Gujarat High Court Releases Bank Account From Attachment Of Subsidiary Of Taiwan Company Subject To The Personal Undertaking Of The Directors

The Gujarat High Court has directed the department to release the bank account from the attachment of the subsidiary of the Taiwan Company subject to the personal undertakings of the directors.

The division bench of Justice Sonia Gokani and Justice Mauna M. Bhatt, in order to secure the revenue's interest, has directed the department to continue the attachment of FD with DBS amounting to Rs. 2.65 crores.

The petitioner/assessee is in the business of manufacturing injection moulding machines. It is a wholly owned subsidiary of Fu Chin Shin (FCS) Machinery Manufacturing Co. Ltd., a company incorporated in and under the laws of Taiwan.

The petitioner has challenged the continuing attachment of its bank account maintained with DBS Bank as of November 18, 2021, under Section 132(9B) of the Income Tax Act of 1961. The petitioner has also challenged the attachment of the fixed deposit for an amount of Rs. 2,65,04,306 at DBS Bank.

The petitioner contended that it is impaired on account of the attachment of two of its accounts with DBS Bank and HSBC Bank and has made a request to release the attachment of the current bank accounts. However, the letter dated December 2, 2021, directed the branch manager of BDS Bank to continue to freeze the bank account.

The petitioner urged that Section 132(9C) of the Income Tax Act, 1961, does not permit any provisional attachment to be continued to be operational after the expiry of a period of six months from the date of the order. On 18.11.2021, the order came to be passed, and therefore, beyond 18.05.2022, it shall cease to operate. The petitioner questioned the continuation of the powers of provisional attachment after they had been exercised without recording the reasons.

The department contended that during the search, it was found that the entities were involved in various methods of tax evasion, like unaccounted cash sales, purchases through shell companies, diversion of funds to tax havens, etc. The premises of the petitioner were also covered under the search and seizure action.

The department relied on Section 281(B), which deals with the provisional attachment to protect the interest of the revenue during the pendency of any proceedings for the assessment of any income or for the assessment or reassessment of any income that has escaped assessment.

The department alleged that the order has been passed in relation to the two companies, which are said to be shell companies, adding the commission, and the main company in Taiwan, which is said to be benefiting. It was also alleged that the modus operandi was adopted to shift profits to the Chinese company.

The court determined that the respondent's fixed deposit of Rs. 2,65,04,306 at DBS Bank was sufficient to protect the revenue's interest for the time being.

The court has observed that the Indian director along with the Taiwan directors are also required to give the undertaking that, in the eventuality that the assessment is more than the amount that is permitted to be provisionally attached, they shall fulfill the obligations even from their own personal funds.

Case Title: FCS Manufacturing (India) Pvt. Ltd Vs Deputy Director Of Income Tax

Citation: 2022 LiveLaw (Guj) 410

Date: 29.11.2022

Counsel For Petitioner: Advocate Saurabh Soparkar with Dhinal Shah

Counsel For Respondent: Advocate Varun K. Patel

Click Here To Read The Order