High Court Orders Lifting of Bank Attachment Conditional on 20% Pre-Deposit; Directs Appellate Authority to Expedite Decision on Pending Appeal Against Rectification Rejection

High Court Orders Lifting of Bank Attachment Conditional on 20% Pre-Deposit; Directs Appellate Authority to Expedite Decision on Pending Appeal Against Rectification Rejection

ISSUE

1. Whether a Writ Petition is maintainable when the assessee approaches the Court only after recovery proceedings (bank attachment) have been initiated, despite having a pending statutory appeal.

2. Whether the attachment of a bank account can be lifted to allow the business to function pending the disposal of the appeal.

FACTS

• The Demand: An assessment order was passed confirming interest liability for the belated payment of tax.

• The Rectification: The assessee filed an application for rectification of mistake under Section 161, seeking a re-credit of excess Input Tax Credit (ITC) that they had voluntarily reversed.

• The Rejection: The authority rejected the rectification application on the ground that the assessee had not filed any document to substantiate the claim for re-credit.

• The Appeal: The assessee filed an appeal against this rejection order. The appeal was acknowledged but remained undecided.

• The Coercion: Meanwhile, the Department initiated recovery proceedings and attached the assessee’s bank account.

• The Writ: The assessee filed the instant writ petition challenging the recovery and seeking relief.

HELD

• Writ Jurisdiction: The High Court noted that the assessee approached the Court only after the initiation of recovery proceedings. Ordinarily, such a petition is liable to be dismissed as the assessee should have pursued the statutory appeal earlier.

• Conditional Relief: However, recognizing the hardship caused by the bank attachment, the Court granted equitable relief:

  • The assessee was directed to deposit 20% of the disputed amount in cash within one month.

  • Upon such deposit, the attachment of the assessee’s bank account shall stand lifted/vacated.

• Direction to Authority: The Appellate Authority was directed to proceed to pass a final order in the pending appeal on its merits.

• Verdict: [In Favour of Assessee (Conditional Relief)]

KEY TAKEAWAYS

1. Rectification Requires Evidence: You cannot simply ask for “Re-credit of reversed ITC” via a Section 161 application without attaching proof (e.g., electronic credit ledger entries, reversal challans). A bare application is liable to be rejected.

2. The 20% Solution: When bank accounts are frozen, High Courts often use a standard formula: “Pay a chunk (usually 10-30%) of the demand, and we will unfreeze the rest.” This acts as a de facto stay order.

3. Writ Timing: Approaching the High Court after the recovery officer has already knocked on your door (or bank’s door) is risky. Writs should ideally be filed immediately when the appeal is stalled or when natural justice is violated, not as a reaction to recovery.