Facts of the Case

The Petitioner, Fortune Land and Housing Pvt. Ltd., filed a writ petition challenging a notice dated 05 March 2019 issued under Section 226(3) of the Income Tax Act, 1961, which was not supplied to the Petitioner. The notice led to the attachment of the Petitioner’s bank account maintained with Axis Bank.

The Petitioner sought:

  • Release of the attached bank account
  • Permission to operate the account
  • Stay on recovery proceedings arising from reassessment orders for AY 2011-12 and AY 2013-14

During AY 2015-16 assessment, an addition of ₹8.91 crore was made on account of enhanced compensation received from HUDA, which was later deleted by CIT(A). The Revenue’s appeal against this deletion was pending before ITAT.

Subsequently, reassessment proceedings were initiated for AY 2011-12 and AY 2013-14, resulting in additions of ₹4.22 crore and ₹61.32 lakh respectively. These reassessment orders were also under challenge before appellate authorities.

Issues Involved

  1. Whether attachment of the Petitioner’s bank account under Section 226(3) without serving notice is valid in law.
  2. Whether failure to decide the stay application violates principles of natural justice.
  3. Whether recovery proceedings can continue during pendency of appellate proceedings.

Petitioner’s Arguments

  • The impugned notice under Section 226(3) was never served, violating mandatory statutory procedure and principles of natural justice.
  • Reassessment was based solely on facts from AY 2015-16, where additions had already been deleted by CIT(A).
  • The enhanced compensation had already been taxed in the hands of Orris, avoiding double taxation.
  • Despite representations and a stay application dated 07 October 2020, the authorities failed to decide the same.
  • Attachment of the bank account without deciding the stay application is arbitrary and illegal.

Respondent’s Arguments

  • The Revenue defended reassessment proceedings and recovery actions based on additions made under Sections 143(3) read with 147 of the Income Tax Act.
  • It relied on statutory powers under Section 226(3) to recover outstanding tax demands.

Court’s Findings / Order

The Delhi High Court observed:

  • The stay application filed by the Petitioner had not been decided despite a considerable lapse of time.
  • The Respondent failed to follow due procedure by not providing the impugned notice to the Petitioner.

Directions Issued by the Court:

  1. The Respondent was directed to decide the Petitioner’s stay application dated 07 October 2020 within two weeks.
  2. While deciding the stay application, the authority must consider:
    • CIT(A) order dated 08 March 2018
    • CBDT Circulars dated 29 February 2016, 31 July 2017, and 06 March 1989
  3. The Respondent was directed to furnish the notice dated 05 March 2019 within one week.

The writ petition was disposed of with these directions.

Important Clarifications

  • Service of notice under Section 226(3) is mandatory before initiating coercive recovery.
  • Authorities must decide stay applications promptly, especially when recovery proceedings are ongoing.
  • CBDT circulars play a significant role in guiding recovery and stay procedures.
  • Recovery actions during pendency of appeals must adhere to principles of fairness and natural justice.

Sections Involved

  • Section 226(3) – Recovery of tax by attachment
  • Section 143(3) – Assessment
  • Section 147 – Reassessment
  • Section 250(6) – Orders of CIT(A)

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:3137-DB/MMH17082022CW118732022_094325.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.