The Kerala High Court in its recent judgement related to income tax department’s attachment order, permitted to withdraw 20% of the pending demand. It was held that it will always be open to the Authorities to pass fresh orders under Section 179 of the Act, if circumstances for exercise of jurisdiction under Section 179 of the Income Tax Act subsists in future.
The Petitioner was represented by Adv Aswin Gopakumar. The respondent was represented by Advs. Sri.Navaneeth.N.Nath and Smt.Susie B Varghese.
Noble John and Annie Noble, the petitioners filed the writ petition challenging order attaching certain bank accounts of the petitioners, who are stated to be Directors of a Private Limited Company named Covenant Stones Private Limited (the Company). The 1st petitioner owns 99.73% of the shares of the Company, while the 2nd petitioner (his wife) owns 0.22% and their son (not a party to the writ petition) owns 0.05% of the shares of the Company.
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Assessment of the Company was completed for the period from 2014-15 to 2019-20 resulting in a demand for a sum of Rs.32,10,37,345/-. The Company filed appeals before the 1st Appellate Authority and approached the Court by filing W.P(C) which was disposed of on 21.12.2022 directing the Appellate Authority to consider and pass orders on the stay petitions filed in the statutory appeals and further directing that recovery proceedings shall remain suspended till orders are passed on the stay petitions.
The Appellate Authority vide order directed a stay of further recovery on payment of 20% of the total tax demand. In the order the appellant is directed to pay 20% of the total tax demand raised vide assessment orders for the AYs. 2014-15, 2015-16, 2016-17, 2017-18, 2018-19 and 2019-20 in seven equal monthly instalments on or before 25th March 2024.
It was directed that the instalments have to be paid on or before the 25th of every month and the first instalment has to be paid on or before 25th September 2023. Subject to the above mentioned payment schedule and on the condition that the appellant cooperates with the appellate proceedings and remand proceedings, if any, the balance demand of the appellant is kept in abeyance till 31/03/2024 or disposal of appeal whichever is earlier.
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The Company challenged the order before the Court and got dismissed. It was direcetd that “The petitioner was granted time to pay the first instalment on or before 25.09.2023, the said time is extended to 30.12.2023 and the last and final installment has to be paid on or before 30.06.2024. Needless to say that the observation made herein will not prejudice the appellate authority to consider the case of the petitioner on merit. ”
The Company carried the matter in appeal before a Division Bench of the Court through W.A.No.661 of 2024, where the specific contention taken was that the Company is in dire financial straits and hence the direction to pay 20% of the demand pending disposal of the appeal would cause great prejudice to the Company. It was also pointed out that the conditional stay order issued by the 1st Appellate Authority did not disclose any reasons as to why 20% of the demand should be paid as a condition for stay. The Division Bench disposed of the Writ Appeal by granting some time to discharge the liability of 20% of the total tax demand for the various assessment years as directed by the 1st respondent in order that was impugned in the writ petition.
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However despite the directions issued by the Division Bench, the Company failed to pay even a single penny towards the amount imposed as a condition for stay by the 1st Appellate Authority. An Attaching order was issued, in terms of the provisions contained in Section 179 of the Act, treating the Directors also as liable for the demands raised against the Company.
It was argued that the conditions precedent for invoking the jurisdiction under section 179 of the Act are not satisfied in this case. The history leading to the incorporation of the Company and subsequent events are pointed out to establish that the petitioners are innocent investors, who were duped of their lifetime savings by one of their close relatives, leading to the imposition of huge liability [including from banks, financial institutions, Department of Mining and Geology and the National Green Tribunal].
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The single bench of Justice Gopinath P disposed of the writ petition permitting the Income Tax Department to withdraw from the bank accounts of the Company/petitioners a total sum of Rs.6,42,07,469/- (Rupees Six Crores Forty two lakhs seven thousand four hundred and sixty nine only) towards 20% of the amount directed to be paid as a condition for stay by the First Appellate Authority in Ext.P3 order;
Further held that it will always be open to the Authorities to pass fresh orders under Section 179 of the Act, if circumstances for exercise of jurisdiction under Section 179 of the Act subsists in future. Any attachment over the bank accounts will also be lifted on receipt of the sum of Rs.6,42,07,469/- (Rupees Six Crores Forty two lakhs seven thousand four hundred and sixty nine only), as directed above.
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