Madras H.C : Where property, which is subject matter of provisional attachment, is sufficient to satisfy tax liability and safeguard interest of revenue, petitioner can seek release of provisional attachment in respect of other properties and amounts due from debtors and depositors

High Court Of Madras

KDH Properties (P.) Ltd. vs. ACIT, Co. Circle-II (4), Chennai

Assessment Year : 2011-12

Section : 281B

Sudhakar, J.

W.P. Nos.28055 To 28059 Of 2012

April  2, 2013

ORDER

1. Heard Mr. P.S. Raman, learned Senior Counsel appearing for the petitioner and Mr. T. Pramod Kumar Chopda, learned Standing Counsel for the respondents.

2. By consent, the writ petitions are taken up for final hearing and disposed of by the following order.

3. The issue for consideration in all these writ petitions is the provisional attachment made by the Income Tax Department in terms of Section 281B of the Income Tax Act, 1961 (for brevity, “the Act”). The said provision reads as follows:

“Section 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 Assessing Officer 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 Commissioner, Commissioner, 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-section (5) of section 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.

(2) Every such provisional attachment shall cease to have effect after the expiry of a period of six months from the date of the order made under sub-section(1) :

Provided that the Chief Commissioner, Commissioner, Director General or Director may, for reasons to be recorded in writing, extend the aforesaid period by such further period or periods as he thinks fit, so, however, that the total period of extension shall not in any case exceed two years :

Provided further that where an application for settlement under section 245C is made, the period commencing from the date on which such application is made and ending with the date on which an order under sub-section (1) of section 245D is made shall be excluded from the period specified in the preceding proviso:

Provided also that the period during which the proceedings for assessment or reassessment are stayed by an order or injunction of any court shall be excluded from the period specified in the first proviso.”

4. The petitioner is a private limited company. We are concerned with the assessment proceedings in respect of PAN AACCK6839N for the assessment year 2011-2012 under the provisions of the Act. The first respondent Assistant Commissioner of Income Tax, Company Circle-II(4) is the Assessing Officer, whose orders are under challenge in these writ petitions. The petitioner/company filed a return of income for the assessment year 2011-2012 showing loss of approximately Rs. 2,67,00,000/-. On 25.4.2012, the first respondent along with the Deputy Commissioner of Income Tax and two other Assistant Commissioners of Income Tax formed a Survey Team and conducted survey under Section 133A of the Act at the registered office and also at the site/administrative office of the petitioner/company. The officers, consequent to the survey made under Section 133A of the Act, impounded books of accounts and documents under the cover of a letter dated Nil. Thereafter, the first respondent passed orders of provisional attachment of property in terms of Section 281B of the Act in each one of the cases.

5. For better clarity, the brief order of provisional attachment in each of the cases is extracted hereunder:

W.P.No.28055 of 2012:

“PAN AACCK6839N/2012-13 July 25, 2012

ORDER OF PROVISIONAL ATTACHMENT OF PROPERTY U/S.281B OF THE INCOME TAX ACT, 1961

Whereas in the case of M/s. KDH Properties Pvt Ltd (AACCK6839N) (hereinafter referred to as assessee) and the assessment proceedings for assessment year 2011-12 is to be completed in accordance with the provisions of the Income Tax Act, 1961;

and

Whereas completion of proceedings for assessment year 2011-12 in this case are likely to result in a substantial demand;

and

Whereas the assessee is to receive a sum of Rs. 1,00,00,000/- from their debtor namely M/s. HIMKANCHAN IMPEX PVT LTD, Mumbai 400077.

and

Whereas the undersigned is of the opinion that for the purpose of protecting the interests of Revenue, it is necessary to attach the said debt to be received from M/s. HIMKANCHAN IMPEX PVT LTD, Mumbai 400077.

It is ordered that M/s. HIMKANCHAN IMPEX PVT LTD, Mumbai 400077 is prohibited and restrained from making payment to M/s. KDH Properties Pvt Ltd., Chennai without prior sanction of the undersigned. Any such transaction shall be void as against any claim in respect of any income tax or other sum payable by the assessee as a result of the completion of the assessment proceedings.

This order is passed with the prior approval of the Commissioner of Income-tax, Chennai-I, Chennai 600 034.

Given under the signature and seal at Chennai, on 25th July, 2012.”

W.P.No.28056 of 2012:

“PAN AACCK6839N/2012-13 July 23, 2012

ORDER OF PROVISIONAL ATTACHMENT OF PROPERTY U/S.281B OF THE INCOME TAX ACT, 1961

Whereas in the case of M/s. KDH Properties Pvt Ltd (AACCK6839N) (hereinafter referred to as assessee) and the assessment proceedings for assessment year 2011-12 is to be completed in accordance with the provisions of the Income Tax Act, 1961;

and

Whereas completion of proceedings for assessment year 2011-12 in this case are likely to result in a substantial demand;

and

Whereas the assessee is a resident possessing the Schedule mentioned property in India;

and

Whereas the undersigned is of the opinion that for the purpose of protecting the interests of Revenue, it is necessary to attach the properties mentioned in the Schedule below.

It is ordered that the assessee or its nominee or any other person on behalf of the assessee is prohibited and restrained from creating a charge on or part with the possession (by way of sale, mortgage, gift, exchange, or any other mode of transfer, whatsoever) of the properties mentioned in the Schedule below, without prior sanction of the undersigned. Any such charge or transfer shall be void as against any claim in respect of any income tax or other sum payable by the assessee as a result of the completion of the assessment proceedings.

SCHEDULE

Name of the owner Survey No. & Village Description Area
M/s.KDH Properties Private Limited R.S.No.1632/4 (Part) New S.No.1632/20 and 1632/21of an extent of about 8 grounds & 695 sq.ft. and 9 grounds & 1811 sq.ft. Third Floor, ‘A’ Wing, KGN Towers, 31/32, Commander-in-Chief Road, Egmore, Chennai – 600 008 8027 sq ft Super built-up area
M/s.KDH Properties Private Limited Third Floor, ‘B’ Wing, KGN Towers, 31/32, Commander-in-Chief Road Egmore, Chennai – 600 008. 5448 sq.ft. Super built-up area

This order is passed with the prior approval of the Commissioner of Income-tax, Chennai-I, Chennai 600 034.

Given under the signature and seal at Chennai, on 23rd July, 2012.”

W.P.No.28057 of 2012:

“PAN AACCK6839N/2012-13 July 25, 2012

ORDER OF PROVISIONAL ATTACHMENT OF PROPERTY U/S.281B OF THE INCOME TAX ACT, 1961

Whereas in the case of M/s. KDH Properties Pvt Ltd (AACCK6839N) (hereinafter referred to as assessee) and the assessment proceedings for assessment year 2011-12 is to be completed in accordance with the provisions of the Income Tax Act, 1961;

and

Whereas completion of proceedings for assessment year 2011-12 in this case are likely to result in a substantial demand;

and

Whereas the assessee is having a security deposit to the tune of Rs.1,37,63,547/- with M/s. KGN Developers Pvt Ltd., Chennai

and

Whereas the undersigned is of the opinion that for the purpose of protecting the interests of Revenue, it is necessary to attach the above Security Deposit amount of Rs.1,37,63,547/- with M/s. KGN Developers Pvt Ltd., Chennai.

It is ordered that M/s. KGN Developers Pvt Ltd., Chennai is prohibited and restrained from payment of such Security Deposit amount of Rs. 1,37,63,547/- to M/s. KDH Properties Pvt Ltd., Chennai without prior sanction of the undersigned. Any such transaction shall be void as against any claim in respect of any income tax or other sum payable by the assessee as a result of the completion of the assessment proceedings.

This order is passed with the prior approval of the Commissioner of Income-tax, Chennai-I, Chennai 600 034.

Given under the signature and seal at Chennai, on 25th July, 2012.”

W.P.No.28058 of 2012:

“PAN AACCK6839N/2012-13 July 25, 2012

ORDER OF PROVISIONAL ATTACHMENT OF PROPERTY U/S.281B OF THE INCOME TAX ACT, 1961

Whereas in the case of M/s. KDH Properties Pvt Ltd (AACCK6839N) (hereinafter referred to as assessee) and the assessment proceedings for assessment year 2011-12 is to be completed in accordance with the provisions of the Income Tax Act, 1961;

and

Whereas completion of proceedings for assessment year 2011-12 in this case are likely to result in a substantial demand;

and

Whereas the assessee is to receive a sum of Rs. 2,00,00,000/- from their debtor namely M/s. Dhanalaxmi Trading Company, A-75, Mahavir Market, Sector 18, Near Onion Potato Market, Opposite APMC Market, Vashi, Navi Mumbai, 400 705, Maharashtra.

and

Whereas the undersigned is of the opinion that for the purpose of protecting the interests of Revenue, it is necessary to attach the said debt to be received from M/s. Dhanalaxmi Trading Company, A-75, Mahavir Market, Sector 18, Near Onion Potato Market, Opposite APMC Market, Vashi, Navi Mumbai, 400 705, Maharashtra.

It is ordered that M/s.Dhanalaxmi Trading Company, A-75, Mahavir Market, Sector 18, Near Onion Potato Market, Opposite APMC Market, Vashi, Navi Mumbai, 400 705, Maharashtra is prohibited and restrained from making payment to M/s. KDH Properties Pvt Ltd., Chennai without prior sanction of the undersigned. Any such transaction shall be void as against any claim in respect of any income tax or other sum payable by the assessee as a result of the completion of the assessment proceedings.

This order is passed with the prior approval of the Commissioner of Income-tax, Chennai-I, Chennai 600 034.

Given under the signature and seal at Chennai, on 25th July, 2012.”

W.P.No.28059 of 2012:

“PAN AACCK6839N/2012-13 July 25, 2012

ORDER OF PROVISIONAL ATTACHMENT OF PROPERTY U/S.281B OF THE INCOME TAX ACT, 1961

Whereas in the case of M/s. KDH Properties Pvt Ltd (AACCK6839N) (hereinafter referred to as assessee) and the assessment proceedings for assessment year 2011-12 is to be completed in accordance with the provisions of the Income Tax Act, 1961;

and

Whereas completion of proceedings for assessment year 2011-12 in this case are likely to result in a substantial demand;

and

Whereas the assessee is to receive a sum of Rs. 4,00,00,000/- from their debtor namely M/s. Kanishk Overseas, 628, Street No.11, Sardar Bazar, Delhi 110 027.

and

Whereas the undersigned is of the opinion that for the purpose of protecting the interests of Revenue, it is necessary to attach the said debt to be received from M/s.Kanishk Overseas, 628, Street No.11, Sardar Bazar, Delhi 110 027.

It is ordered that M/s. Kanishk Overseas, 628, Street No.11, Sardar Bazar, Delhi 110 027 is prohibited and restrained from making payment to M/s. KDH Properties Pvt Ltd., Chennai without prior sanction of the undersigned. Any such transaction shall be void as against any claim in respect of any income tax or other sum payable by the assessee as a result of the completion of the assessment proceedings.

This order is passed with the prior approval of the Commissioner of Income-tax, Chennai-I, Chennai 600 034.

Given under the signature and seal at Chennai, on 25th July, 2012.”

6. According to the petitioner, besides attaching the immovable property measuring 8027 Sq.Ft. and 5448 Sq.Ft. (totalling 13475 Sq.Ft.) at KGN Towers, ‘A’ and ‘B’ Wings, 31/32, Commander-in-Chief Road, Egmore, Chennai 600 008, the authority has also proceeded to provisionally attach the amounts due from the debtors and depositors, who are liable to pay certain amounts to the petitioner/company. Such action is arbitrary and unreasonable.

7. The subject matter of the dispute in the present case arose out of the property situate at Door No.31/32, Commander-in-Chief Road, Egmore, Chennai 600 008. According to the petitioner, they own an area of 64,978 Sq.Ft. in the building situate at Door No.31/32, Commander-in-Chief Road, Egmore, Chennai 600 008, out of the total built up area of 1,28,420 Sq.Ft. While working out the profit for the assessment year 2011-2012, the Income Tax Department erroneously contended that the total built up area of the building that belonged to the petitioner/company is 1,28,420 Sq.Ft., instead of taking the correct area of 64,978 Sq.Ft. Only on the basis of this wrong calculation of built up area in the above stated building, the Income Tax Department declined to accept the declared loss of Rs. 2.67 Crores and consequently, proceeded to calculate the profit at Rs. 6.67 Crores. Assuming, without accepting, that the calculation made by the Income Tax Department is correct, even then the tax implication would be Rs.2.20 Crores only and, therefore, the provisional attachment in respect of property at KGN Towers, ‘A’ and ‘B’ Wings, 31/32, Commander-in-Chief Road, Egmore, Chennai 600 008 is sufficient to satisfy the department’s claim.

8. On 31.7.2012, the petitioner made a representation to the authorities to withdraw the provisional attachment and after considering the claim of the petitioner, it appears that the provisional attachment in respect of the bank accounts was withdrawn by the respondents on 7.8.2012. Since the claim of the petitioner for withdrawal of the provisional attachments made vide the notices, which are challenged in these writ petitions, was not considered, the present writ petitions are filed stating that there is no justification for provisionally attaching the debts and security deposit due and payable to the petitioner from third parties, as attachment in respect of the property at Door No.31/32, Commander-in-Chief Road, Egmore, Chennai 600 008 is sufficient to cover the entire demand, if any made by the department.

9. The first contention of the learned Senior Counsel appearing for the petitioner is that there is a basic error in the calculation. The second and primary contention urged the learned Senior Counsel is that the property at Door No.31/32, Commander-in-Chief Road, Egmore, Chennai 600 008 measuring 8027 Sq.Ft. and 5448 Sq.Ft. (totalling 13475 Sq.Ft.) is sufficient to take care of the tax liability, assuming that the department is correct. Therefore, the provisional attachment insofar as payments due from the debtors and the security deposit amount receivable by the petitioner is not justified. The provisional attachment insofar as the properties at Door No.31/32, Commander-in-Chief Road, Egmore, Chennai 600 008 is sufficient to safeguard the interest of the Revenue, even in the worst scenario of the assessment going against the petitioner. On this premise, all the writ petitions are canvassed.

10. The learned Senior Counsel appearing for the petitioner pleaded that the valuation of the property at Door No.31/32, Commander-in-Chief Road, Egmore, Chennai 600 008, even as per the guideline value of Rs.16,500/- per Sq.Ft., would work out to about Rs. 22 Crores and that amount is sufficient enough to safeguard the interest of the Revenue and, therefore, the attachment in respect of this property can remain till the final assessment is over and he also pleads for expeditious completion of the assessment proceedings. Consequently, the provisional attachment, the subject matter of other writ petitions, should be set aside as the interest of Revenue is safeguarded.

11. Per contra, Mr. T. Pramod Kumar Chopda, learned Standing Counsel appearing for the respondents, relying upon the counter affidavit filed by the respondents, refuted the factual dispute raised by the petitioner with regard to the area of the property at Door No.31/32, Commander-in-Chief Road, Egmore, Chennai 600 008. The basis for making provisional attachment is stated in paragraph (6) of the counter affidavit and the same reads as follows:

“6. On a reworking of Closing Stock based on the above would result in a revised Closing Stock of Rs. 44.79 Crores and the undisclosed stock would come to Rs. 16.87 Crores. Income tax on the same is Rs. 5.70 Crores and interest thereon works out to Rs. 1 Crore. Hence, Approximate Tax effect on this would be Rs. 6.70 Crores during the Asst. Year 2011-12. Based on the above findings of Survey, the assessee company’s case for Asst. Year 2011-12 was selected for Scrutiny and a Notice u/s.143(2) was issued on 17.05.2012. It is further to be stated that the assessee company during the survey has agreed to revise the return of income for Asst. Year 2011-12. Also, On-money transaction during the financial year 2011-12, to the extent of Rs. 1 Crores have been evidenced during the survey. The assessee has accepted the fact during the survey. The assessee, so far, neither paid the tax effect on this nor filed revised return including such income in respect of Asst. Yr. 2012-13 as accepted at the time of survey. Hence provisional attachments were made attaching leased property namely 13475 sqft building at KGN Towers, invoking section 281B of the Act. Aggrieved against the same the present writ petitions were filed by the petitioner company.”

12. As has been pointed out by the learned Senior Counsel for the petitioner, assuming for the moment that the approximate tax liability will be Rs.6.70 Crores for the assessment year 2011-12, the value of the land and building at Door No.31/32, Commander-in-Chief Road, Egmore, Chennai 600 008 should be considered for the purpose of safeguarding the interest of the Revenue insofar as the claim against the petitioner. In this regard, it is to be noticed that the value of the property, according to the petitioner’s statement, is about Rs. 22 Crores and that can be verified. As per the petitioner’s working, even if the stock value as determined by the department is accepted, the tax effect would be around Rs. 2.2 Crores and as per the department it would be around Rs. 6.70 Crores. If the property, which is the subject matter of provisional attachment, is sufficient to satisfy the tax liability and safeguard the interest of the Revenue, then the petitioner will be justified in seeking release of provisional attachment in respect of other debts and security deposit due from third parties.

13. In such circumstances, the question that is to be considered is whether the property at Door No.31/32, Commander-in-Chief Road, Egmore, Chennai 600 008 can be valued at the price at which it is stated by the petitioner. The petitioner has made a detailed request on 31.7.2012 to the authorities and undertakes to make further representation for release of the provisional attachment setting out the above stated factors. If the petitioner is able to establish that the value of the property at Door No.31/32, Commander-in-Chief Road, Egmore, Chennai 600 008 is sufficient to cover the tax liability that may arise on final assessment, then it is incumbent on the part of the department to consider the release of the provisional attachment order insofar as the debts and security deposits due from the third parties. This is because the provision of Section 281B of the Act clearly provides for safeguarding the interest of the Revenue and that cannot be more than what is likely to arise. The contention of the learned Senior Counsel for the petitioner is, therefore, tenable on this plea, as the department is entitled to provisionally attach such of those properties to protect the interest of the Revenue, as may be necessary. It would only mean that whatever is required to satisfy the claim for tax liability, the authority is entitled to provisionally attach. It cannot be taken as a mandate to attach all properties of the assessee or amounts due to the assessee indiscriminately. The provisional attachment made in terms of Section 281B of the Act should be commensurate with the claim of the department, more particularly to safeguard the interest of the Revenue. The Assessing Officer should form an opinion as to what extent of property is required to protect the interest of the Revenue. It cannot be an arbitrary claim based on no materials. It should stand the test of reasonableness and avoid arbitrariness.

14. As is evident from the counter affidavit filed, the probable tax liability is approximately Rs. 6.70 Crores. In my considered view, if the petitioner is able to establish the valuation of the property at Door No.31/32, Commander-in-Chief Road, Egmore, Chennai 600 008 as stated by cogent and proper materials acceptable to the Income Tax Department, subject to final assessment, the property at Door No.31/32, Commander-in-Chief Road, Egmore, Chennai 600 008 can continue to be under provisional attachment as per Section 281B of the Act and all other debts and security deposits due from third parties can be released from provisional attachment. A decision on the above issue has to be taken by the authority based on the petitioner’s representation given earlier and the further representation to be given as undertaken before this Court.

15. Under such circumstances, the petitioner is given an opportunity to make a detailed request to the competent authority enclosing the valuation report in respect of the property at Door No.31/32, Commander-in-Chief Road, Egmore, Chennai 600 008 at the earliest and the same shall be considered by the competent authority on merits as indicated by this Court herein above. If the petitioner is able to satisfy the authorities on the valuation and if the value of the said property is sufficient enough to safeguard the interest of the Revenue, then the respondents shall consider and revoke the provisional attachment insofar as the debts and security deposit due from third parties. The petitioner is given one week time from the date of receipt of a copy of this order to submit his further request in this regard and the competent authority shall consider the same and pass appropriate orders within three weeks thereafter.

These writ petitions are disposed of in the above terms. No costs. Consequently, M.P.Nos.1 of 2012 (5 Petitions) are closed.

[Citation : 356 ITR 1]