Whether when assessee is under investigation, Revenue is legally right in collecting cheque payments towards future tax demand in order to protect its own interest - NO: HC

THE issue before the Bench is - Whether when the assessee is under investigation, Revenue is legally right in collecting cheque payments towards future tax demand in order to protect its own interest. NO is the verdict.

Facts of the case

The assessee is a trading company. The assessee filed the present petition on the ground that the Revenue without passing any assessment order and ordering a definite tax demand, had

recovered three cheques totaling to Rs.3,08,50,688 from the assessee. The Counsel of the assessee urged the court to direct the Revenue to return the said cheques to the assessee. Whereas the Counsel of the Revenue submitted that the adjudication proceedings were already initiated and show-cause notices were also issued, thus to protect the interest of the Revenue, it had found on investigation that the assessees would be liable to pay the amount of Rs.3,08,50,688/- including the penalty. Therefore, in the larger public interest, the cheques were recovered. However, there was no final assessment order or provisional assessment order passed.

The HC held that,

++ it is required to be noted that the Department has recovered the cheques totaling to Rs.3,08,50,688/- from the assessees towards the future tax demand and/or liability of the assessees. However, it is required to be noted that as such the assessment proceedings are not completed and neither any provisional assessment order nor final assessment order has been passed against the assessee crystallizing the tax demand. The identical question came to be considered by the Division Bench of this Court and the Division Bench vide order dated 14.2.2014 passed in SCA No.959/2014, has quashed and set aside the action on the part of the Department collecting the cheques from the assessees without passing any final assessment order either provisional and/or final assessment order crystallizing the tax demand;

++ in view of the reasons stated above, the present petition succeeds in part and the action of the Department in collecting the cheques totalling to Rs.3,08,50,688/-, as mentioned in para-32(B) of the petition, without passing any final assessment order and/or without passing any provisional assessment order and without crystallizing the tax demand, is hereby quashed and set aside and the Department is hereby directed to return the aforesaid cheques to the assessees, forthwith. As the adjudication proceedings are already initiated, the same may be concluded in accordance with law and on merits. It will also be open for the Department to pass provisional assessment order, if permissible under the law. The amount of Rs.10 lacs deposited by the assessees pursuant to the interim order passed by this Court, the Registry is directed to return the same to the assessees by way of A/c payee cheque, without prejudice to the rights of the department of the final assessment and/or provisional assessment