nil also. The Tax Recovery Officer is obliged to give effect to such reduction in demand and accordingly amend or cancel the certificate. The scheme of Part III of Second Schedule indicates that the sale proceedings terminate on their becoming absolute whereafter all that remains to be done is the issuance of sale certificate. However, an order confirming the sale by the Tax Recovery Officer is a must. The efficacy of the sale by public auction in favour of the highest bidder has been made to depend on the order of confirmation by the Tax Recovery Officer by incorporating Rule 56 in the Schedule. It is true that ordinarily if there is no application filed for setting aside sale under Rules 60, 61 or 62 and 30 days from the date of the sale have expired, the Tax Recovery Officer has to make an order confirming a sale. Neverthele....
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....21 of the C.P.C. and, therefore, may not apply to the case of an auction sale held under Second Schedule of the Income-tax Act in view of Rule 56 contained therein. Moreover, in these decisions also, the Supreme Court has contemplated situations where in spite of the auction sale having been held and no application for setting aside the sale having been moved, yet in exceptional situations the sale may be refused to be confirmed and may be set aside. Shri S.K. Jain also relied on Padanathil Ruqmini Amma Vs. P.K. Abdulla, JT (1996) 1 SC 381, wherein this court has observed that unless the auction purchasers were protected, the properties which are sold in court auctions would not fetch a proper price. It is true that sanctity of sale of property by public auction has to be protected but at the same time a citizen faced with proceedings for recovery of assumed arrears should not be deprived of his property in spite of judicial or quasi- judicial pronouncement holding, before the sale was confirmed, that there were no arrears. This observation applies a fortiori under the scheme of Income-tax Act, the relevant provisions whereof have already been referred to by us." 37. We are also o....
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....e Delhi High Court. This Court had also stayed the proceedings initially but on an application moved by the respondents, the stay was vacated. Hence, it cannot be said that the auction purchasers were not in knowledge of the proceedings pending before this Court as well as before the Delhi High Court and they had, therefore, proceeded at their own risk and costs in developing and selling their properties further. Any action taken pendent lite, would, therefore, be subject to the decision of the case and it cannot be said that the auction had attained finality. We, therefore, hold that no right is created in favour of the auction purchasers. 42. Even at the time of admitting of the present petition and vacating the interim order, this Court was very cautious that no right is created in favour of the auction purchasers, while observing that 'if any of the auction purchasers would like to raise any construction, they will do so at their own peril'. 43. We find that the Delhi High Court vide its judgment dated 15.05.2008, has set at naught the complete proceedings initiated by the Income Tax Authorities against the petitioner and it stands concluded that the petitioner was not requir....
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.... years vintage, no useful purpose would be served by keeping the matter pending. We also find that it would not be possible for us to apply our mind to the case in the absence of the relevant record particularly why the income tax officer sought to reopen the completed assessment, keeping in mind the contention of the petitioner that there was no material before the Income Tax Officer to reopen the assessment. There is nothing to suggest that approval was granted by the Central Board of Direct Taxes to the Income Tax Officer to issue notice to the assessee for assessment after a gap of 16 years while this has not been directly challenged by the assesee, we have never the less to be satisfied that the revenue has acted in accordance with law, particularly since there is an argument to the contrary. In the absence of relevant material being produced before us, we are left with no opinion but to draw an adverse inference against the revenue without going into merits of the case. We have taken into consideration that the matter is 60 years old and we need to bring the litigation to an end sometime." 48. In view thereof, the writ petition is allowed and orders dated 23.07.1979, 12.12....