Re: Notice under Section 226(3) of the Income Tax Act, 1961

I would like to know if a notice under Section 226(3)of the Income Tax Act asking the bank to freeze the account of the asssesee can be challenged on the ground that the assessee did not have an opportunity to show cause why the notice should not be enforced against the assessee by the bank.

For an attachment to occur, a Certificate has to be received by the TRO from the Ld. Assessing Officer for the recovery of arrears. Pursuant to receiving the certificate, the TRO is required to issue a Notice to the Assessee requiring the assessee to pay the amount specified in the certificate within fifteen days from the date of service of the notice and intimating that in default, steps would be taken to realise the amount under the Second Schedule to the Income tax Act, 1961.

Pursuant thereto, after the period of 15 days, if there is no payment or response or explanation offered by the Assessee; the TRO may proceed to recover the amount by attachment and sale of the defaulter's immovable property only after serving the order of attachment to the assessee/defaulter. The order of attachment shall be proclaimed at some place on or adjacent to the property attached by beat of drum or other customary mode, and a copy of the order shall be affixed on a conspicuous part of the property and on the notice board of the office of the TRO.

The Hon’ble High Court of Madras in the case of Tax Recovery Officer v. S. Ramakrishnan [2007] 213 CTR 222 (Mad(HC) ) wherein it was held that before attaching property, competent authority is supposed to issue notice under section 226(3)(i) and attachment made without issuing such notice would be invalid. Where no notice was issued and aforesaid procedure was not followed before passing the order of attachment, the order of attachment having been passed in violation of rules of natural justice, was not valid.

Therefore, where an opportunity to show cause was not provided to the assessee, the same can be challenged on the grounds of violation of principles of natural justice  

 

In Dagny De souza (Smt) v. ITO (2011) 56 DTR 263 / 198 Taxman 205 / 242 CTR 176 (Bom.)(HC) Court held that  if the application for stay of recovery is pending order passed under section 226(3)  without disposing the application was held to be bad in law .

 

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