Court permitted income tax department to withdraw 20% of total tax demand from attached bank account

Noble John Vs CIT (Appeals) (Kerala High Court)

Kerala High Court permitted income tax department to withdraw 20% of the total tax demand as a condition for stay. Court also directed to lift the attachment over the bank accounts on receipt of the sum.

Facts- This writ petition has been filed challenging order attaching certain bank accounts of the petitioners. The petitioners are Directors of a Private Limited Company named Covenant Stones Private Limited (the Company). Assessment of the Company was completed for the period from 2014-15 to 2019-20 resulting in a demand for a sum of Rs.32,10,37,345/-. The Company filed appeals before the 1^st Appellate Authority and approached this Court by filing an appeal, which was disposed of on 21.12.2022 directing the Appellate Authority to consider and pass orders on the stay petitions filed in the statutory appeals and further directing that recovery proceedings shall remain suspended till orders are passed on the stay petitions. The Appellate Authority vide order dated 13.09.2023 directed stay of further recovery on payment of 20% of the total tax demand.

Conclusion- Held that the Income Tax Department is permitted to withdraw from the bank accounts of the Company/petitioners a total sum of Rs.6,42,07,469/- towards 20% of the amount directed to be paid as a condition for stay by the First Appellate Authority in order. On the said amount being received in the account of the Income Tax Department, order will stand withdrawn, making it clear that it will always be open to the Authorities to pass fresh orders under Section 179 of the Act, if circumstances for exercise of jurisdiction under Section 179 of the Act subsists in future. Further, any attachment over the bank accounts will also be lifted on receipt of the sum of Rs.6,42,07,469/-.

FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT

This writ petition has been filed challenging Ext.P6 order attaching certain bank accounts of the petitioners, who are stated to be Directors of a Private Limited Company named Covenant Stones Private Limited (the Company). The 1^st petitioner owns 99.73% of the shares of the Company, while the 2^nd petitioner (his wife) owns 0.22% and their son (not a party to the writ petition) owns 0.05% of the shares of the Company. Assessment of the Company was completed for the period from 2014-15 to 2019-20 resulting in a demand for a sum of Rs.32,10,37,345/-. The Company filed appeals before the 1^st Appellate Authority and approached this Court by filing W.P(C)No.38390 of 2022, which was disposed of on 21.12.2022 directing the Appellate Authority to consider and pass orders on the stay petitions filed in the statutory appeals and further directing that recovery proceedings shall remain suspended till orders are passed on the stay petitions. The Appellate Authority vide Ext.P3 order dated 13.09.2023 directed stay of further recovery on payment of 20% of the total tax demand. The operative portion of Ext.P3 order reads thus:-

“6. However, considering the facts of the case and the online submissions, the appellant is directed to pay 20% of the total tax demand raised vide assessment orders for the AYs. 2014-15, 2015-16, 2016-17, 2017-18, 2018-19 and 2019-20 in seven equal monthly instalments on or before 25^th March 2024. The instalments have to be paid on or before the 25^th of every month and the first instalment has to be paid on or before 25^th September 2023. Subject to the above mentioned payment schedule and on the condition that the appellant cooperates with the appellate proceedings and remand proceedings, if any, the balance demand of the appellant is kept in abeyance till 31/03/2024 or disposal of appeal whichever is earlier.”

The Company challenged Ext.P3 order by filing W.P(C)No.40710 of 2023. This Court dismissed the writ petition, however directing as follows:-

“In that view of the matter, the present writ petition is dismissed. The petitioner was granted time to pay the first instalment on or before 25.09.2023, the said time is extended to 30.12.2023 and the last and final installment has to be paid on or before 30.06.2024. Needless to say that the observation made herein will not prejudice the appellate authority to consider the case of the petitioner on merit. ”

The Company carried the matter in appeal before a Division Bench of this Court through W.A.No.661 of 2024, where the specific contention taken was that the Company is in dire financial straits and hence the direction to pay 20% of the demand pending disposal of the appeal would cause great prejudice to the Company. It was also pointed out that the conditional stay order issued by the 1st Appellate Authority did not disclose any reasons as to why 20% of the demand should be paid as a condition for stay. The Division Bench disposed of the Writ Appeal in the following manner:-

“7. That said, we take note of the submission of the learned counsel for the appellant that the appellant is facing financial difficulties, more so when the company has ceased to function with effect from 01.04.2018. Taking note of the said submission of the learned counsel for the appellant, we feel that in the interests of justice, the appellant can be granted some time to discharge the liability of 20% of the total tax demand for the various assessment years as directed by the 1^st respondent in Ext.P5 order that was impugned in the writ petition.

8. Accordingly, the impugned judgment of the learned Single Judge, as also the direction in Ext.P5 order that was impugned in the writ petition, are modified to the limited extent of permitting the appellant herein to discharge the liability of payment of 20% of the total tax demand as directed by the 1^st respondent in Ext.P5 order, in seven equal successive monthly instalments commencing from 15.06.2024. It is made clear that if the appellant commits default in any single instalment, he will lose the benefit of this judgment, as also the benefit of the stay order granted by the 1^st respondent-Appellate Authority, and the entire amount of tax and interest confirmed against the appellant by the assessment orders in question will then become immediately payable.”

However despite the directions issued by the Division Bench, the Company failed to pay even a single penny towards the amount imposed as a condition for stay by the 1^st Appellate Authority.

2. On 15.05.2024, Ext. P6 order was issued, in terms of the provisions contained in Section 179 of the Act, treating the Directors also as liable for the demands raised against the Company. It challenging this order that the petitioners are before this Court.

3. Learned counsel appearing for the petitioners addressed arguments, including on the jurisdiction of the Assessing Authority to issue an order in the nature of Ext.P6. It is stated that the conditions precedent for invoking the jurisdiction under section 179 of the Act are not satisfied in this case. The history leading to the incorporation of the Company and subsequent events are pointed out to establish that the petitioners are innocent investors, who were duped of their lifetime savings by one of their close relatives, leading to the imposition of huge liability [including from banks, financial institutions, Department of Mining and Geology and the National Green Tribunal].

4. Learned Standing Counsel appearing for the Income Tax Department submits, on instructions, that approximately Rs.89 Crores is available in various accounts attached by the Income Tax Department . It is submitted that the Department may be permitted to recover 20% of the amount directed to be paid as a condition for stay. It is submitted that, on such recovery being effected, for the present, Ext.P6 order can be withdrawn reserving the liberty of the Department to pass fresh orders under Section 179 of the Act, if the circumstances for such orders being passed arise in future. It is also submitted that any continuing attachment of the bank accounts will also be lifted on the payment of 20% of the demand as directed in Ext.P3 order of the First Appellate Authority.

5. Having heard the learned counsel appearing for the petitioner and the learned Standing Counsel appearing for the Income Tax Department, I am of the view that this writ petition can be disposed of in the following manner:-

(i) The Income Tax Department is permitted to withdraw from the bank accounts of the Company/petitioners a total sum of Rs.6,42,07,469/- (Rupees Six Crores Forty two lakhs seven thousand four hundred and sixty nine only) towards 20% of the amount directed to be paid as a condition for stay by the First Appellate Authority in Ext.P3 order;

(ii) On the aforesaid amount being received in the account of the Income Tax Department, Ext.P6 order will stand withdrawn, making it clear that it will always be open to the Authorities to pass fresh orders under Section 179 of the Act, if circumstances for exercise of jurisdiction under Section 179 of the Act subsists in future;

(iii) Any attachment over the bank accounts will also be lifted on receipt of the sum of Rs.6,42,07,469/- (Rupees Six Crores Forty two lakhs seven thousand four hundred and sixty nine only), as directed above.

The writ petition is ordered accordingly. All contentions raised are left open. The Appellate Authority shall endeavor to dispose of the appeals at the earliest.