Bank Account Attachment: Department is really to protect interest of Revenue or to close down Business?
The Madras High Court in the matter of M/s.Saravana Selvarathnam Retail Private Limited Vs. Principal Commissioner of Income Tax has said that the Department is really to protect interest of Revenue or to close down Business.
The petitioners have filed these Writ Petitions challenging the order of attachment passed by the second respondent dated 16.08.2023, whereby and whereupon, the immovable properties of the petitioner were attached.
Since common issue arises for consideration in these Writ Petitions, they were heard together and disposed of vide this Common Order and for the sake of brevity and conciseness, W.P.No.25031 of 2023 is taken as a lead case and it would be suffice to note the facts stated thereunder:-
i) The petitioners are involved in the business of wholesale and retail sales of ready-made garments, jewellery, furniture and household articles for the last 6 decades. The petitioners have been duly filing its returns under Income Tax Act, 1961 (hereinafter referred to as ‘the Act) as well as indirect taxes (GST).
ii) A search was conducted in all the business premises of the petitioners’ Company, i.e. at T.Nagar, incomplete construction at Zamin Pallavaram, Coimbatore and its Group Companies at Madurai and Tirunelvali and the residences of the Promoters and Employees from 01.12.2021 to 06.12.2021 and during the course of search, the respondent-Department seized certain loose sheets, electronic devices and cash from the business premises of the petitioner-Company situated at T.Nagar, and drawn separate panchanamas with regard to seizure of materials collected at various locations of the petitioner-Company and its employees and Group Companies.
iii) Pursuant thereto, the respondent-Department issued warrants for attachment of the petitioners’ properties and it’s Group Companies and personal property of the Managing Director under Section 132(9B) of I.T. Act on 28.02.2022 and the same was lapsed on 27.08.2022. Thereafter, the respondent-Department once again issued provisional attachment order in respect of very same properties under Section 281 B dated 23.08.2022 and the same came to be lapsed on 22.02.2023. Thereafter, another provisional attachment order under Section 281-B was passed by the respondent- Department on 17.02.2023 and the same was lapsed on 16.08.2023. Thereafter, time, the respondent-Department issued a fresh attachment order under Section 281-B on 16.08.2023 and the same is under challenge in these Writ Petitions.
Thus, from the backgrounds of the case, it clear that the first charge holders of the properties are the Bankers and the respondent-Income Tax Department are only the second charge holders of the petitioners properties. Therefore, the first charge holders of the petitioner’s properties, being the Bankers, the petitioner has to first satisfy the Bankers, for availing loan facility and only the Bankers are satisfied they would come forward to lend loan facility to the petitioners. The petitioners herein, viz., i) M/s.Saravana Selvarathnam Retail Private Limited and ii) M/s.Rathna Akshaya Estates Private Limited, have earned good reputation and credibility amongst the general public, based on which, the Bankers have come forward to extend the loan facility and this is a continuous arrangements entered into between the Bankers and the Petitioner, for the sake of running the business smoothly, and when the Bank, having extended working capital loan facility to the petitioners, certainly, they will monitor the same so as to protect their interest. The question of non-repayment would arise due to deficit in service of working capital loan extended to the petitioner. Therefore, the respondent-Department could have enabled the petitioner to get their working capital loans extended by the Bankers, and thereafter, monitor the petitioner, whether such loan is being utilized by the petitioner for the purpose, for which, such additional loan is extended, and by doing so, the interest of the revenue, is not going to be affected in any away, rather, it would promote much financial gain, and thereby, the interest of the Revenue would also be safeguarded. Therefore, the respondent-Department ought to have acted in such a way, in order to protect the interest of the Revenue. Whereas, in the present case, it is seen that, on earlier occasions, i.e. on 28.02.2022, 23.08.2022 and 17.02.2023, the respondent-Department has issued the attachment orders and the same got lapsed on 27.08.2022, 22.02.2023 and 16.08.2023 respectively. Finally, for the fourth time, the respondent-Department has issued the provisional attachment orders dated 16.08.2023, and the reasons assigned is that, ‘To protect the interest of the Revenue”.
Hence, this Court posed a question to the respondent-Department, Whether the intention of the respondent-Department is really to protect the interest of the Revenue or Whether to close down the business of the petitioners by resorting to such draconian action? In reply to the said question, learned Senior Standing Counsel for the respondent-Department stated that, respondent-Department has no intention to cause hindrance or obstacles to the petitioner’s running their business and the respondent- Department is mainly concerned only about the safeguarding the interest of the Revenue and in matters of revenue, there is no place for consideration of equity.
However, this Court would like to point out that, if it had been the real intention of the the respondent-Department to protect the interest of the revenue, they would acted in a way, as pointed out by this Court in the preceding para, however, the way the respondent-Department has acted, i.e. issuing attachment orders again and again, that too, without assigning any valid reason, in respect of similar properties of the petitioners, would only go to show that the respondent with a view to put a spoke to the petitioner’s business activities, has passed such impugned orders, since, by means of the impugned orders of attachments, the properties that were mortgaged with the Bankers were attached, due to which, the Bankers would obviously, reprive themselves from extending the working capital loan to the petitioners and the petitioners, owing to non-extension of working capital loan, would find it difficult to run their business, resulting in financial crisis and consequently, the petitioner would be not in a position either to continue the business or repay the loan, ultimately, resulting in closure of business and 5000 workers employed in the petitioner-Company would loose their job, which would automatically affect the welfare of the State. Therefore, this Court is of the view that the respondent-Department under the guise of impugned attachment orders, shall not cause any unnecessary hardships to the Bankers in getting back their loans, which were lent by them to the petitioners.
Further, Section 281 B(1) of I.T. Act grants power to the Assessing Officer to provisionally attach the property of an assessee during the pendency of any proceedings for assessment or reassessment of any income or for imposition of penalty, and in terms of Sub-section 2 of Section 281 B, every such provisional attachment shall cease to have effect after the expiry of six months, however, the total period shall not exceed 2 years or 60 days after the order of assessment, whichever is later and such power of extension is subject to the condition that the Principal Commissioner should record his reasons in writing for granting such extension. In the present case, whenever, the attachment orders were passed, the respondent-Department has mentioned the reason for issuance of such attachment order, by stating that ”To protect the interest of the Revenue.” instead of stating so, the respondent- Department ought to have formed an opinion and pass orders not affecting the business activities of the petitioner in any way. In this context, it would be apposite to refer to view expressed in Lord Bramwell in All Craft Vs. London (Bishop) (1891) RC 666, ” that, If a man is to form an opinion and his opinion is to govern, he must form it himself on such reasons and grounds as seem good to him”.
In the present case, attachment orders, which are under challenge in these Writ Petitions are only provisional attachment orders and the same have been passed before quantification of final assessment of tax. Thus, the respondent-Department, while passing such provisional attachment order shall bear in mind the following aspects:-
1) Running Business Activities of an Assessee should not come to stand still by virtue of the provisional attachment.
2) The interest of the Bankers, who are the first charge holders, should not get affected.
3) The welfare of the workers should not be get affected.
Order
Thus, for all aforesaid reasons, this Court is inclined to pass the following orders:-
i) The petitioners are directed to file a modification application within a period of one week from the date of receipt of a copy of this order to modify the order of provisional attachment issued by the respondent dated 16.08.2023.
ii) Thereafter, the concerned respondent is directed to consider the modification applications and directed to pass orders to the extent of lifting the provisional attachment orders dated 16.08.2023 to enable the petitioners to avail the working capital facilities as per the business plan/plan of action, etc., submitted to the bank or to the extent of additional working capital facilities as sanctioned by the Banks to the petitioners, as requested from time to time.
iii) The petitioners are directed to file an affidavit/undertaking/status report as required by the respondent-Department, so as to ensure that the fund allotted to the petitioners by the Banks are utilized by the petitioners/has been utilized only for the purpose of working capital facilities.
With the above directions, these Writ Petitions are disposed of.
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