TMI Blog2014 (7) TMI 1004X X X X Extracts X X X X X X X X Extracts X X X X ..... its debtor, but, the petitioner has denied this assertion - no steps have been taken by the assessee, namely, M/s Rich Capital and Financial Services Ltd. initiating any proceeding for recovery of that amount before any forum or any appropriate court of law - Since the petitioner had appeared and participated in the proceedings, the order of the Tax Recovery Officer treating the petitioner as an assessee in default cannot continue any longer. The denial by the petitioner to pay any amount, the attachment made by the Tax Recovery Officer cannot continue any further, especially when the Court finds that till date no inquiry has been made by the revenue into the genuineness of the affidavits filed by the petitioner - the order treating the petitioner as an assessee in default cannot be sustained and is quashed – there was no justification in continuing with the attachment order and it is also quashed - A writ of mandamus is issued commanding the Tax Recovery Officer to ensure that 1,70,000 equity shares of Jhunjhunwala Vanaspati Ltd. is transferred again in the Demat Account of the petitioner with Karvy Stock Broking Ltd. within two weeks from the date of the production of a certi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Recovery Officer issued a notice dated 17.3.2008 treating the assessee in default in respect of the amount specified in the notice holding that further proceedings would be taken against the petitioner for realisation of the amount as if it were an arrears of tax due from it in the manner provided under Sections 222 to 225 of the Act. It further transpires, that the Tax Recovery Officer attached 4,24,910 equity shares of ₹ 10/- each of Jhunjhunwala Vanaspati Ltd. from the Demat Account of the petitioner held with Karvi Stock Broking Ltd., which was subsequently transferred to the Demat Account of the Tax Recovery Officer. The petitioner also had a Savings Bank Account with the ICICI Bank in which there was a balance of ₹ 28,988.78. The petitioner contended that the said amount was also attached and transferred to the Tax Recovery Officer's Account. The petitioner, upon coming to know of the action taken by the Tax Recovery Officer, wrote a letter dated 8.4.2008 alleging that no notice under Section 226(3) of the Act was ever received or served upon the petitioner and consequently contended that the entire proceedings initiated by the Tax Recovery Officer was vo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ching the bank account and the Demat Account and thereafter transferring the same in the accounts of the Tax Recovery Officer was wholly illegal and without any authority of law and was liable to be quashed. The learned counsel further contended that the order of the Tax Recovery Officer treating the assessee in default as a consequence of non-appearance was also illegal and was liable to be set aside. The learned counsel further contended that once the petitioner had given an affidavit in terms of Section 226(3)(vi) of the Act denying its liability to pay any amount and contending that no amount was payable to the defaulter then no further proceedings could be initiated or proceeded by the Tax Recovery Officer and that the entire proceedings was liable to be dropped. The learned counsel submitted that the Tax Recovery Officer had no jurisdiction to decide any dispute, if any, arising out of business transaction between the petitioner and the defaulter, namely, M/s Rich Capital and Financial Services Ltd. and that such dispute could only be adjudicated in an appropriate forum such as the Civil Court. The learned counsel submitted that the recovery proceedings against a garnishee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax Officer, Special Circle 'B' Ward, Kanpur and another, 1981(3)SCC 471. The defaulter, namely, M/s Rich Capital and Financial Services Ltd. has filed an Impleadment Application, which was disposed of permitting the said applicant to be heard. The defaulter has filed an affidavit contending that it had advanced a sum of ₹ 1,44,60,000/- to the petitioner through bank between the period 17.4.2003 to 21.8.2004, which was payable by the petitioner to it. It was also contended that they had delivered 1,05,000 shares of Jhunjhunwala Vanaspati Ltd. through their Demat Account to the petitioner and that the sale consideration has not been paid by the petitioner to it till date and therefore, the petitioner Company is a debtor and the amount can be recovered by the Tax Recovery Officer from the petitioner under Section 226(3) of the Act. The petitioner has denied these allegations contending that the alleged advance given by the defaulter was in relation to the purchase of shares of the petitioner Company for which requisite share certificates were issued to them. The petitioner also denied any amount payable towards the alleged shares transferred by them in the Demat Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a person to whom a notice under this sub-section is sent objects to it by a statement on oath that the sum demanded or any part thereof is not due to the assessee or that he does not hold any money for or on account of the assessee, then nothing contained in this sub-section shall be deemed to require such person to pay any such sum or part thereof, as the case may be, but if it is discovered that such statement was false in any material particular, such person shall be personally liable to the [Assessing] Officer [or Tax Recovery Officer] to the extent of his own liability to the assessee on the date of the notice, or to the extent of the assessee's liability for any sum due under this Act, whichever is less. (vii)The [Assessing] Officer [or Tax Recovery Officer] may, at any time or from time to time, amend or revoke any notice issued under this sub-section or extend the time for making any payment in pursuance of such notice. (viii)The [Assessing] Officer [or Tax Recovery Officer] shall grant a receipt for any amount paid in compliance with a notice issued under this sub-section, and the person so paying shall be fully discharged from his liability to the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst him for realization of the amount as if it was an arrears of tax due from him. Sub clause (vi) further provides that in the event an affidavit is filed by the garnishee denying any amount payable by him to the assessee and if it is discovered subsequently that such statement was false in any material particular, in that event, such person shall be personally liable to the Income Tax Officer to the extent of his own liability to the assessee. In view of the assertions made by the assessee that the petitioner is a debtor and, therefore, part of the recovery can be recovered from him that the Tax Recovery Officer issued a notice dated 20.11.2007 under Section 226(3) of the Act to the petitioner at the Kanpur address. Admittedly the petitioner had shifted its registered office from Kanpur to Varanasi and, accordingly, the said notice was not delivered or served upon the petitioner. Subsequently, the petitioner appeared before the Tax Recovery Officer on 15.4.2008 and produced all the relevant documents as demanded since there is no denial to that effect by the respondents in their counter affidavit. The petitioner also filed an affidavit on 17.4.2008 denying that it owes any am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act the petitioner has objected to the payment and has filed an affidavit stating that the sum demanded or any part thereof was not due to the assessee nor payable by the petitioner and that the petitioner was not required to pay any such sum or any part thereof to the Tax Recovery Officer in compliance with the requisition contained in the notice. Once that is done, no further proceeding for recovery can be made against the petitioner. However, in view of the decision of the Supreme Court in Bihari Lal Ram Charan's case (supra), it is apparently clear that under Clause (vi) of Section 226(3) of the Act a limited enquiry can be conducted by the Tax Recovery Officer to find out about the genuineness of the affidavit for which he is required to give a notice to the person giving the affidavit that he is going to hold an enquiry for the purpose of determining whether the statement made on oath on behalf of the garnishee is correct or false. The Income Tax Officer cannot discover on its own that the statement on oath made on behalf of the garnishee was false in any material particular and cannot subjectively reach to a conclusion that in his opinion the affidavit filed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled by the petitioner before the Tax Recovery Officer denying its liability to pay any amount and further denying that any sum is or was payable to the assessee, no steps have been taken by the Tax Recovery Officer to cross check with the assessee and/or inquire into the genuineness of the affidavit filed by the petitioner. Since the petitioner had appeared and participated in the proceedings, the order of the Tax Recovery Officer treating the petitioner as an assessee in default cannot continue any longer. We are, also of the opinion that in view of the categorical denial by the petitioner to pay any amount, the attachment made by the Tax Recovery Officer cannot continue any further, especially when the Court finds that till date no inquiry has been made by the respondents into the genuineness of the affidavits filed by the petitioner. This Court, by an interim order, had restrained the Income Tax Department from alienating the shares, which were transferred to the Demat Account of the Tax Recovery Officer. We, accordingly, hold that the order of the Tax Recovery Officer dated 17.3.2008 treating the petitioner as an assessee in default cannot be sustained and is quashed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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