1998 (11) TMI 114 - HC - Income Tax

Summary

Issues Involved:
1. Scope and application of Section 281 of the IT Act, 1961.
2. Validity of revocation of the no-objection certificate (NOC) by the Assessing Officer (AO).
3. Allegations of mala fides in the revocation of the NOC.
4. Right of the AO to cancel a certificate already issued.
5. Requirement of transparency and adherence to principles of natural justice in revocation proceedings.

Detailed Analysis:

1. Scope and Application of Section 281 of the IT Act, 1961:
The judgment extensively discusses Section 281 of the IT Act, 1961, which deals with the voidability of transfers made by an assessee during the pendency of proceedings or before the service of notice under Rule 2 of the Second Schedule. The section declares such transfers void against any tax claims unless made for adequate consideration without notice of proceedings or with prior permission of the AO. The court emphasizes that the section acts as a statutory injunction restraining the assessee from alienating properties without the conditions mentioned in the provisos, thereby ensuring the Department's claims are protected.

2. Validity of Revocation of the NOC by the AO:
The petitioner challenged the revocation of the NOC issued under Section 281, arguing that it was done without assigning reasons and was communicated to financial institutions, indicating mala fides. The court noted that the revocation was justified as the initial certificate was issued based on insufficient information. The AO has inherent power to rectify mistakes, especially when material facts were concealed by the petitioner. The court held that the AO's action was within their rights, given the concealment of the income-tax raid details by the petitioner.

3. Allegations of Mala Fides in the Revocation of the NOC:
The petitioner alleged mala fides, arguing that similar certificates were not revoked previously and that the cancellation was communicated to financial institutions with an ulterior motive. The court dismissed these allegations, stating that the earlier certificates were issued before the raid and circumstances could change post-raid. The court found the Department's communication to financial institutions appropriate, as it was necessary to inform them of the revocation to prevent reliance on the invalid certificate.

4. Right of the AO to Cancel a Certificate Already Issued:
The court affirmed the AO's inherent power to cancel a certificate issued based on insufficient or incorrect information. It emphasized that no one can take advantage of their own wrong, and the AO can rectify errors to prevent misuse of the certificate. The court clarified that this power exists independently of Section 21 of the General Clauses Act, which was argued by the petitioner's counsel.

5. Requirement of Transparency and Adherence to Principles of Natural Justice in Revocation Proceedings:
The court highlighted the importance of transparency and adherence to the principles of natural justice in revocation proceedings. It noted that the petitioner was not given an opportunity to be heard before the certificate was revoked, and the reasons for revocation were not disclosed in the impugned order. The court quashed the revocation order (annexure-C) for violating the rule of audi alteram partem and directed the respondent to issue a show-cause notice to the petitioner, disclosing the circumstances and allowing the petitioner to submit objections before passing a final speaking order.

Conclusion:
The court disposed of the writ petition by quashing the revocation order and directing the respondent to follow due process, including issuing a show-cause notice and providing an opportunity for the petitioner to be heard. The court also instructed that a different officer of corresponding rank handle the case to ensure impartiality.