Seshasayee Paper and Boards Ltd. vs The Commissioner of Income Tax, (Central II), The Deputy Commissioner of Income Tax and The Assistant Commissioner of Income Tax

P.K. Misra, J.—Heard Mr. R. Ramachandran, learned Senior Counsel, for the petitioner and Mrs. Pushya Sitaraman for the respondents.

The petitioner has prayed for quashing the order bearing No. G.I. No. 4-S/95-96 & 96-97 dated 27.11.2002, issued u/s 281B of the Income

Tax Act, 1961 by the second respondent i.e., The Deputy Commissioner of Income Tax, Central Circle II (1), Chennai.

The petitioner is a Public Limited Company, registered under the Companies Act, engaged in the business of manufacture of paper and leasing

of equipment. For the financial year 1994-1995 (Assessment year 1995-1996), the petitioner company had filed its return u/s 139 of the Income

Tax Act on 22.11.1995 and for the subsequent financial year 1995-1996 (Assessment Year 1996-1997), it had filed return on 28.11.1996. The

Department initiated proceedings u/s 132 of the Act and the Assessing Officer had passed an order u/s 158(B)(C) of the Act. The said order was

appealed before the Income Tax Appellate Tribunal. In the meantime, the question of refund to the petitioner company arose for the various

regular assessment years and the said refunds along with interest were adjusted towards the alleged dues of Block Assessment by the Department.

The Block Assessment order was subsequently quashed by the Income Tax Appellate Tribunal on 18.02.2002. The Assessing Officer, thereafter,

issued notices for the assessment years 1995-1996 and 1996-1997 u/s 148 of the Income Tax Act, requiring the petitioner company to deliver its

returns for the aforesaid years on the footing that he had reason to believe that income had escaped assessment. Subsequently, those notices have

been challenged and the Writ Petition filed by the petitioner is pending. Thereafter, the Assessing Officer, on 31.05.2002, passed an order u/s

281B of the Act, provisionally attaching the refund amount due to the petitioner. As per the provisions contained in Section 281(B)(2), such

provisional attachment was to cease to have effect after the expiry of a period of six months from the date of order. While the matter stood thus, a

further order dated 27.11.2002 was issued by the Deputy Commissioner of Income Tax, Central Circle-II (1), Chennai, which is to the following

effect :

WHEREAS in your case the Income Tax proceedings for the Asst. year 1995-96 & 96-97 are pending and the liabilities for Income tax including

Interest, Penalties etc., for the above assessment years is likely to exceed Rs.19 crores and ;

WHEREAS I am of the opinion that for the purpose of protecting the interest of revenue, it is necessary to attach provisionally the refund due to

you in the Block assessment to the extent of Rs.9,35,53,885/-. (Total refund Rs.11,18,82,613- demand due for 95-96 & 96-97 consequent on

revision of assets giving effect to the order U/s. 263 amounting to Rs.1,83,28,728/-)

WHEREAS the Commissioner of Income tax, Central-II, Chennai by order in C. No. 1772/3/02-03 C-II Dt.25.11.2002 has approved the

provisional attachment u/s 281-B of the I.T.Act,1961.

Under the powers vested in me u/s 281B of the Income Tax Act, 1961, I hereby attach provisionally the above mentioned refund due to you for

the Block assessment. This order is in force for a period of six months from the date of this order.

This order is being challenged by the petitioner. It is contended by the learned counsel for the petitioner that the power to pass such an order is

conferred only on the Chief Commissioner, Commissioner, Director General or Director and not on the Deputy Commissioner and moreover, such

an order can be passed for reasons to be recorded in writing.

Section 281B is extracted as under :

(1) Where, during the pendency of any proceeding for the assessment of any income or for the assessment or reassessment of any income which

has escaped assessment, the Assessing Officer is of the opinion that for the purpose of protecting the interests of the revenue it is necessary so to

do, he may, with the previous approval of the Chief Commissioner, Commissioner, Director General or Director, by order in writing, attach

provisionally any property belonging to the assessee in the manner provided in the Second Schedule.

(Explanation - For the purposes of this sub-section, proceedings under sub-section (5) of Section 132 shall be deemed to be proceedings for the

assessment of any income or for the assessment or reassessment of any income which has escaped assessment.)

(2) Every such provisional attachment shall cease to have effect after the expiry of a period of six months from the date of the order made under

sub-section (1):

Provided that the Chief Commissioner, Commissioner, Director General or Director may, for reasons to be recorded in writing, extend the

aforesaid period by such further period or periods as he thinks fit, so, however, that the total period of extension shall not in any case exceed two

years:

Provided further that where an application for settlement u/s 245C is made, the period commencing from the date on which such application is

made and ending with the date on which an order under sub-section (1) of section 245D is made shall be excluded from the period specified in the

preceding proviso.

There is no dispute that the initial order was u/s 281(B)(1) and as per the provision contained in sub-section (2), such an order would have

effect only for a period of six months from the date of the order. Proviso to Section 281(B)(2) makes it clear that the provisional order of

attachment can be extended by Chief Commissioner, Commissioner, Director General or Director. However, reasons must be recorded in writing

before such a provisional order is extended.

In the present case, the specific assertion of the petitioner is to the effect that no reasons have been recorded by the authority concerned.

To verify the aforesaid assertion, learned counsel for the respondents was called upon to produce the file. The file shows an endorsement to the

following effect:

Approval is accorded for extension of the attachment u.s. 281B for a further period of six months.

Even assuming that such an endorsement is an order by the Commissioner of Income Tax, the fact remains that no reasons have been recorded.

Section 281(B)(2) proviso makes it clear that an order for extension of attachment u/s 281(B)(1) can be made only for reasons to be recorded in

writing. In the absence of reasons being recorded by the Commissioner of Income Tax, such an order, contained in the file, must be taken to be

illegal and without jurisdiction. Subsequent communication, containing the so called reasons, has been given by the Deputy Commissioner of

Income Tax. There is no dispute that the Deputy Commissioner of Income Tax is not the person authorized u/s 281(B)(2) proviso.

In aforesaid view of the matter, the order relating to extension of provisional attachment must be taken to be illegal and non-est. As matter of

fact, similar view has been taken by a Division Bench of the Gujarat High Court in 118 ITR 85.

For the aforesaid reasons, the order impugned is quashed and the Writ Petition is allowed. No costs. Consequently, the connected W.P.M.P.

is closed.