M/S. INDIAN MINERALS AND GRANITE CO., vs DEPUTY COMMISSIONER OF INCOME TAX

IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH DATED THIS THE 12TH DAY OF AUGUST, 2021 BEFORE THE HON’BLE MR.JUSTICE S.R. KRISHNA KUMAR

WRIT PETITION No.102273 OF 2021 (T-IT) BETWEEN:

M/S. INDIAN MINREALS AND GRANITE CO.,

NO.51, GOPAL SWAMY RAOD,

GANDHINAGAR, BALLARI-583 103.

REP. BY ITS PARTNER,

SRI. N. SURYANARAYANA REDDY.

SRI. N. SURYANARAYANA REDDY,

S/O. NARA GOWRANNA,

AGED 66 YEARS,

R/AT NO.D.NO.21(2), 2ND CROSS,

XVIII WARD, NEHRU COLONY,

GANDHINAGAR, BALLARI-583 103.

SMT. N. SUVARNA,

W/O. SRI. N. SURYANARAYANAREDDY,

AGED 62 YEARS, R/AT NO.D.NO.21(2),

2ND CROSS, XVIII WARD, NEHRU COLONY,

GANDHINAGAR, BALLARI-583 103. - PETITIONERS (BY SRI. M.V. SESHACHALA, SR. COUNSEL FOR SRI. GANGADHAR J.M. & PRAVEEN P. TARIKAR, ADVOCATES)

AND:

DEPUTY COMMISSIONER OF INCOME TAX,

CENTRAL CIRCLE, SURESH COMPLEX, SANJAY GANDHI NAGAR, INFANTRY ROAD, BALLARI-583 104.

2 2. PRINCIPAL COMMISSIONER OF INCOME TAX,

AAYKAR BHAVAN, SEDAM ROAD,

KALABURAGI-585 105.

THE BRANCH MANAGER,

KARNATAKA GRAMIN BANK,

GANDHINAGAR, BALLARI-583 103.

THE BRANCH MANAGER,

STATE BANK OF INDIA,

COMMERCIAL BRANCH,

(SME) STATION ROAD,

BELLARY.

UNION OF INDIA,

SECRETARY,

MINISTRY OF FINANCE,

NORTH BLOCK, NEW DELHI-110 001. - RESPONDENTS (BY SRI. Y.V. RAVIRAJ, ADVOCATE FOR R-1, 2 & 5; NOTICE IS SERVED ON R-3 & R4)

THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO ISSUE A WRIT OF CERTIORARI QUASHING THE FOUR ORDERS PASSED BY THE FIRST RESPONDENT DATED 26.03.2021 BEARING NOS.ITBA/COM/F/17/2020-21/1031793346(1), ITBA/COM/F/17/ 2020-21/1031790766(1), ITBA/COM/F/17/2020-21/1031790100(1) AND ITBA/COM/F/17/2020-21/1031791794(1) PRODUCED AS ANNEXURES-D, D1, D2, AND D3, IN VIEW OF THE PRINCIPLES LAID DOWN IN SUBSEQUENT JUDGMENT OF THE SUPREME COURT IN CIVIL NO.1155 OF 2021 DD 20.04.2021 IN THE CASE OF RADHA KRISHNA INDUSTRIES VS. STATE OF HIMACHAL PRADESH PRODUCED AS ANNEXURE-E.

THIS WRIT PETITION COMING ON FOR PRELIMINARY HEARING ‘B’ GROUP THIS DAY, THE COURT, MADE THE FOLLOWING: O R D E R

In this petition, the petitioners’ seek quashing of the impugned orders at Annexures-D, D1, D2 and D3 dated 26.03.2021 passed by respondent No.1, whereby the fixed deposit of the petitioners have been attached by respondent No.1 by passing provisional order of attachment invoking Section 281-B(1) of the Income Tax Act, 1961 (for short “the said Act of 1961”).

Heard Sri. M.V. Seshachala, learned Senior counsel for Sri. Gangadhar J.M. and Sri. Praveen P. Tarikar, advocates on behalf of the petitioners and learned counsel for respondent Nos.1, 2 and 5 and perused the material on record.

The brief facts giving rise to the present petition are as under:

Pursuant to the search said to have been conducted by the respondents in respect of the petitioners/assessee under Section 132 of the said Act of 1961, assessment proceedings are said to have been initiated under Section 153-A of the Act by the respondents. During the course of the said proceedings, respondent No.1 has proceeded to pass the impugned orders at Annexure-D, D1, D2 and D3, thereby provisionally attaching the fixed deposit of the petitioners by invoking Section 281(B) of the said Act, which is the subject matter of challenge in the present petition.

In addition to reiterating the various contentions urged in the Memorandum of Petition and referring to the documents produced by the petitioners, learned Senior counsel for the petitioners invited my attention to paragraph No.2 of the impugned order in order to contend that the necessary mandatory requirements and parameters as required in law to be

5 followed by respondent No.1 prior to passing the provisional attachment order had not been complied with in as much as no reasons are assigned and no satisfaction is recorded and neither valid nor cogent reasons are stated as to why the provisional order of attachment was essential to be passed against the petitioners. In support of his submissions, learned senior counsel for the petitioners places reliance on the decisions of the Apex Court in the case of Radha Krishan Industries Vs. State of Himachal Pradesh and Others reported in 2021 SCC Online SC 334 and in the case of Sahara India (Firm), Lucknow Vs. the Commissioner of Income Tax, Central-I and another reported in (2008) 14 SCC 151.

Per contra, learned counsel for respondent Nos.1, 2 and 5 submits that the impugned order satisfies and fulfills the requirements under Section 281-B of the said Act of 1961 and consequently, the impugned order

6 does not warrant interference by this Court in the present petition.

I have given my anxious consideration to the rival submissions and perused the material on record.

In Radha Krishan’s case (supra), while dealing with the provisions contained in Section 83 of the Himachal Pradesh Goods and Services Taxation Act, who are in para materia to that of the said Act of 1961, the Apex Court held as under: “49. Now in this backdrop, it becomes necessary to emphasize that before the Commissioner can levy a provisional attachment, there must be a formation of “the opinion” and that it is necessary “so to do” for the purpose of protecting the interest of the government revenue. The power to levy a provisional attachment is draconian in nature. By the exercise of the power, a property belonging to the taxable person may be attached, including a bank account. The attachment is provisional and the statute has contemplated an attachment during the pendency of the proceedings under the stipulated statutory provisions noticed earlier. An attachment which is contemplated in Section 83 is, in other words, at a stage which is anterior to the finalization of an assessment or the raising of a demand.

7 Conscious as the legislature was of the draconian nature of the power and the serious consequences which emanate from the attachment of any property including a bank account of the taxable person, it conditioned the exercise of the power by employing specific statutory language which conditions the exercise of the power. The language of the statute indicates first, the necessity of the formation of opinion by the Commissioner; second, the formation of opinion before ordering a provisional attachment; third the existence of opinion that it is necessary so to do for the purpose of protecting the interest of the government revenue; fourth, the issuance of an order in writing for the attachment of any property of the taxable person; and fifth, the observance by the Commissioner of the provisions contained in the rules in regard to the manner of attachment. Each of these components of the statute are integral to a valid exercise of power. In other words, when the exercise of the power is challenged, the validity of its exercise will depend on a strict and punctilious observance of the statutory preconditions by the Commissioner. While conditioning the exercise of the power on the formation of an opinion by the Commissioner that “for the purpose of protecting the interest of the government revenue, it is necessary so to do”, it is evident that the statute has not left the formation of opinion to an unguided subjective discretion of the Commissioner. The formation of the opinion must bear a proximate and live nexus to the purpose of protecting the interest of the government revenue. 50. By utilizing the expression “it is necessary so to do” the legislature has evinced an intent that an attachment is authorized not merely because it is

8 expedient to do so (or profitable or practicable for the revenue to do so) but because it is necessary to do so in order to protect interest of the government revenue. Necessity postulates that the interest of the revenue can be protected only by a provisional attachment without which the interest of the revenue would stand defeated. Necessity in other words postulates a more stringent requirement than a mere expediency. A provisional attachment under Section 83 is contemplated during the pendency of certain proceedings, meaning thereby that a final demand or liability is yet to be crystallized. An anticipatory attachment of this nature must strictly conform to the requirements, both substantive and procedural, embodied in the statute and the rules. The exercise of unguided discretion cannot be permissible because it will leave citizens and their legitimate business activities to the peril of arbitrary power. Each of these ingredients must be strictly applied before a provisional attachment on the property of an assesses can be levied. The Commissioner must be alive to the fact that such provisions are not intended to authorize Commissioners to make preemptive strikes on the property of the assessee, merely because property is available for being attached. There must be a valid formation of the opinion that a provisional attachment is necessary for the purpose of protecting the interest of the government revenue. 51. These expressions in regard to both the purpose and necessity of provisional attachment implicate the doctrine of proportionality. Proportionality mandates the existence of a proximate or live link between the need for the attachment and the purpose which it is intended to

9 secure. It also postulates the maintenance of a proportion between the nature and extent of the attachment and the purpose which is sought to be served by ordering it. Moreover, the words embodied in sub-Section (1) of Section 83, as interpreted above, would leave no manner of doubt that while ordering a provisional attachment the Commissioner must in the formation of the opinion act on the basis of tangible material on the basis of which the formation of opinion is based in regard to the existence of the statutory requirement. While dealing with a similar provision contained in Section 45 of the Gujarat Value Added Tax Act 2003, one of us (Hon'ble Mr. Justice MR Shah) speaking for a Division Bench of the Gujarat High Court in Vishwanath Realtor v. State of Gujarat observed: “8.3. Section 45 of the VAT Act confers powers upon the Commissioner to pass the order of provisional attachment of any property belonging to the dealer during the pendency of any proceedings of assessment or reassessment of turnover escaping assessment. However, the order of provisional attachment can be passed by the Commissioner when the Commissioner is of the opinion that for the purpose of protecting the interest of the Government Revenue, it is necessary so to do. Therefore, before passing the order of provisional attachment, there must be an opinion formed by the Commissioner that for the purpose of protecting the interest of the Government Revenue during the pendency of any proceedings of assessment or reassessment, it is necessary to attach

10 provisionally any property belonging to the dealer. However, such satisfaction must be on some tangible material on objective facts with the Commissioner. In a given case, on the basis of the past conduct of the dealer and on the basis of some reliable information that the dealer is likely to defeat the claim of the Revenue in case any order is passed against the dealer under the VAT Act and/or the dealer is likely to sale his properties and/or sale and/or dispose of the properties and in case after the conclusion of the assessment/ reassessment proceedings, if there is any tax liability, the Revenue may not be in a position to recover the amount thereafter, in such a case only, however, on formation of subjective satisfaction/ opinion, the Commissioner may exercise the powers under Section 45 of the VAT Act.”

60.

Now, it is in this backdrop that we proceed to a determination of whether the petition under Article 226 was maintainable and if it was, whether Commissioner exercised the powers under Section 83 read with Rule 159 in accordance with law. 79. For the above reasons, we hold and conclude that: (i) The Joint Commissioner while ordering a provisional attachment under section 83 was acting as a delegate of the Commissioner in

11 pursuance of the delegation effected under Section 5(3) and an appeal against the order of provisional attachment was not available under Section 107 (1); (ii) The writ petition before the High Court under Article 226 of the Constitution challenging the order of provisional attachment was maintainable; (iii) The High Court has erred in dismissing the writ petition on the ground that it was not maintainable; (iv) The power to order a provisional attachment of the property of the taxable person including a bank account is draconian in nature and the conditions which are prescribed by the statute for a valid exercise of the power must be strictly fulfilled; (v) The exercise of the power for ordering a provisional attachment must be preceded by the formation of an opinion by the Commissioner that it is necessary so to do for the purpose of protecting the interest of the government revenue. Before ordering a provisional attachment the Commissioner must form an opinion on the basis of tangible material that the assessee is likely to defeat the demand, if any, and that therefore, it is necessary so to do for the purpose of protecting the interest of the government revenue. (vi) The expression “necessary so to do for protecting the government revenue” implicates that the interests of the government revenue cannot be

12 protected without ordering a provisional attachment; (vii) The formation of an opinion by the Commissioner under Section 83(1) must be based on tangible material bearing on the necessity of ordering a provisional attachment for the purpose of protecting the interest of the government revenue; (viii) In the facts of the present case, there was a clear non-application of mind by the Joint Commissioner to the provisions of Section 83, rendering the provisional attachment illegal; (ix) Under the provisions of Rule 159(5), the person whose property is attached is entitled to dual procedural safeguards: (a) An entitlement to submit objections on the ground that the property was or is not liable to attachment; and (b) An opportunity of being heard; There has been a breach of the mandatory requirement of Rule 159(5) and the Commissioner was clearly misconceived in law in coming into conclusion that he had a discretion on whether or not to grant an opportunity of being heard; (x) The Commissioner is duty bound to deal with the objections to the attachment by passing a reasoned order which must be communicated to the taxable person whose property is attached;

13 (xi) A final order having been passed under Section 74(9), the proceedings under Section 74 are no longer pending as a result of which the provisional attachment must come to an end; and (xii) The appellant having filed an appeal against the order under section 74(9), the provisions of sub- Sections 6 and 7 of Section 107 will come into operation in regard to the payment of the tax and stay on the recovery of the balance as stipulated in those provisions, pending the disposal of the appeal.

As held by the Apex Court in the aforesaid decision, mere apprehension on the part of the respondents that huge tax demands are likely to be raised on completion of assessment is not sufficient for the purpose of passing a provisional order of attachment. It has also been held that apart from the fact that a Writ Petition under Article 226 of the Constitution of India challenging the provisional attachment order was maintainable, having regard to the fact that the provisional attachment order of a property of a taxable person including the bank account of such person is draconian in nature and the conditions which are

14 prescribed by the statute for the valid exercise of power must be strictly fulfilled, the exercise of power for order of provisional attachment must necessarily be preceded by formation of an opinion by the authorities that it is necessary to do so for the purpose of protecting the interest of Government revenue. Before the order of provisional attachment, the Commissioner must form an opinion on the basis of the tangible material available for attachment that the assessee is not likely to fulfill the demand payment of tax and it is therefore necessary to do so for the purpose of protecting the interest of the Government revenue. In addition to the aforesaid mandatory requirements, before passing the provisional attachment order, it is also incumbent upon the authorities to come to a conclusion based on the tangible material that without attaching the provisional attachment, it is not possible in the facts of the given case to protect the revenue and that the provisional

15 attachment order is completely warranted for the purpose of protecting the Government revenue.

Applying the principles laid down in Radha Krishan’s case (supra) to the facts of the instant case, a perusal of the impugned provisional attachment order will clearly indicate that except for merely stating that since there is a likelihood of huge tax payments to be raised on completion of assessment and that for the purpose of protecting the revenue, it is necessary to provisionally attach the fixed deposit of the petitioners, the other mandatory requirements and pre-condition as laid down by the Apex Court have neither been complied with nor fulfilled or followed prior to passing the impugned order. It is apparent that the impugned provisional attachment orders at Annexures-D, D1, D2 and D3 do not satisfy the legal requirements as laid down in Radha Krishan’s case (supra) and consequently, in view of the fact that the impugned provisional orders are cryptic, unreasoned,

16 non-speaking and laconic, the same deserve to be quashed.

10.

In so far as the apprehension of the respondents that in the event huge tax payments are to be raised as against the petitioners-assessee, the assessee may not make payment of the same causing loss to the revenue is concerned, in the light of the undisputed fact that the proceedings under Section 153-A of the said Act of 1961 have already been initiated coupled with the fact that Section 281 of the said Act of 1961, contemplates that any alienation of any property belonging to the petitioners would be null and void, in addition to the specific assertion made by the petitioner that they own and possess immovable property to the tune of more than Rs.300 crores, the said apprehension of the respondents is clearly unfounded and without any basis and consequently the said apprehension of the respondents cannot be accepted.

17 11. In the result, I pass the following: ORDER i) The petition is allowed.

ii) The impugned orders dated 26.03.2021 at Annexures-D, D1, D2 and D3 passed by respondent No.1 are hereby quashed. iii) Liberty is reserved in favour of the respondents to take such action as against the petitioners in accordance with law bearing in mind the observations made in this order.

SD JUDGE BMC

M/S. INDIAN MINERALS AND GRANITE CO., vs. DEPUTY COMMISSIONER OF INCOME TAX