Facts of the Case

  • The petitioners filed writ petitions challenging a common order dated October 13, 2008, passed by the Deputy Commissioner of Income-tax, Central Circle-13, New Delhi.
  • The impugned order was passed under Section 281-B of the Income-tax Act, 1961, through which various movable and immovable properties belonging to the petitioners were placed under provisional attachment for a period of six months.
  • The Department issued the attachment order stating that search assessments under Section 153-A of the Act for the Assessment Years 2000-01 to 2006-07 were pending.
  • The Revenue indicated that information gathered revealed a huge tax demand was likely to be created upon the completion of these assessments, for which the statutory limitation deadline was December 31, 2008.

Issues Involved

  1. Whether the provisional attachment of multiple movable (bank accounts) and immovable properties under Section 281-B was justified when the validity of the underlying Section 153-A proceedings was being questioned.
  2. Whether Section 153-A assessment proceedings could be treated as legally pending against specific assessees if no search operations were actually conducted on their premises.
  3. How to balance the protection of revenue interests with the petitioners' right to continue ordinary business operations without complete asset freezing.

Petitioner’s Arguments

  • The learned Senior Counsel for the petitioners argued that the assessment proceedings initiated under Section 153-A of the Act were barred by limitation. While this jurisdictional objection was formally raised before the Assessing Officer, it had not yet been adjudicated upon.
  • It was specifically contended that in respect of four distinct assessees—namely, M/s ALM Exports, M/s ALM Infotech City Pvt. Ltd, M/s ALM Global Finlease Limited, and M/s Rendezvous Commercial Mall Private Limited—no search operations were ever conducted. Consequently, Section 153-A proceedings could not be deemed pending against them in the eyes of the law.
  • Without prejudice to these contentions, the petitioners offered to protect the interests of the revenue by providing an undertaking not to transfer, alienate, part with possession, or create any third-party interest/charge over specified immovable properties (S. Nos. 2, 3, 4, and 5 of the impugned order).
  • The petitioners further requested that their frozen bank accounts (S. Nos. 1 to 16) be released for operation strictly to sustain their ordinary course of business. They declared that property listed at S. No. 1 did not belong to any of the petitioners, hence requiring no order.

Respondent’s Arguments

  • The learned counsel appearing on behalf of the Income Tax Department (Respondent) defended the provisional attachment order issued under Section 281-B.
  • The Respondent relied on the official information and material gathered during the ongoing probe, asserting that the completion of the pending search assessments was highly likely to result in a massive tax liability.
  • The Revenue maintained that the provisional attachment of both bank accounts and immovable properties was absolutely necessary to safeguard the financial interests of the Revenue before the final assessment deadline of December 31, 2008.

Court Order / Findings

  • The Hon’ble Delhi High Court, comprising Hon'ble Mr. Justice Badar Durrez Ahmed and Hon'ble Mr. Justice Rajiv Shakdher, chose to modify the rigid provisional attachment order to strike an equitable balance.
  • Regarding Immovable Properties: The Court accepted the statements and directed the petitioners to file formal undertakings within one week, binding them not to transfer, alienate, create charges, or create third-party interests in the immovable properties listed at S. Nos. 2, 3, 4, and 5 of the impugned order. No order was passed for property S. No. 1 as it did not belong to the petitioners.
  • Regarding Bank Accounts (Movable Assets): The Court ordered that all the bank accounts mentioned at S. Nos. 1 to 16 could be operated by the petitioners, but strictly for the sole purpose of running their ordinary business operations. The petitioners were ordered to maintain full, exhaustive records of all transactions and were barred from utilizing these accounts for any non-business purposes.
  • Duration of Relief: The Court directed that this modified mechanism would substitute the absolute attachment and remain operational until 10 days after the final assessment orders are passed.
  • The Court clarified that the provisional attachment mechanism would operate strictly in respect of the specific assessees and their defined shares in the assets.

Important Clarification

Key Legal Takeaway: Section 281-B is a drastic measure. Even when the Revenue anticipates a substantial tax demand during pending search assessments (Section 153-A), the High Court can step in to modify absolute freezing orders. By allowing conditional operations of bank accounts for business survival against strict undertakings on immovable assets, courts ensure that provisional protection of revenue does not result in the commercial death of an assessee before a demand is even finalized.

Section Involved

  • Section 281-B of the Income-tax Act, 1961 (Provisional attachment to protect revenue in certain cases).
  • Section 153-A of the Income-tax Act, 1961 (Assessment in case of search or requisition).

Link to download the order - https://delhihighcourt.nic.in/app/case_number_pdf/2008:DHC:5863-DB/BDA24102008CW76022008_172300.pdf

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