Case Note & Summary
The Petitioner, Milestone Real Estate Fund, a trust, challenged the provisional attachment order dated 18.12.2018 under Section 281B of the Income Tax Act, 1961, notices under Section 226(3) dated 19.12.2018 attaching its bank accounts, and orders dated 29.01.2019 and 14.02.2019 rejecting its application for stay of recovery under Section 220(6) of the Act, all relating to Assessment Year 2015-16. The assessment order was passed on 20.12.2018 raising a demand. The Petitioner had filed an appeal before the CIT(A) which was pending. The Petitioner contended that the provisional attachment was passed without recording reasons and without hearing, the garnishee notices were issued without prior notice, and the stay rejection orders ignored the CBDT Circular dated 29.02.2016 which mandates stay of recovery if the assessee deposits 15% of the disputed demand. The Respondents argued that the attachment was justified to protect revenue and that the stay rejection was discretionary. The High Court held that the provisional attachment under Section 281B requires recording of reasons and an opportunity of hearing, which were absent, and thus set aside the attachment order. The Court further held that the garnishee notices under Section 226(3) were issued without prior notice and in violation of natural justice, and set them aside. Regarding stay of recovery, the Court directed the Assessing Officer to consider the Petitioner's application for stay in light of the CBDT Circular dated 29.02.2016, and directed that if the Petitioner deposits 15% of the disputed demand within four weeks, the recovery of the balance shall be stayed pending disposal of the appeal by the CIT(A). The petition was disposed of accordingly.
Headnote
A) Income Tax - Provisional Attachment under Section 281B - Validity - The Assessing Officer must record reasons and provide an opportunity of hearing before passing an order of provisional attachment under Section 281B of the Income Tax Act, 1961 - The impugned order dated 18.12.2018 was set aside as it was passed without recording reasons and without hearing the assessee (Paras 8-10). B) Income Tax - Stay of Recovery Pending Appeal - CBDT Circular dated 29.02.2016 - The CBDT Circular mandates that where the assessee deposits 15% of the disputed demand, the Assessing Officer shall grant stay of recovery of the balance demand pending appeal before CIT(A) - The impugned orders rejecting stay under Section 220(6) were set aside as they did not consider the Circular (Paras 11-14). C) Income Tax - Garnishee Proceedings under Section 226(3) - Natural Justice - The notice under Section 226(3) attaching bank accounts was set aside as it was issued without prior notice and without affording an opportunity of hearing to the assessee (Paras 15-16).
Issue of Consideration
Whether the provisional attachment under Section 281B of the Income Tax Act, 1961 and the subsequent recovery proceedings under Sections 226(3) and 220(6) are valid in the absence of proper reasons and without considering the CBDT Circular dated 29.02.2016 regarding stay of demand pending appeal
Final Decision
The High Court allowed the petition in part. The provisional attachment order dated 18.12.2018 under Section 281B was set aside. The notices under Section 226(3) dated 19.12.2018 were set aside. The orders dated 29.01.2019 and 14.02.2019 rejecting stay under Section 220(6) were set aside. The Assessing Officer was directed to consider the Petitioner's application for stay afresh in light of the CBDT Circular dated 29.02.2016. The Petitioner was directed to deposit 15% of the disputed demand within four weeks, and upon such deposit, the recovery of the balance demand shall be stayed pending disposal of the appeal by the CIT(A).
Law Points
- Provisional attachment under Section 281B requires recording of reasons and opportunity of hearing
- CBDT Circular dated 29.02.2016 mandates stay of demand pending appeal if assessee deposits 15% of disputed demand
- Section 220(6) grants discretion to stay recovery pending appeal
- Section 226(3) garnishee proceedings require prior notice and compliance with natural justice
