Judgment:
A.M. Khanwilkar, J.
1. Rule. Rule returnable forthwith by consent.
Mr. A.S. Jaiswal, learned Counsel waives notice for respondents 1 to 4. Mr. Dastane waives notice for respondent No. 5. Respondent Nos. 6 and 7 though served have not chosen to appear. The said respondents have been arraigned as party-respondents in view of the allegations of mala fide qua them. However, during the course of arguments, on instructions, Counsel for the petitioner stated that the petitioner will not press the said ground of mala fide - if the petition was to be allowed on other grounds in favour of the petitioner. In fact, the ground of mala fide is required to be given up by the petitioner as respondents 6 and 7 have not been intimated about the order dated 21st February, 2008, on account of which, the matter has been posted today for final disposal. If the said ground was to be pressed by the petitioner, it would have become imperative for the petitioner to serve the respondents 6 and 7, with clear intimation that the matter would proceed for final disposal on the next date of hearing.
2. As aforesaid, the petitioner has essentially argued two aspects before us while questioning the validity of the order passed by respondent No. 2 dated 12th February, 2007 purported to be under Section 132 of the Income Tax Act, 1961 for carrying out search and seizure; and further direction issued by respondents 6 and 7 to the respondent No. 5 - Bank to issue bank draft in favour of the Department in the sum of Rs. 9 lakhs from the account of the petitioner which was attached in terms of order dated 14th February, 2007. The petitioner has further prayed for consequential relief of directing the respondents 3 and 4 to redeposit the amount of Rs. 9 lakhs along with interest @ 18 per cent per annum thereon, as the said conversion was without authority of law.
3. According to petitioner, in the first place, the fact-situation of the present case did not warrant action under Section 132 of the Income Tax Act, 1961. It is, then, contended that even if such action was justified, the respondents 6 and 7 had no business to issue direction to respondent No. 5-Bank to convert the amount of Rs. 9 lakhs in the form of demand draft drawn in favour of the Department much before the assessment order has been passed by the Competent Authority. To buttress the later contention, Counsel for the petitioner has pressed into service decision of Division Bench of our High Court in the case of Jagdish Prasad M. Joshi v. Deputy Commissioner of Income Tax reported in : [2005]273ITR296(Bom) . Reliance is also placed on the decision of the Division Bench of Patna High Court in the case of Santosh Verma v. Union of India 1991 (189) ITR 149. Lastly reliance is placed on the recent decision of the Apex Court in the case of K.C.C. Software Limited and Ors. v. Director of Income Tax (I and B) and Ors. reported in 2008 11 Scale 90.
4. Counsel for contesting respondents 1 to 4, on the other hand, defended the impugned action of the Department - both on the count of necessity and desirability of the said action and also because, in his submission, the officials of the Income Tax Department have had authority to convert the amount from the bank account of the petitioner which was attached in terms of order under Section 132 of the Act. For, the amount lying with the Bank in the account of the petitioner was in the nature of debtor creditor relationship between the Bank and the petitioner inter se. That amount was available for conversion and the direction so issued by officials of the Income Tax Department to the respondent No. 5 Bank which, in turn, have been executed by respondent No. 5 bank, merit no interference. Counsel for respondents has placed reliance on the decision in the case of Lan Eseda Steels Ltd. and Anr. v. Assistant Commissioner of Income Tax and Ors. reported in : [1994]209ITR901(AP) in particular at pages 911 and 921 onwards.
5. We shall presently deal with the later contention raised on behalf of the petitioner that will have to be accepted in the light of exposition of the Apex Court in the recent decision in the case of K.C.C. Software Limited (supra). In Para No. 11 of the said decision, the Apex Court has adverted to the stand of the appellant before it that the officials of Income Tax Department had no power for retaining any amount seized for the purpose of meeting estimated liability especially after deletion of Sub-section (5) of Section 132 of the Income Tax Act. That contention was refuted on behalf of the Department with reference to the provisions contained in Section 132 of the Income Tax Act as can be discerned from para No. 13 of the said judgment. The Apex Court, however, in the ultimate analysis, accepted the stand of the appellant before it that the officials of the Income Tax Department could not have legitimately converted the amount lying in the bank account which is conceptually different from the amount to be seized in the form of cash in hand.
6. That opinion can be discerned from para Nos. 16 and 19 of the self-same decision: Insofar as the decision of our High Court in the case of Jagdish Joshi (supra) is concerned, the Department's Counsel had conceded the position that there is no provision in the Income Tax Act auhorising the officials to encash the FDs or withdraw the cash from the bank account without the order of assessment. Similar observation is found in the decision of the Patna High Court in the case of Santosh Verma (supra) at Pages 552 and 553 of the report edj udgment.
We shall now revert to the decision in the case of Lan Eseda Steel Ltd. (supra) on which strong reliance was placed by the Counsel for respondents. This decision, in the first place, is not an authority on the question that needs to be addressed in the present case. Inasmuch as, the question that arises for our consideration is whether the official of the Income Tax Department had authority in law to direct conversion of any amount partly or wholly from and out of the attached Bank account of the assessee even before the order of assessment has been passed in exercise of powers under Section 132 of the Act.
7. In view of the observations of the two decisions of the High Courts referred to earlier and more particularly that of the Apex Court which, in our opinion, is directly on the point, the stand taken on behalf of the petitioner in this behalf will have to be accepted.
As a necessary corollary, the Department will be obliged to bring back the amount appropriated in the form of demand draft in the sum of Rs. 9 lakhs from the attached bank account of the petitioner to be deposited in the same Savings Account of the petitioner.
8. Learned Counsel for respondents has, however, invited our attention to the operative order passed by the Apex Court in the case of K.C.C. Software (supra), more particularly Clause (ii) of Para No. 19 of the said judgment. In that case, the Apex Court directed that the amount converted by the Department to be transferred in interest bearing fixed deposit i.e. P D account so that no prejudice would be caused to any of the parties. We are inclined to accept this suggestion given on behalf of the respondents.
That takes us to the first contention canvassed before us that the respondents in the fact-situation of the present case, could not have invoked powers under Section 132 of the Act. That being subjective satisfaction of the authority. It is not open for the Court to interfere with that opinion merely because some other view was also possible.
9. In any case, we are not examining this contention in detail for the simple reason that we are inclined to direct the authority to pass assessment order not later than three months from today which direction will mitigate all the apprehensions and grievances of the petitioner. In the event, the assessment order is adverse to the petitioner, obviously the amount which will remain invested in interest bearing fixed deposit will be adjusted on the basis of such assessment order, subject, however, to any other order to be passed by the competent Court or Authority.
10. Accordingly, we proceed to pass the following order :
We partly allow this Writ Petition to the extent of impugned action of the Department of converting the attached bank account of the petitioner to the extent of Rs. 9 lakhs. The Department shall transfer the said amount in interest bearing fixed deposit forthwith. The Department would be liable to repay the said amount to the petitioner, subject to the assessment order to be passed. In the event, the liability of the petitioner is less than the amount of Rs. 9 lakhs, to that extent, the Department will be obliged to compensate the petitioner by paying appropriate specified interest as per the Act (i.e. 12% per annum) with effect from 14th February, 2007 till the amount is realised by the petitioner.
11. It is made clear that this decision is not an expression of opinion either way on the merits of the assessment proceedings pending before the Competent Authority. All questions raised in the said proceedings be decided on its own merit and in accordance with law. As aforesaid, the Income Tax Officer shall pass assessment order within three months from today. The Counsel appearing for respondents assures that he will inform the concerned Income Tax Officer to ensure compliance of this direction.