No illegality if notice us 226(3)(iii) to assessee not issued simultaneously or prior to notice issued to bank for attachment of account u/s 226(3)(i) for recovery of tax demand – Delhi High Court
ABCAUS Case Law Citation:
ABCAUS 2003 (2017) (07) HC
The Question involved:
An interesting question of law raised in the instant writ petition was whether it was mandatory for the Income Tax Department (‘Department’) to have issued a notice to the Petitioner under Section 226 (3) (iii) of the Income Tax Act, 1961 (‘Act’) prior to issuing a notice to the garnishee, i.e., the Bank (with which the Petitioner had an account) under Section 226 (3) (i) of the Act?
Important Case Laws Cited/relied upon:
Farrukhabad Gramin Bank v. Additional Commissioner of Income Tax (2005) 277 ITR 320 (All)
UTI Mutual Fund v. Income Tax Officer (2012) 345 ITR 71 (Bom.)
Third ITO v. Damodar Bhat, (1969) 71 ITR 806 (SC)
P.P. Kanniah Chetty v. Income Tax Officer & Anr. (1976) 105 ITR 622 (Mad.)
Brief Facts of the Case:
The petitioner assessee company filed its return of income for Assessment Year (‘AY’) 2014- 15 declaring an income of Rs. 21,37,610. The return of income was picked up for scrutiny. The Assessing officer (‘AO’) framed the assessment u/s 143 (3) of the Act making an addition of Rs. 2,14,78,118.90 and thereby raised a tax demand of Rs. 94,51,390.
On 23rd January, 2017, the Assessee electronically filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] and also electronically intimated the AO about the filing of the appeal before the CIT(A).
However, on 25th March, 2017, the assessee received a notice which was dated 27th February, 2017 issued under Section 226(3)(i) of the Act addressed to the HSBC bank attaching the Assessee’s bank account along with recurring deposit/fixed account and current account towards the recovery of the entire tax demand.
It is in the above circumstances the present petition was filed by the assessee praying that notice issued by the AO to the HSBC Bank under Section 226(3)(i) be quashed with further direction to the Department to refund the amount recovered in excess of 15% of the entire demand for AY 2014-15 in accordance with the CBDT Instruction No. 1914 dated 2nd December, 1993 as modified by Office Memorandum (‘OM’) dated 29th February, 2016 which stated that the Department should not recover more than 15% of the total outstanding tax demand which stands disputed before the CIT (A).
Contentions of the Petitioner Assessee:
It was contended that it was incumbent upon the Department to have issued notice to the Assessee, if not prior to the sending a notice to the Bank, at least simultaneously and should have allowed the Assessee an opportunity of showing why it should not be treated as an Assessee in default.
Observations made by the High Court:
The Hon’ble Delhi High Court observed that since the assessee not having paid the amount within 30 days of the service of notice under Section 156 of the Act, the Department was justified in proceeding to treat it as an Assessee in default and in proceeding to take the necessary action to recover the demanded amount.
It was further observed that Instruction No. 1914 dated 2nd December, 1993 and the OM dated 29th February, 2016 are in the context of the AO considering a stay application filed by the Assessee. The Instruction or the OM will have no application where there is no application for stay filed by the Assessee.
It was also observed that the Supreme Court in the case of Damodar Bhat where the contention of that the assessee should have been issued a notice under Section 226 (3) prior to the AO issuing the garnishee order to the third part was negatived. Also, following the said decision of the Supreme Court, the Madras High Court held that in order to issue a garnishee order, it was not necessary that the person from whom the tax is due in respect of which the garnishee order was issued be a defaulter within the meaning of Section 46 of the Indian Income Tax Act 1922 or the corresponding provision of the Income Tax Act 1961.
Held:
The High Court opined that there was no illegality committed by the Department in not issuing to the assessee a notice under Section 226(3)(iii) of the Act simultaneously with or prior to the notice issued to its bank under Section 226 (3) (i) of the Act for recovery of the tax demand from its account. The Court endorsed the submission of the Revenue that requirement under Section 226 (3) (iii) is only that a copy of the notice should be “forwarded to the assessee” and not that a copy should be served on the assessee in advance or simultaneously.
The appeal of the assessee was dismissed.
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