Madras High Court
T.Senthil Kumar vs The Commissioner Of Income Tax-I on 25 June, 2014
Author: R.Subbiah
Bench: R.Subbiah
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT DATED: 25 .06.2014 CORAM THE HONOURABLE Mr.JUSTICE R.SUBBIAH W.P.(MD).No.1455 of 2014 and M.P.No.1 of 2014 T.Senthil Kumar ... Petitioner Vs. 1.The Commissioner of Income Tax-I, No.44, Williams Road, Contonment, Tiruchirapalli-630 002. 2.The Income Tax Officer, Ward-1(2), No.16-B, Chinna Andan Koil Road, Karur-639 001. .... Respondents Prayer Petition filed under Article 226 of the Constitution of India praying for issuance of a writ of Certiorarified Mandamus to call for the records of the 2nd respondent in P.A.No.AVQPS2344J/I(2)/KRR, dated 26.11.2013, and corrigendum order issued on 02.12.2013 and to quash the same and further to direct the respondents to lift the attachment order made under Section 281B of the Income- Tax Act. !For Petitioner : Mr.K.M.Vijayan, Senior Counsel for Mr.Shanmuga Selvam ^For Respondents : Mr.R.Krishnamoorthy :ORDER
This writ petition has been filed by the petitioner challenging the impugned order of attachment of the property of the petitioner, passed by the 2nd respondent under Section 281(b) of the Income-Tax Act, 1961.
2.The case of the petitioner, as set out in the affidavit, is as follows:-
2(a)The petitioner is an assessee on the file of the 2nd respondent under PAN-AVQPS2344J. During the year 2011, the petitioner purchased a piece of land admeasuring about 15698 sq.ft, comprised in S.F.No.643 situated at Andankoil East Village, Covaik Road, Reddi-Palayam, Karur, with the object of constructing 25 flats under the name and style of "Apple Paradise". For the execution of the said project, loans were raised by the petitioner from the banking agencies like Can Fin Homes Ltd., Axis bank and prospective buyers, apart from obtaining periodical credits from supplier of building and other materials necessary for construction. Out of the 25 flats, 18 flats have been constructed and sold and remaining 7 flats are yet to be sold. As per "project completion method", a recognized accounting method, the profit from the said project can accrue or arise or be ascertained only after completion of the entire project.
2(b)While so, on 23.10.2013 and 24.10.2013, survey operations were conducted under Section 133A of the Income Tax Act, with the primary object of collecting information. In the process of survey, books of accounts and documents were retained by the Income Tax Department. The petitioner has filed regularly his income tax returns for the assessment years 2010-11 to 2013-14, and the particulars of the same are as follows_ 2010-11 11.05.2011 Rs.5,70,655/- Rs.77,690 (Advance Tax Rs.75,000/-) 2011-12 14.11.2011 Rs.7,04,320/- Rs.77,924/-
(Advance Tax Rs.75,000/-) 2012-13 31.12.2013 (Loss) Rs.2,26,475/-
(Advance Tax Rs.25,000/-) 2013-14 31.12.2013 (Loss Rs.3,02,356/-
According to the petitioner, the Return-Income furnished by the petitioner has been accepted by the Department. Neither any notice under Section 143(2) nor an assessment order was passed raising any demand whatsoever till date. The time limit for completion of assessment is either 18 months or 24 months under Section 153 of the Income Tax Act, as the case may be, from the end of the relevant assessment year.
2(c)While so, to the shock and surprise of the petitioner, without any prior demand of income-tax or without any prior notice to the petitioner and without any opportunity of filing an appeal, the 2nd respondent issued an order of attachment, dated 29.10.2013, to the Joint-II Sub Registrar, Sub- Registration Office at Karur, directing him to attach 7 flats in the above said apartments of the petitioner, which are yet to be sold. The said notice was affixed in the 7 flats, which are remaining unsold. On receipt of the attachment order, the petitioner has filed two petitions before the 1st respondent, one on 30.10.2013 and another on 16.11.2013, seeking to lift the attachment. But, instead of reply to the said petitions, the petitioner had received a copy of the letter/order sent to the Joint-II Sub Registrar, Karur, directing him to attach the property of the petitioner, under Section 281-B of the Income Tax Act. Subsequently, a corrigendum was issued by the 2nd respondent correcting para 3 of the order of attachment under Section 281B of the Act. Hence, challenging the order of attachment and Corrigendum, the present writ petition has been filed by the petitioner.
3.Pending the writ petition, this Court has granted an order of interim stay, vide order dated 23.04.2014 made in M.P.(MD).No.1 of 2014 in W.P.(MD).No.1455 of 2014.
4.Opposing the claim of the petitioner, the respondents have filed a counter affidavit, inter alia, stating that Return of Income filed by the assessee was accepted as per the provisions of the Income Tax Act, 1961 and however, if reasons exist to suspect concealment of income, discovery of new evidence, survey and search, it should be reopened under Section 147 of the Income Tax Act. A survey was conducted for two days on 23.10.2013 and 24.10.2013. Sufficient opportunity was given to the petitioner/assessee to make his submissions to the Commissioner of Income Tax-I, Trichy and Joint Commissioner of Income Tax, Range-II, Trichy in their presence and in the presence of two witnesses and other income tax department officials. The petitioner had enough time to explain the sources for the purchase of land measuring about 15698 sq.ft in the year 2011 and source of fund utilized for the construction of 25 flats. The provisional attachment of property can be made under Section 281B of the Income Tax Act, during the pendency of any proceedings for the assessment or reassessment of income, which has escaped assessment. In the instant case, a notice under Section 148 of the Act was issued on 24.10.2013, which is a primary stage to commence income tax proceedings and assessing officer (2nd respondent) is of the opinion that for the purpose of protecting the interest of revenue, it is necessary to attach any property under Section 281B of the Income Tax Act, 1961. In the return of income filed by the petitioner/assessee for the assessment year 2012-13 and 2013-14, he has admitted loss only. If the assessee's property has not been attached, he would have sold the remaining 7 flats. Due to the urgency, attachment order was issued in wrong form, and subsequently, corrigendum was issued and the mistake was regretted. No prior notice is necessary to issue attachment order under Section 281B of the Income Tax Act. Further, it is not necessary to issue any notice of demand under Section 156 of the Act, as this is a provisional attachment only. It is not necessary to issue recovery certificates and tax recovery certificate can be issued by the Tax Recovery Officer under Section 222 of the Income Tax Act. Only the immovable properties have been attached. Further, in the counter affidavit, it is admitted that inadvertently mistakes have happened in issuing the order of attachment and the same is regretted. An attachment order can be made by the Assessing Officer (ITO) only with the approval of the Commissioner of Income Tax and in the instant case, the approval was granted. Thus, the respondents sought for vacating the interim order and dismissal of the writ petition.
5.It is the main submission of the learned senior counsel appearing for the petitioner that without any prior demand notice and without any prior intimation to the petitioner, the order of attachment has been issued. Hence, the said order is not legally sustainable. In support of this contention, the learned senior counsel for the petitioner has made an elaborate argument, by inviting the attention of this Court to Sections 222, 220(4) and 281B of the Income Tax Act.
6.Per contra, the learned counsel appearing for the respondents submitted that a provisional attachment order can be made under Section 281B of the Act, during the pendency of any proceedings for assessment or reassessment of the income, which has escaped assessment, for the purpose of protecting the interest of the revenue. Therefore, no infirmity could be found in the impugned order passed by the 2nd respondent under the Income Tax Act. In support of his contention, the learned counsel for the respondent relied upon the Judgment reported in (2013) 356 ITR 1 (Mad) (KDH.Properties P. Ltd., Vs. Assistant Commissioner of Income Tax and others).
7.Heard the submissions made on either side and perused the materials available on record.
8.According to the learned senior counsel appearing for the petitioner, before passing the order of attachment, there must be a tax demand and if such tax demand is not made within the prescribed time, a reference to the Tax Recovery Officer (TRO), under Section 222 of the Act, has to be made. Tax Recovery Officer may draw up a certificate specifying the amount of arrears due from the assesse and a finding has to be recorded to term the assessee as 'assesee in default' or 'assessee deemed to be in default'. In the absence of any of the above said pre-requisites to the recovery proceedings, the provisional order of attachment is invalid in law.
9.In the instant case, this Court finds that as contended by the learned senior counsel for the petitioner, no such a certificate was issued by the Tax Recovery Officer. In the absence of such certificate, the petitioner cannot be construed as 'assessee in default'. Similarly, the petitioner will also not come within the meaning of 'assessee deem to be in default' for the reason that to bring a person within the meaning of 'assessee deem to be in default' there should be a notice of demand under Section 156 of the Act, as stipulated under Section 220(1) of the Act. In this regard, it would appropriate to extract Section 220(1) to 220(4) of the Income Tax Act.
When tax payable and when assessee deemed in default.
220.(1)Any amount, otherwise than by way of advance tax, specified as payable in a notice of demand under Section 156 shall be paid within thirty days of the service of the notice at the place and to the person mentioned in the notice:
Provided that, where the Assessing Officer has any reason to believe that it will be detrimental to revenue if the full period of thirty days aforesaid is allowed, he may, with the previous approval of the Joint Commissioner, direct that the sum specified in the notice of demand shall be paid within such period being a period less than the period of thirty days aforesaid, as may be specified by him in the notice of demand.
(2)If the amount specified in any notice of demand under Section 156 is not paid within the period limited under sub-section (1), the assessee shall be liable to pay simple interest at one per cent for every month or part of a month comprised in the period commencing from the day immediately following the end of the period mentioned in sub-section (1) and ending with the day on which the amount is paid:
Provided that, where as a result of an order under Section 154, or section 155, or section 250, or section 254, or section 260, or section 262, or section 264 or an order of the Settlement Commissioner under sub-section (4) of section 245D, the amount on which interest was payable under this section had been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded.
Provided further that in respect of any period commencing on or before the 31st day of March, 1989 and ending after that date, such interest shall, in respect of so much of such period as falls after that date, be calculated at the rate of one and one-half per cent, for every month or part of a month. 2A.Notwithstanding anything contained in sub-section (2), the Chief Commissioner or Commissioner may reduce or waive the amount of interest paid or payable by an assessee under the said sub-section if he is satisfied that_
(i)payment of such amount has caused or would cause genuine hardship to the assessee;
(ii)default in the payment of the amount on which interest has been paid or was payable under the said sub-section was due to circumstances beyond the control of the assessee; and
(iii)the assessee has co-operated in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from him. (3)Without prejudice to the provisions contained in sub-section (2) on an application made by the assessee before the expiry of the due date under sub- section (1), the Assessing Officer may extend the time for payment or allow payment by instalments, subject to such conditions as he may think fit to impose in the circumstances of the case.
(4)If the amount is not paid within the time limited under sub-section (1) or extended under sub-section (3), as the case may be, at the place and to the person mentioned in the said notice the assessee shall be deemed to be in default."
A reading of the above said provision would show that to bring an assessee under the definition of 'assessee deemed to be in default', there should be a demand notice under Section 156 of the Act and if the said demand is not paid within the time frame, then only the assessee shall be deemed to be in default. But, in the instant case, no notice under Section 156 of the Act has been issued to the petitioner. Since no demand notice was issued to term the petitioner either as 'assessee in default' or 'assessee deemed to be in default", the petitioner will not come within the meaning of either 'assessee in default' or 'assessee deemed to be in default'.
10.It is the counter submission of the learned counsel for the respondents that it is only a provisional attachment order under Section 281B of the Act and a property can be attached provisionally during the pendency of any proceeding for assessment or reassessment of income, which has escaped the assessment, for the purpose of protecting the interest of the revenue.
11.But, a reading of Section 281B of the Act would show that the provisional attachment order can be made only in the manner as provided under Schedule-II of the Income Tax Act. In this regard, it would be appropriate to extract Section 281B and Rules 1(b) & 2(c) in Part I and Rule 51 in Part-III, Schedule-II of the Income Tax Act, which read as follows_ Provisional attachment to protect revenue in certain cases 281B. (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.
(2)Every such provisional attachment shall cease to have effect after the expiry of a period of six months from the date of the order made under sub- section(1):
Provided that the Chief Commissioner, Commissioner, Director General or Director may, for reasons to be recorded in writing, extend the aforesaid period by such further period or periods as he thinks fit, so, however, that the total period of extension shall not in any case exceed two years:
Provided further that where an application for settlement under Section 245C is made, the period commencing from the date on which such application is made and ending with the date on which an order under sub-section(1) of section 245D is made shall be excluded from the period specified in the preceding proviso.
The Second Schedule, Part-I, Rule 1 :
In this Schedule, unless the context otherwise requires_
(a)"certificate', except in rules 7, 44, 65 and sub-rule (2) of the rule 66 means the certificate drawn up by the Tax Recovery Officer under Section 222 in respect of any assessee referred to in that section;
(b)"defaulter" means the assessee mentioned in the certificate;
The Section Schedule, Part-III, Rule 51 reads as follows:-
Attachment to relate back from the date of service of notice:- Where any immovable property is attached under this Schedule, the attachment shall relate back to, and take effect from, the date on which the notice to pay the arrears, issued under this Schedule, was served upon the defaulter.
A combined reading of the above said provisions of law would show that even to make a provisional attachment of the property of the assessee, there should be a notice to pay the arrears as per Rule 51 of the Second Schedule, Part-III, of the Income Tax Act. Without any notice to the assessee, the provisional attachment cannot be made under Section 281B of the Act. Therefore, the submission made by the learned counsel for the respondents in this regard cannot be accepted. In fact, in the judgment reported in (2013) 356 ITR 1 (Mad), relied upon by the learned counsel for the respondent itself, it has been held that the provisional attachment made in terms of Section 281-B should stand the test of reasonableness and avoid arbitrariness. In the instant case, this Court finds that without any notice of demand to pay arrears, the respondent has passed an order for provisional attachment in arbitrary manner.
12.Further more, I find that in the counter affidavit, the respondents themselves have admitted in para 11 that they have committed mistakes in issuing the impugned order and there is no wilful intention on their part in issuing the impugned order. When that being so, this Court is of the considered view that in the absence of any notice of demand or notice under Section 156 of the Act, the petitioner cannot be termed as 'assessee in default' or 'assessee deemed to be in default'. Similarly, in the absence of any notice to pay the arrears of tax as per Rule 51 of the Second Schedule, Part-III, of the Act, there cannot be any provisional attachment under Section 281B of the Act. Hence, the impugned orders are liable to be quashed.
For the foregoing reasons, the writ petition is allowed and the impugned orders are quashed. Consequently, connected Miscellaneous Petition is closed. No costs.
To
1.The Commissioner of Income Tax-I, No.44, Williams Road, Contonment, Tiruchirapalli-630 002.
2.The Income Tax Officer, Ward-1(2), No.16-B, Chinna Andan Koil Road, Karur-639 001.