Your bank account was attached while the stay application was still pending. Was that lawful?
On this reasoning, no. Section 226(3)(iii) uses 'shall', so notice to you before attachment is mandatory, and where a stay application is on file with an appeal pending the officer should decide it before attaching.
Decided by the High Court (Calcutta High Court - Soumitra Pal, J. (single judge)) on 2010-06-11, reported as (2010) 329 ITR 278 (Calcutta) / [2011] 198 Taxman 54 (Calcutta) (Mag.); W.P. No. 3801 (W) of 2010. It bears on section 226(3), section 226(3)(iii), section 220(6), section 143(3), section 246A of the Income Tax Act 1961, in Demand, Recovery & Stay matters.
A garnishee notice to your bank is the point at which a tax dispute becomes an immediate cash problem. The two protections here — notice to you, and disposal of the pending stay application first — are what stand between a disputed demand and an emptied account.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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For assessment year 2007-08 the petitioner's return was scrutinised and an assessment order under s.143(3) was passed on 24 December 2009. She appealed to the Commissioner (Appeals) on 22 January 2010 and filed a stay application under s.220(6) on 11 February 2010. On 10 February 2010 the Assistant Commissioner had already issued four attachment notices under s.226(3) to branches of the Indian Overseas Bank, Syndicate Bank, Bank of India and Central Bank of India. On 12 February 2010 the Indian Overseas Bank debited Rs. 1,66,000 from current account No. 659 of P.D. Enterprises - a partnership firm in which the petitioner is a partner, joined as pro forma respondent - and paid it to the department. Copies of the s.226(3) notices reached the petitioner only on 15 February 2010, after the debit. The attachment notices were withdrawn by an order of 17 March 2010, given effect by the bank on 22 March 2010.
The writ petition was allowed. The debit of Rs. 1,66,000 could not be sustained and was set aside and quashed, and the Assistant Commissioner was directed to credit that sum back to the firm's account with the bank within a fortnight of the certified copy being furnished (para 11). Costs of Rs. 1,700 were awarded against the officer (para 13). Two grounds were given. First, s.226(3)(iii) provides that a copy of the notice 'shall be forwarded to the assessee', and the use of 'shall' means the notice must be served before action is taken; the revenue's argument that actual service was unnecessary was rejected (para 9). Second, once the officer knew an appeal had been filed and a stay application made, he ought to have disposed of the stay application before proceeding with the attachment notices; on the record he had not exercised his s.220(6) discretion judiciously and there was total non-application of mind (para 10). The Court also recorded a third finding: the revenue had said the attachments were withdrawn pursuant to orders of the Court, but on perusing the orders of 25 February, 7 March, 9 April and 11 May 2010 the Court found no such order, held the officer had withdrawn them suo motu, and observed that the notices had been withdrawn without any cause (para 11).
On the first limb the Court read the mandatory language of s.226(3)(iii) - 'A copy of the notice shall be forwarded to the assessee at his last address known to the Assessing Officer' - as requiring service before action is taken, reasoning that if the revenue does not take the mode the Act postulates it is bound to take the assessee off guard (para 9). On the second limb it set out the s.220(6) scheme: where an appeal under s.246 or s.246A is pending, the Assessing Officer has a discretion, subject to such conditions as he thinks fit, to treat the assessee as not being in default in respect of the amount in dispute for as long as the appeal is pending, even though the time for payment has expired. Once the pendency of the appeal was made known to him on 11 February 2010, it was incumbent on him to dispose of the stay application before proceeding further; and having chosen to exercise his discretion he had to proceed judiciously, which on this record he did not (para 10).
the use of the word "shall" in section 226(3)(iii) mandates that such notice has to be served before action is taken. If recourse is not taken by the Revenue to the mode postulated under the Act it is bound to take the assessee off guard. Precisely for that reason service of notice prior to attachment is mandatory as evident from the language of section 226(3)(iii).
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Handle my notice → Ask a CA on WhatsAppOn this reasoning, no. Section 226(3)(iii) uses 'shall', so notice to you before attachment is mandatory, and where a stay application is on file with an appeal pending the officer should decide it before attaching. This was decided by the High Court (Calcutta High Court - Soumitra Pal, J. (single judge)) and bears on section 226(3), section 226(3)(iii), section 220(6), section 143(3), section 246A of the Income Tax Act 1961. It is reported as (2010) 329 ITR 278 (Calcutta) / [2011] 198 Taxman 54 (Calcutta) (Mag.); W.P. No. 3801 (W) of 2010. A garnishee notice to your bank is the point at which a tax dispute becomes an immediate cash problem. The two protections here — notice to you, and disposal of the pending stay application first — are what stand between a disputed demand and an emptied account. If it applies to you, the first step is this: File the stay application under s.220(6) at the same time as the appeal, not later — the protection depends on it being on file.
For assessment year 2007-08 the petitioner's return was scrutinised and an assessment order under s.143(3) was passed on 24 December 2009. She appealed to the Commissioner (Appeals) on 22 January 2010 and filed a stay application under s.220(6) on 11 February 2010. On 10 February 2010 the Assistant Commissioner had already issued four attachment notices under s.226(3) to branches of the Indian Overseas Bank, Syndicate Bank, Bank of India and Central Bank of India. On 12 February 2010 the Indian Overseas Bank debited Rs. 1,66,000 from current account No. 659 of P.D. Enterprises - a partnership firm in which the petitioner is a partner, joined as pro forma respondent - and paid it to the department. Copies of the s.226(3) notices reached the petitioner only on 15 February 2010, after the debit. The attachment notices were withdrawn by an order of 17 March 2010, given effect by the bank on 22 March 2010. The matter was decided on 2010-06-11 by the High Court (Calcutta High Court - Soumitra Pal, J. (single judge)). On those facts the High Court held as follows. The writ petition was allowed. The debit of Rs. 1,66,000 could not be sustained and was set aside and quashed, and the Assistant Commissioner was directed to credit that sum back to the firm's account with the bank within a fortnight of the certified copy being furnished (para 11). Costs of Rs. 1,700 were awarded against the officer (para 13). Two grounds were given. First, s.226(3)(iii) provides that a copy of the notice 'shall be forwarded to the assessee', and the use of 'shall' means the notice must be served before action is taken; the revenue's argument that actual service was unnecessary was rejected (para 9). Second, once the officer knew an appeal had been filed and a stay application made, he ought to have disposed of the stay application before proceeding with the attachment notices; on the record he had not exercised his s.220(6) discretion judiciously and there was total non-application of mind (para 10). The Court also recorded a third finding: the revenue had said the attachments were withdrawn pursuant to orders of the Court, but on perusing the orders of 25 February, 7 March, 9 April and 11 May 2010 the Court found no such order, held the officer had withdrawn them suo motu, and observed that the notices had been withdrawn without any cause (para 11).
On the first limb the Court read the mandatory language of s.226(3)(iii) - 'A copy of the notice shall be forwarded to the assessee at his last address known to the Assessing Officer' - as requiring service before action is taken, reasoning that if the revenue does not take the mode the Act postulates it is bound to take the assessee off guard (para 9). On the second limb it set out the s.220(6) scheme: where an appeal under s.246 or s.246A is pending, the Assessing Officer has a discretion, subject to such conditions as he thinks fit, to treat the assessee as not being in default in respect of the amount in dispute for as long as the appeal is pending, even though the time for payment has expired. Once the pendency of the appeal was made known to him on 11 February 2010, it was incumbent on him to dispose of the stay application before proceeding further; and having chosen to exercise his discretion he had to proceed judiciously, which on this record he did not (para 10). In the words reproduced by the source cited on this page: "the use of the word "shall" in section 226(3)(iii) mandates that such notice has to be served before action is taken. If recourse is not taken by the Revenue to the mode postulated under the Act it is bound to take the assessee off guard. Precisely for that reason service of notice prior to attachment is mandatory as evident from the language of section 226(3)(iii)."
It was decided by the High Court on 2010-06-11 and is reported as (2010) 329 ITR 278 (Calcutta) / [2011] 198 Taxman 54 (Calcutta) (Mag.); W.P. No. 3801 (W) of 2010. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 226(3), section 226(3)(iii), section 220(6), section 143(3), section 246A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The writ petition was allowed. The debit of Rs. 1,66,000 could not be sustained and was set aside and quashed, and the Assistant Commissioner was directed to credit that sum back to the firm's account with the bank within a fortnight of the certified copy being furnished (para 11). Costs of Rs. 1,700 were awarded against the officer (para 13). Two grounds were given. First, s.226(3)(iii) provides that a copy of the notice 'shall be forwarded to the assessee', and the use of 'shall' means the notice must be served before action is taken; the revenue's argument that actual service was unnecessary was rejected (para 9). Second, once the officer knew an appeal had been filed and a stay application made, he ought to have disposed of the stay application before proceeding with the attachment notices; on the record he had not exercised his s.220(6) discretion judiciously and there was total non-application of mind (para 10). The Court also recorded a third finding: the revenue had said the attachments were withdrawn pursuant to orders of the Court, but on perusing the orders of 25 February, 7 March, 9 April and 11 May 2010 the Court found no such order, held the officer had withdrawn them suo motu, and observed that the notices had been withdrawn without any cause (para 11). It arises in Demand, Recovery & Stay matters, on section 226(3), section 226(3)(iii), section 220(6), section 143(3), section 246A of the Income Tax Act 1961, and was decided by Calcutta High Court - Soumitra Pal, J. (single judge). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If an attachment happens, note whether you received any notice, and when, relative to the bank's debit. Read the editor's note: there is contrary High Court authority, so check the position in your own jurisdiction first.
Validity check could not be completed. No later decision applying, following or affirming this judgment was read. The full report carries no citator entry, and nothing recording an appeal, a stay or a reversal appears either. The decision rests on two independent grounds, and the second - that a pending stay application under s.220(6) must be disposed of before coercive garnishee recovery, and that the discretion must be exercised judiciously - is the sturdier of the two and does not depend on the contested reading of s.226(3)(iii). The reported Delhi High Court view said to hold that the s.226(3)(iii) copy need not precede or accompany the garnishee notice to the bank could not be located in a subscription database and remains unverified; treat the conflict as reported rather than established. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Cite this as W.P. No. 3801 (W) of 2010, Calcutta High Court, Soumitra Pal, J., decided 11 June 2010, reported at (2010) 329 ITR 278 / [2011] 198 Taxman 54 (Cal) (Mag.). Two points of precision. The money was not taken without any notice at all: the four s.226(3) notices were issued to the banks on 10 February 2010, the debit was made on 12 February, and copies reached the assessee on 15 February - the vice was that service followed the recovery instead of preceding it. And the sum attached came from the current account of a partnership firm in which the petitioner was a partner, which is why the refund was directed to be credited to the firm's account. The decision has two independent limbs; the second - that a stay application under s.220(6) which discloses a pending appeal must be disposed of before coercive garnishee recovery, and that the discretion must be exercised judiciously - stands on its own and is the safer ground where the first is contested. The Court also recorded that the department's explanation that it withdrew the attachments in compliance with orders of the Court was not borne out by the record (para 11). The judgment does not state the quantum of the demand for assessment year 2007-08 or the outcome of the appeal before the Commissioner (Appeals). This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The writ petition was allowed. The debit of Rs. 1,66,000 could not be sustained and was set aside and quashed, and the Assistant Commissioner was directed to credit that sum back to the firm's account with the bank within a fortnight of the certified copy being furnished (para 11). Costs of Rs. 1,700 were awarded against the officer (para 13). Two grounds were given. First, s.226(3)(iii) provides that a copy of the notice 'shall be forwarded to the assessee', and the use of 'shall' means the notice must be served before action is taken; the revenue's argument that actual service was unnecessary was rejected (para 9). Second, once the officer knew an appeal had been filed and a stay application made, he ought to have disposed of the stay application before proceeding with the attachment notices; on the record he had not exercised his s.220(6) discretion judiciously and there was total non-application of mind (para 10). The Court also recorded a third finding: the revenue had said the attachments were withdrawn pursuant to orders of the Court, but on perusing the orders of 25 February, 7 March, 9 April and 11 May 2010 the Court found no such order, held the officer had withdrawn them suo motu, and observed that the notices had been withdrawn without any cause (para 11).
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