Continuation of Provisional Attachment in Income Tax Proceedings: Gujarat HC quashes unjust exercise of S.281(B) [Read Order]

The Gujarat High Court has recently set aside the unjust exercise of power by the Principal Commissioner of Income Tax under Section 281(B) of the Income Tax Act, 1961 in the income tax proceedings against F C Manufacturing (India) Pvt Ltd. The High Court also pointed out that the attachment of bank guarantee would suffice in the present matter.

The attachment of about Ten Crore Ninety-Seven Lakh Rupees under Section 132(9B) of the Income Tax was challenged by the applicant in a Special Civil Application.

The petitioner also challenged the continuing attachment of its Bank Account maintained with DBS Bank Section 132(9B) of the income Tax Act and on expiry of six months of the operation of the said order, under an order dated 13.05.2022 passed by the Principal Commissioner of Income Tax under Section 281(B) of the Income Tax Act.

On 16.06.2022 the bank account of DBS Bank was released after the amount was converted to Fixed Deposit and the balance fund as on 18.11.2021 remained under attachment under Section 281(B).

Uday Shankar submitted on behalf of the department that, during the search, it was found that these entities were involved in various methods of tax evasion like unaccounted cash sales, purchase through shell companies, diversion of funds to tax havens etc. The premises of the petitioner – M/s. FCS Manufacturing (India) Pvt. Ltd. was also covered under the search and seizure action.

He also contended that the requirement of provisional attachment was because of the search/survey proceedings at the premises of the petitioner and on seizure of certain documents as well as data back-ups.

The department representative further submitted that, interests of the revenue is to be protected by way of attachment under Section 281(B) of the Income Tax Act.

The Division bench of Justice Sonia Gokani and Justice Mauna M Bhatt observed that, “we can surely say that the assessing officer, for the purpose of protecting interest of the Revenue, in the instant case, with the prior approval of the higher authority has passed an order in writing recording the reasons and provisionally attaching the property belonging to the assessee.”

However, it was clarified by the Court that, “continuation of provisional attachment is not necessary and even otherwise, the interest of the Revenue can be safeguarded by directing a particular amount to be furnished by way of a bank guarantee to the authority concerned, that would sub-serve the purpose.”

Owing to the observations as above, the Gujarat High Court set aside the attachment subject to the condition that an undertaking be filed by the Indian Director along with the Taiwan Directors that in the eventuality if the assessment is more than the amount which is permitted to be provisionally attached, they shall fulfill the obligations even from their own personal funds.

The attachment shall be released in a week’s time after the filing of the undertaking, the Court further directed.

To Read the full text of the Order CLICK HERE

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