C. Sowmya Raga Vs Tax Recovery Officer – 3 (Madras High Court)
Conclusion: Income Tax Department was directed to encash the Demand Draft, confirm the sale, and issue the Sale Certificate in favour of the highest bidder, without prejudice to the Petitioner’s rights. The Petitioner was granted liberty to pursue the civil suit and establish bona fide purchase and protection under the proviso to Section 281(1) of the Income Tax Act. The confirmed sale was made expressly subject to the outcome of the civil proceedings.
Held: Assessee challenged an auction notice dated 25.09.2025 issued by the Income Tax Department for sale of immovable property, with the auction scheduled on 28.10.2025. The property originally belonged to M/s. Sally Thermoplastic India Limited and was purchased by assessee after income-tax proceedings had been initiated against the original owner. Earlier, assessee had unsuccessfully approached the High Court seeking removal of attachment over the property. The Writ Petition was dismissed holding that the sale in favour of assessee was void. The Division Bench dismissed the appeal granting liberty to assessee to establish bona fide purchase by filing a civil suit. Despite pendency of proceedings, the auction was conducted and M/s. V.V. Automotive Components Private Limited emerged as the highest bidder. High Court directed the Department to keep further auction proceedings in abeyance for 60 days to enable the assessee to approach the Civil Court. Subsequently, due to bar boycott and issues in e-filing, the suit filed by assessee could not be numbered, leading to the present “mentioning” before the Court.
Assessee contended that delay in numbering the civil suit was beyond his control and that he was a bona fide purchaser entitled to protection under the proviso to Section 281(1) of the Income Tax Act, 1961. It was argued that rights accrued to assessee under the order could not be diluted. Respondents submitted that the auction had already been concluded and that the Department was holding a Demand Draft of ₹42 crores from the highest bidder. Reliance was placed on Rule 63 of the Second Schedule to the Income Tax Act, 1961 and Section 293 of the Act to contend that the sale ought to be confirmed and sale certificate issued. The highest bidder also sought confirmation of sale and issuance of sale certificate. The Court held that reliance on Rule 63 of the Second Schedule was misplaced unless read in conjunction with Rule 62. Rule 62 permits a purchaser to seek cancellation of sale on the ground that the defaulter had no saleable interest in the property. The present case did not fall within the scope of Rules 62 and 63 governing setting aside or confirmation of sale in the manner suggested by the Department. The Court further held that the order had not been challenged by the Income Tax Department and, therefore, the rights accrued to assessee under that order could not be diluted. At the same time, the interests of the highest bidder and the Revenue also required protection.
Paid content
Join TaxGuru's Network for the latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Who Pays When Agent Earns? Autonomous AI and Attribution Gap in Indian Tax Law
October 4, 2026
Husband’s Gift, Wife’s Tax: ITAT Rejects Clubbing Claim Over Delayed Disclosure: ITAT Hyderabad
October 4, 2026
When Does GST Become Payable? Levy, Time of Supply, RCM & Composition
October 4, 2026
Can WhatsApp Chats, Excel Sheets and Seized Phones Alone Justify a Tax Addition?
October 4, 2026
Profit Split Method in Transfer Pricing: Applicability, Calculation & Key Cases
October 4, 2026
Resolving Two-Time PAN Modification Barrier in TDS Returns: Nominal Value Strategy
October 4, 2026Subscribe Our Newsletter
Join the professionals, businesses and finance teams who rely on TaxGuru's morning digest of notifications, judgments and analysis. Curated by editors, free forever.
