Andhra HC (Pre-Telangana)
Society For Integrated Development In ... vs Commissioner Of Income-Tax And Anr. on 17 July, 2001
Equivalent citations: [2001]252ITR642(AP)
JUDGMENT S.R. Nayak, J.
1. In this writ petition, the petitioner who is an income-tax assessee has filed this writ petition assailing the validity and legality of the order passed by the second respondent, viz.. Deputy Commissioner of Income-tax, Circle 4(3), Hyderabad, dated May 29, 2001, made under Section 281B of the Income-tax Act, 1961, for short, "the Act". The prayer reads :
"For the reasons stated in the accompanying affidavit, it is therefore prayed that this court may be pleased to issue any appropriate writ or order or direction more particularly one in the nature of writ of mandamus declaring the orders passed by the Deputy Commissioner of Income-tax, Circle 4(3), Hyderabad, in G. I. R. Nos. S 181, N 747, J 734 and S 601, dated May 29, 2001, in so far as attaching the bank accounts, movable and immovable properties of the society and its office-bearers when the assessment proceedings are still pending adjudication as illegal, arbitrary and unjustified and consequently set aside the same and pass such other order or orders as this court may deem fit and proper."
2. The background facts leading to the filing of this writ petition briefly be noted as under : The assessment proceedings for the assessment year 1998-99 was completed by the second respondent on May 15, 1999, accepting the returns filed by the petitioner-assessee claiming exemption under Section 11 of the Act. The Commissioner of Income-tax, the first respondent herein in exercise of the revisional power conferred upon him under Section 263(1) of the Act revised the order of the second respondent and set aside the same on the ground that the assessment was made without proper appreciation of relevant facts which had a bearing on the assess-ability of the income in the hands of the petitioner-assessee and consequently remanded the proceedings to the assessing authority for fresh enquiry in the light of the directions given by him in the order. Against the said order, the assessee preferred an appeal and obtained orders of stay of further proceedings from the Income-tax Appellate Tribunal (for short, "the ITAT") in SP. No. 5/Hyd/2001 in I.T.T.A. No. 787/Hyd/2000, which order, however was set aside by this court by its order dated March 1, 2001, in W.P. No. 3236 of 2001 when the same was assailed in this court. However, subsequently, the income-tax Appellate Tribunal by its order dated March 30, 2001, dismissed the stay petition against which the petitioner-assessee filed W.P. No. 6885 of 2001 in this court. This court dismissed that writ petition also by its order dated March 16, 2001, and while doing so, it directed the Income-tax Appellate Tribunal to dispose of the appeal. Subsequently, the Income-tax Appellate Tribunal by its order dated May 23, 2001, dismissed the appeal confirming the order of the Commissioner of Income-tax. In the course of revisional proceedings under Section 263 of the Act before the Commissioner of Income-tax, it was noticed that the assessee resorted to a series of violations which according to the Revenue forfeit the petitioner's right for exemption under the provisions of the Act. In the light of the materials collected in the course of revisional proceedings, the impugned orders are passed by the second respondent. Hence, this writ petition assailing the validity of the same.
3. The second respondent has filed a detailed counter affidavit opposing the writ petition. In the counter affidavit of the second respondent among other things, it is stated : that the investigation disclosed that the assessee obtained a loan from South Indian Bank to the tune of Rs. 32.15 lakhs in the name of the petitioner-society and released a sum of Rs. 10 lakhs in favour of one Kundan Sarma, managing director of Katmandu Medical College and that the executive secretary of the petitioner-society, Mr. Vardan, in a quid pro quo secured admission into MBBS course in the said college for his daughter against the management quota. Further, a sum of Rs. 15 lakhs was also paid to Gulbarga Medical College in October, 1998, from out of the aforesaid amount. Incidentally, it is relevant to point out that Mr. Vardan's daughter who had secured admission in Katmandu Medical College, later joined Gulbarga Medical College. Furthermore, the assessee's executive secretary obtained a loan of Rs. 20 lakhs from Charminar Bank and a sum of Rs. 12 lakhs from Trinity Bank in the name of the petitioner-society by ostensibly depositing his and his wife's personal property as a security. However, the investigation disclosed that the personal property offered by the executive secretary or his wife had already been mortgaged in favour of the LIC Housing Finance and the GIC Housing Finance, respectively, practically rendering the alleged security worthless. While there is partial default in repayment of the said loans, it has also come out in the investigation that even for the repayments made, if any, there has been no valid explanation with regard to sources. Since the Commissioner has directed enquiry into the whole gamut, the whole issue is being investigated by the Revenue in the assessment proceedings, which are pending before the assessing authority. Prima facie, the charge against the petitioner society of infracting Section 13(1)(c) of the Act and consequential disentitlement for exemption has been made out by the Revenue. If the charge alleged is proved, it will result in an addition of Rs. 1.7 crores and a demand to the tune of Rs. 70 lakhs for the assessment year 1998-99. For the assessment year 1997-98, there were some such series of omissions committed by the petitioner-society on an amount of Rs. 1.9 crores, the tax effect being of the order of Rs. 75 lakhs. The appeal preferred against the said order is pending consideration before the Commissioner of Income-tax (Appeals). So also, it was noticed that in the course of assessment years 1999-2000 and 2000-2001 the assessee resorted to similar violations. These violations could not even be noticed by the petitioner's auditor's in the course of audit, as obviously entries did not figure in the books of account. When a notice was issued to the chartered accountants, Sampath and Ramesh, for non-disclosure, they replied on February 12, 2001, to the effect that they were helpless in view of lack of information in their possession. The assessing authority estimated that probable income that would be brought to tax by reason of the aforesaid infraction would be of the order of Rs. 2 crores and Rs. 1.65 crores, the net tax effect thereon being around Rs. 80 lakhs and around Rs. 65 lakhs, respectively, in respect of the aforesaid assessment years. For the assessment year 1999-2000, the second respondent issued notices including detailed show-cause notices dated April 30, 2001 and May 10, 2001, for the assessment year 1999-2000 setting out the allegation of infractions committed by the petitioner-society. The petitioner has not so far submitted proper and sufficient explanation with regard to the aforesaid allegations. For the assessment year 2000-2001, notices under Section 143(2) and under Section 142(1) of the Income-tax Act were issued on May 21, 2001, and the assessment enquiry is pending. Thus, assessments of the petitioner for the three assessment years are pending consideration before the assessing authority, the net tax demand likely to arise has been estimated at Rs. 2.15 crores approximately. As against the aforesaid, the petitioner-society has got very meagre property which is incorporated in the impugned order. Having regard to these factors, the Revenue resorted to attachment under Section 281B of the Income-tax Act. The Revenue did not resort to gagging of the petitioner's activity nor did it do anything to militate against its functioning. All that the second respondent has attached is only the property standing in the name of the petitioner-society, apart from the bank balance standing to its credit as on the date of attachment. That otherwise it was open to the petitioner to operate its bank account except to the extent of the balance as of that date, was made clear by the second respondent by issuing a communication dated May 29, 2001, to the bank. Therefore, the assumption of the petitioner that the impugned order would militate against its functioning and its charitable activity, is not true and correct. The petitioner has so far received around Rs. 50.70 lakhs as donations of which, only Rs. 20 lakhs is under attachment. Therefore, having regard to these circumstances, the petitioner's activity is in no way affected by virtue of the impugned order. Sri K. Raji Reddy, learned counsel for the petitioner with his usual vehemence and tenacity would strenuously contend that the impugned action taken by the second respondent is totally arbitrary, illegal, unjustified and it has the effect of stalling the very function of the petitioner-society for which it is established. Learned counsel would submit that the effect of the attachment of the account is that the management of the society is not in a position to pay even current salary to its employees. Learned counsel would maintain that there was absolutely no justification for the second respondent to resort to the power conferred upon him under Section 281B of the Act particularly at this juncture when the assessment proceedings are still pending adjudication. Learned counsel would contend that the power under Section 281B of the Act should be resorted to sparingly and only on valid and substantive grounds and not on mere suspicion or conjectures.
4. On the other hand, Sri S.R. Ashok, learned senior standing counsel for the Income-tax Department, would point out that the facts of the case disclosed in the counter affidavit clearly go to show that it is an eminently fit case where the second respondent is fully justified in resorting to the power under Section 281B of the Act to protect the interests of the Revenue and therefore it cannot be said that the action taken by the second respondent is irrational or arbitrary violating postulates of Article 14 of the Constitution. The learned senior standing counsel would conclude that the petitioner has utterly failed to make out any case for interference by this court in exercise of the discretionary power under Article 226 of the Constitution of India.
5. Sub-section (1) of Section 281B reads :
"281B. Provisional attachment to protect revenue in certain cases--(1) Where, during the pendency of any proceeding for the assessment of any income or for the assessment or reassessment of any income which has escaped assessment, the Assessing Officer is of the opinion that for the purpose of protecting the interests of the Revenue it is necessary so to do, he may, with the previous approval of the Chief Commissioner, Commissioner, Director-General or Director, by order in writing, attach provisionally any property belonging to the assessee in the manner provided in the Second Schedule.
Explanation--For the purposes of this sub-section, proceedings under Sub-section (5) of Section 132 shall be deemed to be proceedings for the assessment of any income or for the assessment or reassessment of any income which has escaped assessment."
5. Section 281B empowers the Assessing Officer to make a provisional attachment of any property of the assessee during the pendency of any proceeding for the assessment or reassessment of any income, even though there is no demand outstanding against the assessee, if he is of the opinion that it is necessary to do so to protect the interests of the Revenue. The order of provisional attachment will be made only after obtaining the approval of the Chief Commissioner or Commissioner or Director-General or Director. This provision has been made in order to protect the interests of the Revenue in cases where the raising of demand is likely to take time because of investigations and there is apprehension that the assessee may default the ultimate collection of the demand. In other words, this section gives a power to be exercised during the pendency of any proceedings for assessment or reassessment, so that the assessee did not fritter away or secret his resources out of the reach of the Department when the assessment or reassessment is completed. The expression "for the purpose of protecting the interests of the Revenue" occurring in Section 281B of the Act is very wide in its meaning. For that reason as a safeguard, prior approval of a higher authority like Chief Commissioner, Commissioner, Director-General or Director, has been made a necessary condition. Further, the orders of provisional attachment must be in writing. However, as rightly contended by learned counsel for the petitioner, there must be some material on record to show that the Assessing Officer had formed an opinion on the basis thereof that it was necessary to attach the property in order to protect the interests of the Revenue. The provisional attachment provided under Section 281B is more like an attachment before judgment under the Code of Civil Procedure. It is a liability on the property. The Delhi High Court in Dar International v. Asst. Director of Income-tax has opined that the provision relating to making an attachment before judgment, i.e., before the assessment order is made, is not illegal if the assessing authority is of the opinion that it is necessary to protect the interest of the Revenue and the same is supported by supervening factors. However, the power conferred upon the Assessing Officer under Section 281B is a very drastic far-reaching power and that power has to be used sparingly and only on substantive weighty grounds and reasons. To ensure that this power is not misused, a number of safeguards have been provided in the section itself. One thing is clear that this power should be exercised by the Assessing Officer only if there is a reasonable apprehension that the assessee may default the ultimate collection of the demand that is likely to be raised on completion of the assessment. It should, therefore, be exercised with extreme care and caution. It should not be exercised unless there is sufficient material on record to justify the satisfaction that the assessee is about to dispose of the whole or any part of his property with a view to thwarting the ultimate collection of the demand. Moreover, attachment should be made of the properties and to the extent it is required to achieve the above object. It should neither be used as a tool to harass the assessee nor should it be used in a manner which may have an irreversible detrimental effect on the business of the assessee. The Bombay High Court in Gandhi Trading v. Asst. CIT has opined that attachment should be made, as far as possible, of immovable properties if that can protect the Revenue. Attachment of bank accounts and trading assets should be resorted to only as a last resort. In any event, attachment under Section 281B should not be equated with attachment in the course of recovery proceedings.
6. In the premise of the above-noted principles and having regard to the facts of this case, the question that arises for our consideration is whether the second respondent has exercised the power conferred upon him under Section 281B of the Act irrationally and without any justification. We do not think so. The facts stated in the counter affidavit of the second respondent which we have extracted above and the correctness of which is not denied by the petitioner-assessee speak for themselves and justify the drastic action taken by the second respondent by passing impugned orders under Section 281B of the Act to protect the interests of the Revenue. It is relevant to note that according to the second respondent, the petitioner-assessee has so far received about Rs. 50.70 lakhs as donations of which only Rs. 20 lakhs is under attachment. Further as could be seen from the impugned orders, it is open for the petitioner to operate its bank account except to the extent of the balance as of that date and in that regard a communication dated May 29, 2001, was also sent to the concerned bank by the second respondent. Therefore, the assumption of the petitioner-assessee that the impugned order militates against its functioning and its charitable activities is not well founded. In the case of Dar International where incriminating documents relating to business were seized, a demand of Rs. 13 lakhs was raised on assessment and penalty proceedings were pending, the Delhi High Court upheld the orders under Section 281B of the Act.
7. As quite often said and reiterated by the constitutional courts judicial review under Article 226 is not against the decision as such, but against the decision-making process. This court under Article 226 cannot act as an appellate authority and substitute its decision in place of a discretionary decision taken by the statutory authority on the merits to protect the interests of the Revenue. In this case, we do not find any substantive ground to interfere with the impugned action or flaws in the impugned action which would entail the wrath of Article 14 postulates.
8. In the result and for the foregoing reasons the writ petition is dismissed with no order as to costs.