Facts of the Case

The petitioners sought directions to defreeze their bank accounts and to set aside a letter dated 30 April 2023 issued by the Income Tax Department. The accounts had been frozen while calling for information under Section 133(6) of the Income Tax Act, 1961.

The freezing action was taken in connection with a search and seizure operation conducted on 28 April 2023 in the case of Humming Bird Advertising Private Limited and related persons, where authorities suspected hawala transactions through bogus RTGS transfers and cryptocurrencies.

The petitioners contended that the freezing order could not remain in force beyond sixty days under Section 132(8-A), yet the accounts continued to remain frozen long after expiry of that period.

Issues Involved

  1. Whether freezing of bank accounts under Section 132(3) can continue beyond sixty days without a fresh order.
  2. Whether continued restriction on operation of accounts violates statutory provisions of the Income Tax Act.
  3. Scope of judicial intervention in investigative measures adopted by tax authorities.

Petitioner’s Arguments

The petitioners argued that Section 132(8-A) explicitly limits the validity of a prohibitory order under Section 132(3) to sixty days from the date of issuance. Since the freezing order dated 30 April 2023 had expired on 30 June 2023 and no extension order was passed, continued freezing was illegal and arbitrary.

Respondent’s Arguments

The Revenue submitted that the freezing was necessitated by urgent circumstances during the search, as suspicious transactions indicated possible revenue leakage. It was contended that summons had been issued under Section 131(1A) seeking explanations from the petitioners, but no response was received.

The Department further argued that since the matter had been forwarded to the Assessing Officer for scrutiny assessment, the decision regarding defreezing should await completion of assessment proceedings.

Court Order / Findings

  • Section 132(8-A) unequivocally provides that an order under Section 132(3) cannot remain in force beyond sixty days.
  • The freezing order dated 30 April 2023 automatically ceased to operate after expiry of the statutory period.
  • No subsequent order extending the freeze was produced by the Revenue.
  • Continued restriction on operation of bank accounts without legal authority was unsustainable.
  • Even during the proceedings, the Revenue failed to provide a cogent justification for maintaining the freeze.

Important Clarification

The judgment underscores that investigative powers under search provisions are subject to strict statutory safeguards. Authorities cannot impose indefinite restrictions on bank accounts merely on suspicion or pending inquiry.

It clarifies that continuation of a prohibitory order beyond the prescribed period without lawful extension is void and liable to be struck down, thereby protecting taxpayers from arbitrary deprivation of financial operations.

Link to download the order -  https://www.mytaxexpert.co.in/uploads/1772177298_MSPOOJATRADINGCO.VsDEPUTYDIRECTOROFINCOMETAXINVANR.pdf  

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