W.A. No.2488/2019 -:1:- IN HIGH COURT OF KERALA AT ERNAKULAM PRESENT HONOURABLE MR.JUSTICE C.K.ABDUL REHIM & HONOURABLE MR.JUSTICE T.V.ANILKUMAR MONDAY, 20TH DAY OF JANUARY 2020 /30TH POUSHA, 1941 WA.No.2488 OF 2019 AGAINST JUDGMENT IN WP(C) 32723/2019(M) OF THIS COURT APPELLANT/PETITIONER: ANDOORKONAM SERVICE CO-OPERATIVE BANK LTD.NO.3127, REPRESENTED BY ITS SECRETARY-IN-CHARGE, KEEZHAVOOR P O, THIRUVANANTHAPURAM DISTRICT- 695584. BY ADVS. SRI.T.R.HARIKUMAR SRI.ADITHYA RAJEEV RESPONDENTS/RESPONDENTS: 1 INCOME TAX OFFICER, WARD - 2(1), OFFICE OF ADDITIONAL COMMISSIONER OF INCOME TAX, AAYAKAR BHAVAN, KAWDIAR P O, THIRUVANANTHAPURAM,PIN-695003. 2 COMMISSIONER OF INCOME TAX (APPEALS) AAYAKAR BHAVAN, KAWDIAR P O, THIRUVANANTHAPURAM,PIN-695003. W.A. No.2488/2019 -:2:- 3 REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, KENDRIYA BHAVAN, BLOCK NO.C1 AND C2, 1ST FLOOR, KAKKANAD, KOCHIN-PIN-682030. 4 NEDUMANGAD CO-OPERATIVE URBAN BANK LTD NO.3193, REPRESENTED BY ITS SECRETARY, VEMBAYAM, THIRUVANATHAPURAM DISTRICT-PIN-695615. R1 BY SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 20.01.2020, COURT ON SAME DAY DELIVERED FOLLOWING: W.A. No.2488/2019 -:3:- [C.R.] C.K. ABDUL REHIM & T.V. ANILKUMAR, JJ. Writ Appeal No. 2488 OF 2019 Dated this 20th day of January, 2020 JUDGMENT writ petitioner - Andoorkonam Service Co-operative Bank Ltd. is appellant herein, challenging judgment of Single Judge, dated 03.12.2019. respondents are respondents in writ petition. 2. Ext.P7 notice of attachment and recovery for realization of amounts due from appellant Bank, issued to 4th respondent Bank as garnishee, was under challenge in writ petition. Inter alia, petitioner Bank sought direction for refund of amount paid by 4 th respondent to W.A. No.2488/2019 -:4:- Income Tax Department pursuant to Ext.P7. Contention of petitioner was mainly that, assessment made with respect to amount sought to be recovered through Ext.P7 was under challenge in appeal and that recovery steps from garnishee was initiated without taking into consideration of pendency of appeal and stay petition. Further contention raised is that, 'garnishee proceedings' was initiated and amount was recovered without issuing any notice to appellant, as required under Section 226(3) of Income Tax Act. It is contended that, learned Single Judge, without adverting to claim for refund, had disposed of writ petition by directing 3rd respondent to consider and to pass orders on Ext.P4 appeal, within three months. It is aggrieved by said judgment, above writ appeal is filed. 3. Learned counsel for appellant contended that recovery of amount was effected on same day on which Ext.P7 notice was issued to 4 th respondent-Bank. It is after W.A. No.2488/2019 -:5:- effecting such recovery that copy of notice was served on appellant. It is pleaded that notice to assessee is mandate under due process of law, under Section 226(3) of Income Tax Act. Therefore attachment and recovery of amount is effected without compliance of such mandate. 4. Learned counsel had drawn our attention to judgment of learned Single Judge of this court in Suntec Business Solutions(P) Ltd. v. Union of India and others (2014 KHC 374). It was observed therein that, power conferred under Section 226(3) has to be exercised with greatest caution and provision has to be construed strictly. power to attach and recover amounts from third party has to be invoked sparingly, only in event of assessee having deliberately evaded recovery and indulging in activities which would eventually defeat recovery. Even if attachment is effected in bank account, recovery officer ought to have called for details of amounts lying in credit of W.A. No.2488/2019 -:6:- assessee and if sufficient amounts are available in account, attachment could have been continued, without recovery, especially when assessee had informed that assessment is being challenged in appeal. recovery proceedings effected by way of garnishee proceedings under Section 226 has to be notified to assessee also, as provided under Section 226(3)(iii). It was found that mandate of provision insists that copy of notice issued to garnishee should be forwarded to assessee, by relying on decision of Calcutta High Court in Purnima Das v. Union of India(2010 (329) ITR 278 (Cal), wherein it was found that it was not proper on part of Assessing Officer to attach and debit sum, without serving copy of notice of attachment on assessee as mandated in provision. 5. In case at hand, respondents 1 to 3 had filed statement categorically mentioning that demand became due on 23.11.2019. Ext.P7 notice was issued to 4 th W.A. No.2488/2019 -:7:- respondent on 25.11.2019 and amount of `23,67,037/- was collected from 4th respondent bank on that day itself. It is specifically stated that copy of notice under Section 226(3) was forwarded to appellant on 26.11.2019 itself, as required under Section 226(3)(iii). Subsequently another letter was issued to assessee on 29.11.2019 informing him about collection made and about adjustment of amount recovered against demand raised. 6. Even though provisions under Section 226(3) insist only for forwarding copy of notice to assessee, circumstances of each case has to be considered. Here is case where recovery was effected on same day when notice was issued to garnishee, that too within 2 days of amount became due. Mere forwarding of copy of notice, after effecting recovery, will not in any way serve object underlying legislative intent in introducing sub- section(iii) of Section 226(3). This is especially because W.A. No.2488/2019 -:8:- respondents 1 to 3 ought to have considered pendency of appeal. 7. In decision of this court in Rajan Nair v. ITO (1987 (1) KLT 475) it is held that, in exercising powers of stay, Income Tax Officer should not act as mere tax gatherer, but as quasi-judicial authority vested with public duty of protecting interests of Revenue and to mitigate hardship to assessee. Division Bench of High Court of Bombay, following above said observations, had laid guidelines to effect that, no recovery of tax should be made pending expiry of time limit for filing appeal. said dictum was seen followed by learned Judge of this court in decision in Mother India Educational and Cultural Charitable Trust, Tvm v. Deputy Commissioner of Income Tax, Tvm and others(2014 KHC 353). 8. Considering factual scenario involved in case at hand, we have no hesitation to hold that attachment and W.A. No.2488/2019 -:9:- recovery was effected at great haste, without taking into consideration of parameters enshrined in all decisions cited as above. Further, we take note of fact that issue pertaining to liability of appellant bank for payment of income tax, remains now settled through decision of Full Bench of this court in Mavilayi Service Co-operative Bank v, Commissioner of Income Tax [2019 (2) KLT 597(FB)]. It is held therein that, by reason of sub-section (4) of Section 80P of Income Tax Act, Assessing Officer has to conduct enquiry into factual situations with respect to activities of society, in order to satisfy himself to conclusions arrived at and also as to whether benefits under Section 80 can be extended or not. 9. According to learned counsel for appellant, such verification has not been done in case. But learned Standing Counsel appearing for respondents 1 to 3 had pointed out that, even in original assessment itself, W.A. No.2488/2019 -:10:- those aspects were considered by appellate authority. However, as observed above, recovery from 4 th respondent garnishee bank has been done in manner depriving interest of assessee and without following guidelines which ought to have been followed in matter of garnishee attachment and recovery. However, since amount has already been collected against existing demand, we are not inclined to direct release of amount, unless appellant society furnishes Bank Guarantee for entire amount. We take note of fact that above aspects were not considered by learned Single Judge while disposing of writ petition. Hence impugned judgment requires modification. 10. Therefore, above writ appeal is hereby disposed of by directing respondents 1 to 3 to make refund of amount to appellant society, in case appellant society furnishes Bank Guarantee to tune of entire amount W.A. No.2488/2019 -:11:- recovered, to satisfaction of first respondent. Bank Guarantee is directed to be kept in tact, until disposal of appeal filed by appellant before 2nd respondent. Needless to observe that, realization of Bank Guarantee shall be made only after communicating appellate order to appellant society. refund shall be effected within period of 2 weeks from date of furnishing of Bank Guarantee. direction issued by learned Single Judge in impugned judgment with respect to disposal of appeal shall survive. Sd/- C.K.ABDUL REHIM JUDGE Sd/- T.V.ANILKUMAR JUDGE ul/- Andoorkonam Service Co-Operative Bank Ltd. v. ITO, Ward-2(1), Thiruvananthapuram / CIT(A), Thiruvananthapuram / Registrar, ITAT, Cochin Bench, Kochin/ Nedumangad Co-Operative Urban Bank Ltd