Facts of the Case

  • The petitioner company, VLS Finance Limited, was subjected to a search operation under Section 132 of the Income Tax Act.
  • Consequent thereto, block assessment proceedings were initiated for the period from 1 April 1988 to 22 June 1998.
  • During pendency of the assessment proceedings, the Assessing Officer passed an order dated 28 July 2005 under Section 281B provisionally attaching refunds aggregating to Rs. 3,85,35,158/- relating to Assessment Years 1998-99, 1999-2000, 2001-02 and 2004-05.
  • The provisional attachment was initially valid for six months up to 25 January 2006.
  • The petitioners challenged the continuation of the attachment and claimed that no valid extension order existed after 24 January 2008.
  • The Revenue relied upon the retrospective amendment introduced by the Finance (No. 2) Act, 2009 inserting the third proviso to Section 281B.
  • Meanwhile, the Supreme Court had stayed passing of the final assessment order in connected block assessment proceedings. 

Issues Involved

  1. Whether provisional attachment under Section 281B of the Income Tax Act could continue beyond the statutory maximum period of two years and six months.
  2. Whether the retrospective insertion of the third proviso to Section 281B automatically extended existing attachment orders during pendency of court stay orders.
  3. Whether the Revenue had passed any valid order extending provisional attachment after 24 January 2008.
  4. Whether extension orders under Section 281B were required to be communicated to the assessee. 

Petitioner’s Arguments

  • The petitioners argued that Section 281B permits provisional attachment only for a limited duration of two years and six months.
  • It was submitted that the attachment order dated 28 July 2005 expired on 24 January 2008.
  • The petitioners contended that no valid extension orders were communicated after expiry of the statutory period.
  • It was further argued that retrospective insertion of the third proviso to Section 281B did not automatically revive or continue expired attachment orders.
  • Reliance was placed on judicial precedents relating to communication of extension orders under analogous provisions of the Income Tax Act.
  • The petitioners also contended that refunds due to them could not be indefinitely withheld. 

Respondent’s Arguments

  • The Revenue contended that block assessment proceedings remained pending due to the interim stay granted by the Supreme Court.
  • It was argued that the period during which assessment proceedings remained stayed was liable to be excluded while computing limitation under Section 281B.
  • The respondents relied upon judicial precedents including:
    • Tek Chand vs ITO (2001) 252 ITR 799
    • NEPC India Limited vs ACIT (1999) 104 TAXMAN 651
  • The Revenue submitted that the writ petition deserved dismissal if it was considered that no attachment order survived. 

Court Findings / Observations

The Delhi High Court held as follows:

  • Section 281B permits provisional attachment initially for six months.
  • The attachment may be extended by further periods, but the total extension cannot exceed two years.
  • Therefore, the maximum permissible duration of provisional attachment is two years and six months.
  • In the present case, the original attachment dated 28 July 2005 expired on 24 January 2008.
  • Upon examination of the original records, the Court found that the last extension order was passed on 19 July 2007 extending attachment only up to 24 January 2008.
  • No further order under Section 281B had been passed thereafter.
  • The Court clarified that the third proviso inserted retrospectively in 2009 did not by itself automatically continue or revive an expired attachment order.
  • The proviso merely excluded the stay period for limitation purposes and did not create a deeming fiction extending attachment automatically.
  • Since no valid attachment order remained in operation after 24 January 2008, the Revenue itself admitted that no order under Section 281B survived. 

Court Order

  • The writ petition was disposed of.
  • The Court recorded the Revenue’s statement that no order under Section 281B remained operative.
  • The Court clarified that the Revenue would remain at liberty to proceed in accordance with law.
  • The Court expressly refrained from deciding whether a fresh order under Section 281B could subsequently be passed relying upon the retrospective amendment.
  • No costs were awarded. 

Important Clarification by the Court

The Court specifically clarified that:

  • The retrospective amendment introducing the third proviso to Section 281B does not automatically extend earlier provisional attachment orders.
  • An injunction or stay order passed by a court does not itself continue attachment orders beyond the period specifically mentioned therein.
  • The judgment should not be interpreted as prohibiting the Revenue from passing a fresh order under Section 281B in accordance with law.

Sections Involved

  • Section 281B – Provisional attachment to protect revenue in certain cases
  • Section 132 – Search and seizure
  • Section 132(3) – Restraint order
  • Section 158BE – Time limit for block assessment
  • Section 245C
  • Section 245D

Link to download the order - https://delhihighcourt.nic.in/app/case_number_pdf/2012:DHC:1600-DB/SKN05032012CW197742005.pdf

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