36 Recovery of tax – Attachment of bank account and withdrawal of amount from bank during pendency of appeal – Action without due procedure – Stay of recovery proceedings granted pending appeal – Revenue directed to refund 85% of the amount recovered

Sunflower
Broking Pvt. Ltd. vs. Dy. CIT; 403 ITR 305 (Guj); Date of Order: 08^th
July, 2017:

A.
Y.: 2014-15:

Sections
143(3), 156 and 221 of ITA 1961 and Art. 226 of Constitution of India

For the A. Y. 2014-15,
order of assessment was passed u/s. 143(3) of the Income-tax Act, 1961 and a
demand of Rs. 19,22,770 was raised. Against this order, the assessee filed an
appeal before the Commissioner (Appeals) which was pending. Since the assessee
did not pay the demand in response to demand notice u/s. 156, a notice u/s. 221
dated 06/02/2017 was issued for recovery of the demand. By the said notice the
assessee was required to appear before the authority latest before 15/02/2017.
The notice itself was dispatched on 16/02/2017 and was received by the assessee
on 17/02/2017. On the first working day after that, the bank account of the
assessee was attached and full recovery made.

The assessee filed writ
petition challenging the said action. The Gujarat High Court allowed the writ
petition and held as under:

“i)  When the income-tax authority had taken an
action as strong as attachment of the bank account of the assessee and withdrawing
a sizable sum of more than Rs. 19 lakh from the bank account unilaterally, the
least that was expected of him was to ascertain that the notice was duly
dispatched and received by the assessee. Thus the authority effected recovery
from the bank account of the assessee without following due process.

ii)   It was true that the assessee ought to have
applied to the Assessing Officer or to the appellate authority for keeping the
additional tax demand in abeyance, which the assessee did not do. Nevertheless,
this would not enable the authorities to ignore the legal requirements before
effecting the recovery. Under the circumstances, the recovery of Rs. 19,22,770
made by the authority was illegal.

iii)  The respondent authority had
not set up a case that the assessee was a cronic defaulter, a person who may
ultimately not be able to pay the dues if the appeal were dismissed or that
there were other assessments or appeals pending, in which sizable tax demands
were held up.