Andhra Pradesh H.C : The petitioner who is an IT assessee has filed petition assailing the validity and legality of the order passed by the second respondent, viz., Dy. CIT, Circle 4(3), Hyderabad dt. 29th May, 2001, made under s. 281B

High Court Of Andhra Pradesh

Society For Integrated Development In Urban & Rural Areas vs. CIT

Section 281B

Asst. Year 1998-99, 1999-2000, 2000-2001

S.R. Nayak & S. Ananda Reddy, JJ.

Writ Petn. No. 10801 of 2001

17th July, 2001

Counsel Appeared

K. Raji Reddy & N.V. Venugopal Rao, for the Petitioner : S.R. Ashok, for the Respondent

JUDGMENT

S.R. NAYAK, J. :

In this writ petition, the petitioner who is an IT assessee has filed petition assailing the validity and legality of the order passed by the second respondent, viz., Dy. CIT, Circle 4(3), Hyderabad dt. 29th May, 2001, made under s. 281B of the IT Act, 1961 (‘the Act’). The prayer reads : “For the reasons stated in the accompanying affidavit, it is therefore prayed that this Court may be pleased to issue any appropriate writ or order or direction more particularly one in the nature of writ of mandamus declaring the orders passed by the Dy. CIT, Circle 4(3), Hyderabad in GIR Nos. S 181, N 747, J 734 & S 601, dt. 29th May, 2001 insofar as attaching the bank accounts, movable and immovable properties of the society and its office bearers when the assessment proceedings are still pending adjudication as illegal, arbitrary and unjustified and consequently set aside the same and pass such other order or orders as this Court may deem fit and proper.”

The background facts leading to the filing of this writ petition briefly be noted as under : The assessment proceedings for the asst. yr. 1998-99 were completed by the second respondent on 15th May, 1999 accepting the returns filed by the petitioner-assessee claiming exemption under s. 11 of the Act. The CIT, the first respondent herein in exercise of the revisional power conferred upon him under s. 263(1) of the Act revised the order of the second respondent and set aside the same on the ground that the assessment was made without proper appreciation of relevant facts which had bearing on the assessability of the income in the hands of the petitioner-assessee and, consequently, remanded the proceedings to the assessing authority for fresh enquiry in the light of the directions given by him in the order. Against the said order, the assessee preferred an appeal and obtained orders of stay of further proceedings from the ITAT in SP No. 5 (Hyd.) of 2001 in ITTA No. 787 (Hyd.) of 2000, which order, however, was set aside by this Court by its order dt. 1st March, 2001 in WP No. 3236 of 2001 when the same was assailed in this Court. However, subsequently the Tribunal by its order dt. 30th March, 2001 dismissed the stay petition against which the petitioner-assessee filed WP No. 6885 of 2001 in this Court. This Court dismissed that writ petition also by its order dt. 16th March, 2001 and while doing so, it directed the Tribunal to dispose of the appeal. Subsequently, the Tribunal by its order dt. 23rd May, 2001 dismissed the appeal confirming the order of the CIT. In the course of revisional proceedings under s. 263 before the CIT, it was noticed that the assessee resorted to a series of violations which, according to the Revenue, forfeit the petitioner’s right for exemption under the provisions of the Act. In the light of the materials collected in the course of revisional proceedings, the impugned orders are passed by the second respondent. Hence, this writ petition assailing the validity of the same.

The second respondent has filed a detailed counter-affidavit opposing the writ petition. In the counter-affidavit of the second respondent among other things, it is stated : that the investigation disclosed that the assessee obtained loan from South Indian Bank to a tune of Rs. 32.15 lakhs in the name of petitioner-society and released a sum of Rs. 10 lakhs in favour of one Kundan Sarma, Managing Director of Kathmandu Medical College and that the Executive Secretary of the petitioner society Mr. Vardan in quid pro quo secured admission into MBBS course in the said college for her daughter against the management quota. Further, a sum of Rs. 15 lakhs was also paid to Gulbarga Medical College in October, 1998 from out of the aforesaid amount. Incidentally, it is relevant to point out that Mr. Vardan’s daughter who had secured admission in Kathmandu Medical College, later joined Gulbarga Medical College. Furthermore, the assessee’s Executive Secretary obtained a loan of Rs. 20 lakhs from Charminar Bank and a sum of Rs. 12 lakhs from Trinity Bank in the name of petitioner-society by ostensibly depositing his and his wife’s personal property as security. However, the investigation disclosed that the personal property offered by the Executive Secretary or his wife had already been mortgaged in favour of LIC Housing Finance and GIC Housing Finance, respectively, practically rendering the alleged security worthless. While there is partial default in repayment of the said loans, it has also come out in the investigation that even for the repayments made, if any, there has been no valid explanation with regard to sources. Since the CIT has directed enquiry into the whole gamut, the whole issue is being investigated by the Revenue in the assessment proceedings, which are pending before the assessing authority. Prima facie, the charge against the petitioner’s-society of infracting s. 13(1)(c) of the Act and consequential disentitlement for exemption has been made out by the Revenue. If the charge alleged is proved, it will result in an addition of Rs. 1.7 crores and a demand to a tune of Rs. 70 lakhs for the asst. yr. 1998-99. For the asst. yr. 1997-98, there were some such series of omissions committed by the petitioner-society on an amount of Rs. 1.9 crores, the tax effect being of the order of Rs. 75 lakhs. The appeal preferred against the said order is pending consideration before the CIT(A). So also, it was noticed that in the course of asst. yrs. 1999-2000 and 2000-2001, the assessee resorted to similar violations. These violations could not even be noticed by the petitioner’s auditor’s in the course of audit, as obviously entries did not figure in the books of account, when a notice was issued to the Chartered Accountant Sampath & Ramesh for non-disclosure, it replied on 12th Feb., 2001 to the effect that he was helpless in view of lack of information in its possession. The assessing authority estimated that probable income that would be brought to tax by reason of aforesaid infraction would be of the order of Rs. 2 crores and Rs. 1.65 crores, the net tax effect thereon being around Rs. 80 lakhs and around Rs. 65 lakhs, respectively, in respect of the aforesaid assessment years. For the asst. yr. 1999-2000, the second respondent issued notices including detailed show-cause notices dt. 30th April, 2001 and 10th May, 2001 for asst. yr. 1999-2000 setting out the allegation of infractions committed by the petitioner-society. The petitioner has not so far submitted proper and sufficient explanation with regard to the aforesaid allegations. For the asst. yr. 2000-2001, notices under s. 143(2) and under s. 142(1) of the Act are issued on 21st May, 2001 and the assessment enquiry is pending. Thus, assessments of the petitioner for the three assessment years are pending consideration before the assessing authority, the net tax demand likely to arise has been estimated at Rs. 2.15 crores approximately. As against the aforesaid, the petitioner-society has got very meager property which is incorporated in the impugned order. Having regard to these factors, the Revenue resorted to attachment under s. 281B of the Act. The Revenue did not resort to gagging of the petitioner’s activity nor did it do anything to militate against its functioning. What all the second respondent has attached is only the property standing in the name of the petitioner-society, apart from bank balance standing to its credit as on the date of attachment. That otherwise it was open to the petitioner to operate its bank account except to the extent of balance as of that date, was made clear by the second respondent by issuing a communication dt. 29th May, 2001, to the bank. Therefore, the assumption of the petitioner that the impugned order would militate against its functioning and its charitable activity, is not true and correct. The petitioner has so far received around Rs. 50.70 lakhs as donations of which, only Rs. 20 lakhs is under attachment. Therefore, having regard to these circumstances, the petitioner’s activity is in no way affected by virtue of the impugned order.

Sri K. Raji Reddy, the learned counsel for the petitioner with his usual vehemence and tenacity would strenuously contend that the impugned action taken by the second respondent is totally arbitrary, illegal, unjustified and it has the effect of stalling the very function of the petitioner-society for which it is established. The learned counsel would submit that the effect of the attachment of the account is that the management of the society is not in a position to pay even current salary to its employees. The learned counsel would maintain that there was absolutely no justification for the second respondent to resort to the power conferred upon him under s. 281B, particularly at this juncture when the assessment proceedings are still pending adjudication. The learned counsel would contend that the power under s. 281B should be resorted sparingly and only on valid and substantive grounds and not on mere suspicion or conjectures.

On the other hand, Sri S.R. Ashok, the learned senior standing counsel for the IT Department would point out that the facts of the case disclosed in the counter-affidavit clearly go to show that it is imminently fit case where the second respondent is fully justified in resorting to the power under s. 281B to protect the interest of the Revenue and, therefore, it cannot be said that the action taken by the second respondent is irrational or arbitrary violating postulates of Art. 14 of the Constitution. The learned senior standing counsel would conclude that the petitioner has utterly failed to make out any case for interference by this Court in exercise of the discretionary power under Art. 226 of the Constitution of India. Sub-s. (1) of s. 281B reads : “281B. Provisional attachment to protect Revenue in certain cases.—(1) Where, during the pendency of any proceeding for the assessment of any income or for the assessment or reassessment of any income which has escaped assessment, the AO is of the opinion that for the purpose of protecting the interests of the Revenue it is necessary so to do, he may, with the previous approval of the Chief CIT, CIT, Director General or Director, by order in writing, attach provisionally any property belonging to the assessee in the manner provided in the Second Schedule. Explanation.—For the purposes of this sub-section, proceedings under sub-s. (5) of s. 132 shall be deemed to be proceedings for the assessment of any income or for the assessment or reassessment of any income which has escaped assessment.” Sec. 281B empowers the AO to make a provisional attachment of any property of the assessee during the pendency of any proceeding for the assessment or reassessment of any income, even though there is no demand outstanding against the assessee, if he is of the opinion that it is necessary to do so to protect the interests of the Revenue. The order of provisional attachment will be made only after obtaining the approval of the Chief CIT or CIT or Director General or Director. This provision has been made in order to protect the interests of the Revenue in cases where the raising of demand is likely to take time because of investigations and there is apprehension that the assessee may default the ultimate collection of the demand. In other words, this section gives a power to be exercised during the pendency of any proceedings for assessment or reassessment, so that the assessee did not fritter away or secrete his resources out of the reach of the Department when the assessment or reassessment is completed. The expression ‘for the purpose of protecting the interests of the Revenue’ occurring in s. 281B is very wide in its meaning. For that reason as a safeguard, prior approval of a higher authority like Chief CIT, CIT, Director General or Director, has been made a necessary condition. Further, the orders of provisional attachment must be in writing. However, as rightly contended by the learned counsel for the petitioner, there must be some material on record to show that the AO had formed an opinion on the basis thereof that it was necessary to attach the property in order to protect the interests of the Revenue. The provisional attachment provided under s. 281B is more like an attachment before judgment under the C.P.C. It is a liability on the property. The Delhi High Court in Dar International vs. Asstt. Director of IT (1993) 114 CTR (Del) 172 (Del) : TC 52R.1436 has opined that the provision relating to making an attachment before judgment, i.e., before assessment order is made, is not illegal if the assessing authority is of the opinion that it is necessary to protect the interest of the Revenue and the same is supported by supervening factors. However, the power conferred upon the AO under s. 281B is very drastic far-reaching power and that power has to be used sparingly and only on substantive weighty grounds and reasons. To ensure that this power is not misused, a number of safeguards have been provided in the section itself. One thing is clear that this power should be exercised by the AO only if there is a reasonable apprehension that the assessee may default the ultimate collection of the demand that is likely to be raised on completion of the assessment. It should, therefore, be exercised with extreme care and caution. It should not be exercised unless there is sufficient material on record to justify the satisfaction that the assessee is about to dispose of the whole or any part of his property with a view to thwarting the ultimate collection of the demand. Moreover, attachment should be made of the properties and to the extent it is required to achieve the above object. It should neither be used as a tool to harass the assessee nor should it be used in a manner which may have an irreversible detrimental effect on the business of the assessee. The Bombay High Court in Gandhi Trading vs. Asstt. CIT (2000) 158 CTR (Bom) 512 : (1999) 239 ITR 337 (Bom) has opined that attachment should be made, as far as possible, of immovable properties if that can protect the Revenue. Attachment of bank accounts and trading assets should be resorted to only as a last resort. In any event, attachment under s. 281B should not be equated with attachment in the course of recovery proceedings.

6. In the premise of the abovenoted principles and having regard to the facts of this case, the question that arises for our consideration is whether the second respondent has exercised the power conferred upon him under s. 281B irrationally and without any justification. We do not think so. The facts stated in the counter-affidavit of the second respondent which we have extracted above and the correctness of which is not denied by the petitioner, the assessee speak for themselves and justify the drastic action taken by the second respondent by passing impugned orders under s. 281B to protect the interest of the Revenue. It is relevant to note that, according to the second respondent, the petitioner-assessee has so far received about Rs. 50.70 lakhs as donations of which only Rs. 20 lakhs is under attachment. Further, as could be seen from the impugned orders, it is open for the petitioner to operate its bank account except to the extent of balance as of that date and in that regard a communication dt. 29th May, 2001 was also sent to the concerned bank by the second respondent. Therefore, the assumption of the petitionerassessee that the impugned order militate against its functioning and its charitable activities is not well founded. In the case of Dar International (supra) where incriminating documents relating to business were seized, a demand of Rs. 13 lakhs was raised on assessment and penalty proceedings were pending, the Delhi High Court upheld the orders under s. 281B.

As is quite often said and reiterated by the Constitutional Courts that judicial review under Art. 226 is not against the decision as such, but against the decision making process. This Court under Art. 226 cannot act as an appellate authority and substitute its decision in place of a discretionary decision taken by the statutory authority on merit to protect the interest of the Revenue. In this case, we do not find any substantive ground to interfere with the impugned action or flaws in the impugned action which would entail the wrath of Art. 14 postulates.

In the result and for the foregoing reasons, writ petition is dismissed with no order as to costs.

[Citation : 252 ITR 642]

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