HC grants relief to ‘Xiaomi’; set-asides provisional attachment made by AO

Case Details: Xiaomi Technology India Private Limited v. DCIT - [2022] 145 taxmann.com 501 (Karnataka)

Judiciary and Counsel Details

• • S.R. Krishna Kumar, J.
  • Sameer B.S. Rao for the Petitioner.
  • M.B. Naragund, K.V. Aravind & M. Dilip, Advs. for the Respondent.

Facts of the Case

Assessee-company engaged in the business of procurement, supply, and distribution of Xiaomi products in India including mobile phones, accessories, computers, etc. It was required to pay royalty to Qualcomm and Beijing Xiaomi software company Ltd.

During the period from 2019 to March 2022, there were proceedings between the assessee and the Assessing Officer (AO) in relation to the alleged payment of income tax. Meanwhile, an order was passed by Enforcement Directorate (ED) under FEMA seizing the bank account of the assessee.

Subsequently, AO issued a notice and an order was passed, under section 281B, provisionally attaching the fixed deposits of the assessee on the ground that huge tax demands are likely to be raised upon completion of the assessment.
Aggrieved by the attachment order, the assessee filed writ petition before the Karnataka High Court.

High Court Held

The High Court held that the order passed for provisionally attaching the deposits is arbitrary reflecting a premeditated conclusion without even recording any reason for attaching the same. The doctrine of proportionality implicates the need for the purpose and the necessity of provisional attachment provides the direct nexus between the need for attachment and the purpose that the attachment secures.

A mere apprehension that huge tax demands will be raised is not a sufficient reason for passing a provisional attachment order. The order can be executed only after forming a reasonable opinion only on the tangible basis that attachment is required to secure the interest of revenue.

In the instant case, the attachment order was passed not because the assessee was likely to defeat the demand but it is based on borrowed satisfaction i.e., the opinion of AO seems to be influenced by the findings of other departments, and no independent opinion was formed.

Therefore, based on the absence of mandatory pre-conditions of provisional attachment of property, it was considered that there were no appropriate reasons to believe. Thus, considering the provisional attachment order to be arbitrary and contrary to law, the Court quashed the attachment order and allowed the assessee’s appeal.