Having afforded a hearing AO can not attach assessees bank account straightway without passing speaking order

Having afforded a hearing, ITO can not attach assessee’s bank straightway without informing as to whether the stand taken by the assessee is justified or not-High Court 

Prelude:
Section 222 of the Income Tax Act, 1961 (the Act) provides that in where an assessee is in default or deemed to be in default in making payment of tax, the Tax Recovery Officer may draw up a certificate (Form No. 57) and proceed to recover such amount by attachment and sale of property, arrest and detention of the assessee or by appointing a receiver.

However, where no Form 57 has been prepared, the Assessing Officer (AO) may also recover the tax by any of the modes prescribed in section 226. The sub section (3) of section 226 provides that the AO may by notice in writing require any debtor of the assessee or any person holding money on account of the assessee to pay the amount of tax due and every such person is bound to comply with such notice.

The present case law deals with the question as to whether the AO can directly approach the bank of the assessee u/s 226(3) without first dealing with the submissions of the assessee by passing a speaking order.

ABCAUS Case Law Citation:
ABCAUS 2162 (2018) (01) HC

The Challenge/Grievance:
The present Writ Petition was filed under Article 226 of the Constitution of Indiaby the assessee seeking quashing of communication issued to the bank for attachment of account under TDS proceeding claiming the same as illegal and against the law.

Brief Facts of the Case:
The Petitioner assessee was issued a demand notice calling upon to pay a huge amount on account of default related to TDS. On receipt of the demand, the petitioner submitted a representation, furnishing certain details with respect to the observations made in the demand.

Subsequently, within two weeks, the petitioner made another representation stating that the arrears as demanded was due to error committed while uploading Form 26Q by National Securities Depositary Ltd. (NSDL).

Considering the informations given by the petitioner the demand stood reduced. Subsequently, after one month, the Income Tax Officer (TDS) (ITO TDS) issued notice under Section 276B/276BB of the Income Tax Act, 1961 (the Act) affording one opportunity to the petitioner, directing appearance for the hearing and produce necessary evidence.

The petitioner appeared on the said date and produced necessary evidence, enclosing the challans. However, without any reply to the documents produced by the petitioner, the ITO TDS issued to the petitioner’s bankers, the impugned notice under Section 226(3) of the Act for recovery the arrears of Tax Deducted at Source.

Contention made on behalf of the Petitioner:
The petitioner’s case was that, had the details furnished by the petitioner been taken into consideration and the stand took properly considered, the demand would not have been arisen.

Observations made by the High Court:
The Hon’ble High Court opined that the ITO (TDS), having issued notice and afforded an opportunity of personal hearing, should have informed the petitioner as to whether the stand taken by them is justified or not, and without doing so, the respondent cannot straightway attach the petitioner’s bank accounts.

Decision/ Conclusion/Held:
A direction was issued to ITO (TDS) to pass a speaking order, and communicate the same to the petitioner, as to the outcome of the documents/evidence produced by the petitioner. The attachment of the petitioner’s bank accounts was stayed till then.