Facts of the Case:

The petitioner, Standard Chartered Bank, received notices under Section 226(3) of the Income Tax Act, 1961, demanding payment of Fixed Deposit Receipts (FDR) and refund of overdraft amounting to Rs.46,31,313.60 for realization of Rs.733.45 lakhs from the third respondent, Gurbachan Singh. The bank contended that it held first charge/lien over the account and requested withdrawal of the notice, which was ignored by the respondents.

Issues Involved:

  1. Whether notices under Section 226(3) of the Income Tax Act, 1961, can be issued without considering objections filed by the petitioner bank.
  2. Whether Section 281(1) of the Income Tax Act, 1961, should be invoked despite pending objections.

Petitioner’s Arguments:

  • The petitioner argued that the notices were arbitrary, unreasonable, and unsustainable.
  • The department failed to address the bank’s objections or communicate how they were considered.
  • Coercive steps against the bank would be premature without examining the case in detail.

Respondent’s Arguments:

  • Respondents No.1 and 2 submitted that no order had yet been passed regarding the bank’s objections.
  • They suggested that the notices were in accordance with statutory provisions, pending any further reasoned order.

Court Order / Findings:

  • The court directed respondents to pass a reasoned order based on the bank’s objections and communicate it within eight weeks.
  • No coercive action shall be taken until the order is finalized.
  • After passing the order, the petitioner bank shall be given two weeks to take legal recourse if needed.
  • The writ petition was disposed of without any cost.

Important Clarifications:

  • Notices under Section 226(3) cannot bypass objections filed by the affected party.
  • Section 281(1) invocation requires consideration of pending objections to prevent arbitrary coercive actions.

Sections Involved:

  • Section 226(3) – Power of Assessing Officer to recover tax from a third party.
  • Section 281(1) – Procedure for recovery of tax dues when objections are pending

Link to download the order:https://delhihighcourt.nic.in/app/case_number_pdf/2011:DHC:19281-DB/DMA28032011CW20562011_143659.pdf

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