19. It is true that attaching the properties of an assessee even before the crystlisation of the demand is a drastic step and has to be exercised only in extreme circumstances. Whether extreme circumstances existed in the present case so as to levy provisional attachment under section 281B of the Act is the question.Online GST Certification Course by TaxGuru & MSME- Click here to Join
20. In the present case, the incriminating documents seized during the course of search and seizure operation reveal that the payments made by the petitioner No.1 to Cyprus / UK based companies towards marketing and advertisement expenses were further liable to be paid over to krainian advertising agencies who are in fact supposed to have advertised the product of the petitioner No.1 in Ukraine. The documents further reveal that the said Cyprus / UK based companies have credited the amounts received from the petitioner No.1 in the private bank account of the petitioner No.2 in Cyprus. Moreover, during the course of search, incomplete and / or unsigned invoices of the foreign companies along with their seals / stamps were recovered from the office of the petitioner No.1 (see page 544 of the petition). These incriminating documents prima facie establish that large scale tax fraud has been committed.
21. When confronted with the incriminating documents which are seized, the petitioner No.2 while recording his statement on 11/6/2008 promised that he would explain the entire seized materials but he left for UK on 14/6/2008. The petitioner Nos.3 & 4 who are other directors of the petitioner No.1 company expressed their inability to explain the seized materials (see page 191 of the petition). Thereafter, till date the petitioner No.2 has failed to furnish requisite information. In these circumstances, invoking section 281B of the Act on 24/7/2008 to protect the interest of revenue cannot be faulted.
22. The fact that the notice under section 153A of the Act as well as the order under section 281B of the Act have been issued on the same date i.e. on 24/7/2008 would not affect the validity of the provisional attachment, because, under section 132 of the Act it is not mandatory that the proceedings must be pending on the date of invoking section 281B of the Act. Provisional attachment can be levied even in cases where the proceedings are yet to be initiated. Therefore, issuing 153A notice and invoking section 281B of the Act on the same day would not affect the validity of the order passed under section 281B of the Act on 24/7/2008.
23. Admittedly, the petitioner No.2 holds 97% shares of the petitioner No.1 company. During the course of investigation the petitioner No.2 admitted (see page 247 of the petition) that till September / October, 2003 he was holding 95% of the shares of Cyprus & U.K. based companies to whom the payments have been made by the petitioner No.1 as marketing and advertisement companies. Although, the petitioner No.2 claims to have divested his shareholding in those foreign companies and he is in no way connected with the said companies, in the absence of any explanation given as to the circumstances in which the said foreign companies have credited the amounts in the private bank accounts of the petitioner No.2, the reasonable belief formed by the designated authority that the transactions between the petitioner No.1 and the Cyprus / UK based companies were tax avoidance transactions and the amounts received by the petitioner No.2 which is brought into India and invested, constitute undisclosed income of the petitioner No.2, cannot be faulted.
31. The contention that the petitioner No.2 has lost about Rs.29 crores on account of the attachment of shares in the demat account is without any merit, because, fluctuation in the prices of shares in the share market is a natural phenomena, and, therefore, the revenue cannot be blamed if there is fall in the prices of shares which are attached. However, we agree with the counsel for the assessee that wherever the assessee applies for sale of the attached shares and seeks investment of the sale proceeds in the blue-chip shares, then, the proper officer should consider the said request and pass appropriate orders so that no prejudice is caused to the assessee by reason of attachment of shares and at the same time the interests of the revenue are protected by attaching the blue-chip shares that may be purchased out of the sale proceeds received on sale of the attached shares. The argument that the assessee ought to have been permitted to shift the security from one banker to another banker so as to avail higher facilities cannot be accepted, because, the petitioner No.2 who appears to be the brain behind the massive tax evasion is not co-operating with the department in unfolding the truth. As a result of non co-operation the investigation is hampered. Consequently, there is delay in determining the demand. In these circumstances, permitting the petitioner No.1 company to enhance its liability during the course of investigation would be detrimental to the interest of the revenue.