Facts of the Case

  • The petitioner challenged a notice dated 12 February 2020 issued under Section 226(3) of the Income Tax Act.
  • The respondent attached the petitioner’s bank account without deciding the pending stay application filed by the petitioner.
  • The tax demand raised was alleged to be high-pitched, being 478 times higher than the income declared by the petitioner.
  • The attached account was a project bank account governed under RERA, meant exclusively for project-related expenses.
  • The petitioner argued that such attachment caused severe financial hardship, particularly during the COVID-19 pandemic.

Issues Involved

  1. Whether the Income Tax Department can attach a bank account under Section 226(3) without disposing of a pending stay application.
  2. Whether such attachment amounts to arbitrary exercise of power and violation of principles of natural justice.
  3. Whether attachment of a RERA-designated project account is legally sustainable.

Petitioner’s Arguments

  • The attachment of the bank account effectively amounted to rejection of the stay application without a reasoned order.
  • The demand was unreasonably high and disproportionate (478 times the declared income).
  • The attached account was a statutorily protected project account under RERA, and its attachment disrupted project operations.
  • The action caused irreparable harm, especially in the context of pandemic-related economic distress.

Respondent’s Arguments

  • The Revenue proceeded with attachment under statutory powers conferred by Section 226(3) of the Income Tax Act.
  • No detailed reasoning is recorded in the order regarding justification, but the action was taken for recovery of tax dues.

Court’s Findings / Observations

  • The Court noted that the stay application dated 07 February 2020 had not been disposed of by the Assessing Officer.
  • Proceeding with coercive action without deciding the stay application was considered procedurally improper.
  • The Court emphasized the necessity of passing a reasoned order after hearing the petitioner before taking coercive steps.

Court Order / Final Directions

  • The Assessing Officer was directed to decide the stay application within two weeks after granting a hearing.
  • If the stay application is rejected, status quo on the bank account attachment must be maintained for two additional weeks.
  • This was to enable the petitioner to seek further legal remedies.
  • The writ petition was disposed of with these directions.

Important Clarification by Court

  • Coercive recovery measures cannot precede the disposal of a stay application.
  • Authorities must act fairly and pass reasoned orders before attaching bank accounts.
  • Temporary protection ensures access to judicial remedies.

 Link to download the order - https://delhihighcourt.nic.in/app/case_number_pdf/2020:DHC:2755-DB/MMH14092020CW61112020_182846.pdf

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