Case Note & Summary
The petitioner, Milestone Real Estate Fund, a real estate fund, challenged the provisional attachment of its assets under Section 281B of the Income Tax Act, 1961, and the rejection of its application for stay of demand under Section 220(6) of the Act, for Assessment Year 2016-17. The Assessing Officer had passed an assessment order on 20.12.2018 raising a demand, and simultaneously issued a provisional attachment order on 18.12.2018 attaching the petitioner's bank accounts, followed by notices under Section 226(3) to the banks. The petitioner's objections to the draft assessment order were not disposed of before passing the final assessment order. The petitioner filed applications for stay of demand, which were rejected by the Assessing Officer on 29.01.2019 and by the Pr. CIT on 14.02.2019. The High Court held that the provisional attachment order was passed without recording reasons and without affording any hearing, violating principles of natural justice. The Court also held that the rejection of stay was contrary to the CBDT Circular dated 29.02.2016, which mandates stay of demand if the assessment order is passed without disposing of objections. The Court set aside the attachment order, the rejection of stay, and the assessment order, directing the Assessing Officer to dispose of the petitioner's objections afresh and then proceed in accordance with law. The Court also directed restoration of the status quo ante regarding the bank accounts.
Headnote
A) Income Tax - Provisional Attachment - Section 281B - Natural Justice - The Assessing Officer passed an order of provisional attachment under Section 281B of the Income Tax Act, 1961 without recording reasons and without affording prior hearing to the assessee. The Court held that such attachment is arbitrary and violative of principles of natural justice, and set aside the attachment order. (Paras 2-10) B) Income Tax - Stay of Demand - Section 220(6) - CBDT Circular - The Assessing Officer and Pr. CIT rejected the petitioner's application for stay of demand under Section 220(6) of the Act, despite the assessment order being passed without disposing of the petitioner's objections. The Court held that in view of CBDT Circular dated 29.02.2016, the demand ought to have been stayed pending appeal, and set aside the rejection orders. (Paras 11-15) C) Income Tax - Assessment Order - Objections - Natural Justice - The assessment order dated 20.12.2018 was passed without considering the petitioner's objections to the draft assessment order. The Court held that this vitiates the assessment proceedings and directed the Assessing Officer to dispose of the objections afresh before proceeding further. (Paras 16-20)
Issue of Consideration
Whether the provisional attachment under Section 281B of the Income Tax Act, 1961 and the rejection of stay under Section 220(6) of the Act are valid when the assessment order was passed without disposing of the petitioner's objections and without prior hearing.
Final Decision
The Court allowed the petition. 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 rejecting stay dated 29.01.2019 and 14.02.2019 were set aside. The assessment order dated 20.12.2018 was set aside. The Assessing Officer was directed to dispose of the petitioner's objections afresh and then proceed in accordance with law. The bank accounts were directed to be restored to status quo ante.
Law Points
- Provisional attachment under Section 281B requires recording of reasons and prior hearing
- Section 220(6) stay must be granted pending appeal if demand is disputed
- CBDT Circular dated 29.02.2016 mandates stay of demand if assessment order is passed without disposing of objections
- Natural justice principles apply to attachment orders
