Recovery of tax : Garnishee proceedings : S. 226(3)(iii) : Attachment and appropriation of sum in bank account : Notice to assessee prior to attachment mandatory : Appropriation of sum in bank account without notice to assessee and while stay application

[Purnima Das v. UOI,
329 ITR 278 (Cal.)]

For the A.Y. 2007-08, the
assessee had preferred appeal before the Commissioner (Appeals) against the
assessment order and had also made an application for stay of the demand
u/s.220(6) of the Income-tax Act, 1961. The appeal and the application for stay
were pending. The assessee was served with notices of attachment in respect of
the demand. Thereafter, by issue of garnishee notice u/s.226(3) of the Act a sum
of Rs.1,66,000 was appropriated by the Department towards the demand from the
current account maintained with the bank by a firm of which the assessee was a
partner.

The Calcutta High Court
allowed the writ petition challenging the action and held as under :

“(i) Service of notice
prior to attachment is mandatory as evident from the language of S.
226(3)(iii) of the Income-tax Act, 1961. S. 226(3)(iii) of the Act stipulates
that a copy of the notice shall be forwarded to the assessee at his last
address known to the Assessing Officer. Therefore, it was not proper on the
part of the Assessing Officer to attach and debit a sum without serving a copy
of the notice of attachment on the assessee. The contention that actual
service of notice of attachment was not necessary could not be accepted since
the use of the word ‘shall’ in S. 226(3)(iii) mandates that such notice has to
be served before action is taken.

(ii) Moreover, the
assessee had filed an application for stay indicating that an appeal had been
filed against the assessment order in question. Once the factum of filing
appeal is made known to the Assessing Officer, he ought to have disposed of
the stay application without proceeding further with the attachment notices.

(iii) That apart, the
Assessing Officer did not exercise his discretion judiciously, rather there
was total non-application of mind.”

The High Court directed the
Assessing Officer to credit the said sum of Rs.1,66,000 to the respective
account of the firm in the bank within two weeks. The High Court also awarded
the cost of Rs.1,700 to the petitioner payable by the Department.