2025 (6) TMI 1415 - HC - Income Tax

Stay recovery proceedings initiated u/s 156 - Seeking directions not to freeze the Bank Accounts or to attach the assets or to take any coercive action until the final disposal of the petitioner appeals u/s 246A - in spite of availing of statutory appeal which is pending consideration whether the petitioner will be entitled to the prayers made herein? HELD THAT - It is settled law that one cannot pursue two remedies in respect of the same matter and as such these two writ petitions were liable to be not entertained at the threshold itself. However on consideration of the fact that specific prayers and submissions had been made that the appeals that had been filed were yet to be taken up as the delay was yet to be condoned and that the petitioner admittedly belonged to the Khasi Scheduled Tribe and as such was exempted under Section 10(26) of the Income Tax Act 1961 the interim orders had been passed that the respondents take no coercive action. These matters being situated thus and as the appeals are pending before the Appellate authority without further discussion these writ petitions are disposed of with the directions that the appeals be taken up by the CIT(Appeals) for consideration most expeditiously and orders passed thereon or be finally disposed of within a period of 4(four) weeks from today. It is further provided that till such time the interim orders of this Court shall be in operation and if no orders are forthcoming in the appeals within the period allowed the respondents shall issue appropriate instructions to de-freeze the Bank Accounts of the petitioner.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the writ petitions seeking mandamus under Article 226 to stay recovery proceedings initiated under Section 156 of the Income Tax Act, 1961, and to restrain freezing or attachment of the petitioner's bank accounts and assets, are maintainable when statutory appeals under Section 246A are pending adjudication.

- Whether the petitioner is entitled to interim relief of de-freezing bank accounts and stay of coercive recovery action pending disposal of the statutory appeals.

- Whether invoking the writ jurisdiction of the High Court is permissible in presence of an alternative statutory remedy in the form of appeals before the Commissioner of Income Tax (Appeals).

- The applicability of exemption under Section 10(26) of the Income Tax Act, 1961, for the petitioner belonging to the Khasi Scheduled Tribe community and its relevance to the assessment and demand notices issued.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability of Writ Petitions When Statutory Appeals Are Pending

Relevant legal framework and precedents: The Income Tax Act, 1961, provides a statutory appellate mechanism under Section 246A for challenging assessment orders and demand notices. It is well-settled law that when an alternative efficacious statutory remedy exists, writ petitions under Article 226 should not ordinarily be entertained. The Court relied on precedents including AIR 1970 SC 1 and AIR 1977 SC 898, which emphasize that parallel proceedings for the same cause of action and relief before two forums are impermissible.

Court's interpretation and reasoning: The Court noted that the petitioner had filed statutory appeals and applications for condonation of delay before the Commissioner of Income Tax (Appeals), which were pending consideration. The relief sought in the writ petitions-stay of recovery and de-freezing of accounts-was the same as that prayed before the appellate authority. Hence, entertaining the writ petitions would amount to duplicity and parallel proceedings, which the law does not permit.

Application of law to facts: The Court observed that the petitioner had an alternative remedy available and had availed it. The writ petitions were therefore liable to be dismissed at the threshold. However, the Court took note of the pendency of condonation applications and appeals, and the fact that interim orders had been passed restraining coercive action.

Treatment of competing arguments: The petitioner argued that due to delay in hearing the appeals and freezing of bank accounts, urgent intervention was necessary. The respondents contended that the writ petitions were not maintainable and that the amounts frozen were less than 20% of the demand, justifying the security measures. The Court balanced these contentions by recognizing the petitioner's right to seek interim relief but emphasizing the primacy of the statutory appellate process.

Conclusions: The writ petitions were not maintainable as a challenge to the assessment orders and demand notices, but interim relief was granted subject to expeditious disposal of the appeals.

Issue 2: Entitlement to Interim Relief of Stay of Recovery and De-freezing of Bank Accounts

Relevant legal framework: Section 220(6) of the Income Tax Act allows the Commissioner to grant stay of demand during the pendency of appeals. The writ jurisdiction under Article 226 can be invoked for interim relief in exceptional circumstances to prevent irreparable harm.

Court's interpretation and reasoning: The Court acknowledged that the petitioner's bank accounts had been frozen, adversely affecting his business operations, including payment of wages and meeting expenses. The petitioner belonged to the Khasi Scheduled Tribe community and claimed exemption under Section 10(26), which was a material fact in the assessment and demand proceedings.

Key evidence and findings: The petitioner had filed returns declaring income and claimed exemption under Section 10(26). The Income Tax authorities initiated reassessment and scrutiny proceedings treating certain deposits as unexplained income under Section 69A, resulting in substantial demands. The appeals and condonation applications were pending, and interim orders had been passed restraining coercive action, but bank accounts remained frozen.

Application of law to facts: Considering the pendency of appeals and the adverse impact of freezing bank accounts, the Court exercised its discretion to maintain interim orders restraining coercive action and directed the appellate authority to expedite disposal of appeals within four weeks. If no orders were passed within this period, the respondents were directed to de-freeze the bank accounts.

Treatment of competing arguments: The respondents argued that freezing was necessary to secure the demand amount and that the writ petitions were premature. The Court balanced the need to protect the revenue with the petitioner's right to livelihood and business continuity, granting interim relief to avoid irreparable harm.

Conclusions: Interim relief was granted to stay recovery proceedings and maintain the status quo on freezing of accounts until disposal of appeals, with a strict timeline imposed.

Issue 3: Applicability of Exemption Under Section 10(26) to the Petitioner

Relevant legal framework: Section 10(26) exempts income of Scheduled Tribe members residing in specified areas from taxation. The petitioner claimed this exemption as a member of the Khasi Scheduled Tribe community.

Court's interpretation and reasoning: The Court noted that the petitioner had declared income claiming exemption under Section 10(26). The Income Tax authorities disputed this exemption by treating certain deposits as unexplained income under Section 69A, leading to reassessment and demand notices.

Application of law to facts: The Court did not finally adjudicate on the exemption claim but recognized it as a significant factor in the appeals pending before the Commissioner of Income Tax (Appeals). The exemption claim was material to the assessment and the resultant demand.

Treatment of competing arguments: The petitioner asserted the exemption claim; the respondents challenged it by invoking provisions relating to unexplained income. The Court refrained from deciding on the merits at this stage, leaving it to the appellate authority.

Conclusions: The exemption claim under Section 10(26) was acknowledged as a relevant issue pending adjudication in the statutory appeals.

3. SIGNIFICANT HOLDINGS

- "It is settled law that one cannot pursue two remedies in respect of the same matter, and as such, these two writ petitions were liable to be not entertained at the threshold itself."

- "The short point for determination is therefore in spite of availing of statutory appeal, which is pending consideration, whether the petitioner will be entitled to the prayers made herein."

- "These matters being situated thus, and as the appeals are pending before the Appellate authority, without further discussion, these writ petitions are disposed of with the directions that the appeals be taken up by the Commissioner of Taxes (Appeals) for consideration most expeditiously and orders passed thereon, or be finally disposed of within a period of 4(four) weeks from today."

- "It is further provided that till such time the interim orders of this Court shall be in operation, and if no orders are forthcoming in the appeals within the period allowed, the respondents shall issue appropriate instructions to de-freeze the Bank Accounts of the petitioner."

- The Court established the principle that while statutory remedies must be exhausted, the writ jurisdiction can be exercised to grant interim relief to prevent irreparable harm pending disposal of appeals.

- The final determination was that the writ petitions were not maintainable as substantive challenges but interim relief was warranted subject to expeditious disposal of statutory appeals, with clear directions to the appellate authority and the Income Tax Department.