Facts of the Case

  • The petitioners filed a batch of 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 281B of the Income-tax Act, 1961, provisionally attaching various movable and immovable properties of the petitioners for a period of six months.
  • The Revenue Department indicated that assessments under Section 153A for the Assessment Years (AY) 2000-01 to 2006-07 were pending, and information gathered revealed that a massive tax demand was likely to be created before the assessment deadline of December 31, 2008.

Issues Involved

  1. Whether the provisional attachment of assets under Section 281B is legally sustainable when the underlying Section 153A proceedings are challenged as time-barred.
  2. Whether Section 153A assessment proceedings can be legally treated as "pending" against specific assessees (such as ALM Exports, ALM Infotech City Pvt. Ltd., etc.) if no physical search was actually conducted on them.
  3. How to equitably protect the interests of the Revenue while ensuring the petitioners' right to continue their ordinary course of business.

Petitioner’s Arguments

  • The learned counsel for the petitioners, Mr. C.S. Aggarwal (Sr. Advocate), argued that the assessment proceedings initiated under Section 153A were completely time-barred. This jurisdictional objection was raised before the Assessing Officer (AO) but remained unadjudicated.
  • It was specifically contended that for four distinct entities—ALM Exports, ALM Infotech City Pvt. Ltd, ALM Global Finlease Limited, and Rendezvous Commercial Mall Private Limited—no search was ever conducted; therefore, Section 153A proceedings could not legally exist or be deemed "pending" against them.
  • However, to show bona fide intent, the petitioners offered to furnish undertakings ensuring that specific immovable properties would not be alienated, transferred, or encumbered, provided they were allowed to operate their bank accounts for regular business survival.

Respondent’s (Revenue's) Arguments

  • The learned counsel for the Respondent, Mr. R.D. Jolly, defended the provisional attachment, emphasizing that it was a protective measure executed strictly under the statutory powers of Section 281B.
  • The Revenue maintained that substantial material/information gathered during the process indicated a high likelihood of a large tax demand being raised upon the completion of the pending assessments, which needed safeguarding before the December 31, 2008 statutory deadline.

Court Order / Findings

  • Modification of Attachment: The Delhi High Court did not strike down the entire proceedings but practicalized equity by modifying the impugned attachment order based on the structured undertakings offered by the petitioners.
  • Immovable Properties Restriction: The Court recorded the undertaking that the petitioners shall not transfer, alienate, part with possession, or create any third-party interest/charge on the immovable properties listed at Serial Nos. 2, 3, 4, and 5 of the impugned order.
  • No Jurisdiction Over Non-Owned Property: For the property listed at Serial No. 1, the Court noted it did not belong to the petitioners and thus passed no orders regarding it.
  • Conditional Operation of Bank Accounts: To protect business continuity, the Court directed that the 16 bank accounts (Serial Nos. 1 to 16) could be operated by the petitioners, but strictly for running the business in the ordinary course. The petitioners were mandated to maintain complete records of all transactions.
  • Operation Timeline: The Court ordered that these modified directions would remain operational until 10 days after the passing of the formal assessment order, thereby disposing of the writ petitions and interim applications.
  • Clarification on Scope: The Court explicitly stated that the provisional attachment order operates only in respect of the specific assessees and their respective shares in those movable and immovable assets.

Important Clarification

Key Legal Takeaway: A provisional attachment order under Section 281B is an extraordinary measure. Where an assessee disputes the very invocation of search assessment provisions (Section 153A) due to the absence of an actual search or limitation bars, courts can intervene to modify blanket freeze orders. This ensures business operations are not choked, provided the revenue's ultimate tax recovery potential is adequately secured via legal undertakings on fixed assets.

Section Involved

  • Section 281B of the Income-tax Act, 1961 (Provisional attachment to protect revenue in certain cases).
  • Section 153A 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:5865-DB/BDA24102008CW76062008_172411.pdf

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