Ktka HC quashes Rs 3,700 Cr attachment order against Xiaomi
NEW DELHI: The Karnataka High Court has quashed the provisional attachment order passed by the Income Tax Department in connection with Rs 3,700 crore fixed deposits held by Xiaomi Technology India Private limited.
Justice S R Krishna Kumar, however, said that the petitioner Xiaomi is not entitled to make payments from the subject fixed deposit accounts in the form of royalty or in any other form to any companies/entities located outside India.
The company is, however, at liberty to take overdrafts from the subject fixed deposits accounts and make payments from such overdrafts to such companies/entities located outside India, the court said.
In its order on a writ petition by the company, the bench said a perusal of the IT department's order will also indicate that there is no finding recorded as to why a provisional order of attachment had to be passed against the petitioner.
"It is significant to note that there is no finding recorded by the 1st respondent that the petitioner was a ‘fly by night operator’ from whom it was not possible to recover the likely demand. The impugned order also does not state that the petitioner was either a habitual defaulter nor that he was not doing any business at all or that the petitioner did not have sufficient funds to satisfy the demand. In other words, in the absence of any reasons as to why and how the demand would be defeated by the petitioner, mere apprehension that huge tax demands are likely to be raised on completion of assessment was not sufficient to constitute formation of opinion and existence of proximate and live link for the purpose and necessity of provisional attachment which implicate the doctrine of proportionality. Under these circumstances also, I am of the considered opinion that the impugned order deserves to be quashed," the judge said.
The provisional attachment order was passed by the Deputy Commissioner of Income Tax, Bengaluru, on August 11, 2022, under Section 281B of the Income Tax Act pursuant to the approval granted by Principal Commissioner of Income Tax. The attachment order pertains to Rs 3,700 crore fixed deposits, Rs 2,600 crore with HSBC Bank and Rs 1,100 crore with the City Bank.
The petitioner Xiaomi challenged the order claiming that the impugned order is manifestly arbitrary and reflects pre-meditated conclusion and it does not record any opinion as to the necessity for attaching the property.
The bench said that the Income Tax department has not assigned any reasons except that the officer who approved the attachment was of the opinion that it was necessary to attach the fixed deposits for the purpose of protecting the interest of the revenue.
“It is trite law that grant of approval should not be a mechanical act and should reflect independent application of mind and this important safeguard of taking prior approval of the Commissioner under Section 281B of Income Tax Act is not a mere empty formality and cannot be taken lightly. The approval granted by the Principal Commissioner of Income Tax also reflects complete non-application of mind and is a non-speaking and unreasoned approval which is contrary to law and consequently, the impugned order based on the said approval deserves to be quashed,” the court said.
