Auction Under Income Tax Act Cannot Be Confirmed Without Addressing Objections: Madras High Court

The Madras High Court has clarified that an auction under the Income Tax Act to recover tax dues cannot be confirmed in a mechanical manner and that objections to the sale must be examined first.

The court said confirmation of an auction depends on whether a challenge to the sale is still open or has already been dealt with.

A single bench of Justice C Saravanan said the rules governing income tax auctions have to be read together. One rule allows a purchaser to challenge an auction if the person whose property was sold had no legal right to sell it (Rule 62).

Another rule allows the tax department to confirm the sale and issue a sale certificate, but only after objections under Rule 62 are dealt with (Rule 63).

“Rule 63 of the Second Schedule to the Income Tax Act, 1961, has to be read in conjunction with Rule 62 of the Second Schedule to the Income Tax Act, 1961,” the court said, adding that relying on Rule 63 alone was “misplaced.”

The dispute centers on a piece of land at Mevalurkuppam village in Kanchipuram district. C. Sowmya Raga bought the property from Sally Thermoplastic India Ltd. Later, the income tax department began proceedings against the company and its directors.

As part of those proceedings, the land was attached and put up for auction. A private company, V.V. Automotive Components Pvt. Ltd., placed the highest bid and deposited Rs 42 crore. The sale, however, was yet to be formally confirmed.

Raga moved the High Court after the auction, saying she needed protection over the property. In November 2025, the court stepped in and put the auction on hold for 60 days. This was to give her time to approach a civil court and seek interim relief against confirmation of the sale. When the matter came up again, her counsel told the court that a civil suit had been filed and court fees paid, but the case had not been taken up because lawyers across Tamil Nadu were boycotting work over mandatory e-filing.

Explaining how the auction rules work, the court said Rule 62 allows a buyer to ask for cancellation of a sale if the defaulter had no saleable interest in the property. Rule 63, the court said, comes into play only after that question is addressed.

"It is only in the context of Rule 62 of the Second Schedule to the Income Tax Act, 1961, Rule 63 of the Second Schedule to the Income Tax Act, 1961 has to be interpreted where no application is made for setting the sale under foregoing the Rule or where such an application is made or disallowed by the Tax Recovery Officer, the Tax Recovery Officer shall make an order confirming the sale and there upon the sale shall become absolute," the court observed.

The court also noted that its earlier order giving protection to the petitioner had not been challenged and said the rights that had accrued to her “cannot be diluted.”

At the same time, the High Court said the situation required a balance. It allowed the income tax department to encash the Rs 42 crore deposit, confirm the sale, and issue a sale certificate to the highest bidder.

The court made it clear that the sale would remain subject to the outcome of the civil suit, where Raga can still press her claims.

Case Title: C. Sowmya Raga v. The Tax Recovery Officer

Citation: 2026 LLBiz HC (MAD) 19

Case Number: W.P. No. 41739 of 2025

Counsel for Petitioner: Advocate A.S.Sriraman

Counsel for Respondent: Senior Standing Counsel, S. Premalatha