2009 (4) TMI 25 - HC - Income Tax

Tax Recovery Officer in his order noted that Shri Subhash Arora as a Director of M/s.Subhash Arora Investment P. Ltd., has taken the loan of Rs.1.25 crores from Amit Jhaveri. Shri Subhash Arora is also a Director of the petitioner company Petitioner company stood as a guarantor of Amit Jhaveri and M/s Subhash Arora Investment Pvt. Ltd. Recovery of tax from petitioner company upheld

Issues:
1. Attachment of money from a bank account under the Income Tax Act.
2. Dispute regarding the debt owed to a creditor.
3. Challenge against the notice and summons issued under the IT Act.
4. Liability of the petitioner as a guarantor for a loan.
5. Suppression of material facts by the petitioners.
6. Exercise of extraordinary jurisdiction by the Court.
7. Reference to a judgment by the Madhya Pradesh High Court.

Issue 1: Attachment of money from a bank account under the Income Tax Act
The Tax Recovery Officer held that the money attached from the bank account of the petitioner cannot be termed as wrong and hence cannot be refunded. The petitioners denied owing any amount to the creditor, but the Tax Recovery Officer based the decision on the debt owed by another company where a common director was involved.

Issue 2: Dispute regarding the debt owed to a creditor
The petitioner challenged the notice directing payment to a creditor under the Income Tax Act. The Tribunal noted that the petitioner had taken a loan and overdraft facility from a bank, and proceedings had been initiated against the creditor. The Tribunal upheld the decision of the Tax Recovery Officer in declining to lift the attachment levied on the petitioners.

Issue 3: Challenge against the notice and summons issued under the IT Act
The petitioner and another company challenged the notice and summons issued to them under the IT Act. The Tribunal considered the contentions and the history of loan transactions between the parties, ultimately ruling in favor of upholding the attachment.

Issue 4: Liability of the petitioner as a guarantor for a loan
It was established that the petitioner acted as a guarantor for a loan taken by another company, and the debt remained outstanding. The petitioner had deposited a Fixed Deposit Receipt (FDR) before the Debt Recovery Tribunal (DRT) seeking withdrawal, but the Court did not find merit in the petitioner's arguments.

Issue 5: Suppression of material facts by the petitioners
The petitioners were found to have suppressed the fact that they had stood as guarantors for a loan, and the affidavit filed before the Tax Recovery Officer did not disclose crucial details regarding their financial obligations. This suppression of material facts influenced the Court's decision not to exercise its extraordinary jurisdiction in the case.

Issue 6: Exercise of extraordinary jurisdiction by the Court
The Court considered the exercise of its extraordinary jurisdiction based on the merits of the case and the suppression of material facts by the petitioners. Despite the arguments presented, the Court deemed it inappropriate to intervene given the circumstances and facts presented in the case.

Issue 7: Reference to a judgment by the Madhya Pradesh High Court
The counsel referred to a judgment by the Madhya Pradesh High Court regarding the obligation of the Recovery Officer to prove the falsity of an affidavit. However, the Court found that the facts before them clearly indicated a false affidavit was filed before the Tax Recovery Officer, leading to the dismissal of the petition.

In conclusion, the High Court dismissed the petition due to the petitioner's liability as a guarantor for a loan, the suppression of material facts, and the lack of merit in challenging the attachment under the Income Tax Act. The Court emphasized the importance of disclosing all relevant information and upheld the decision of the Tax Recovery Officer and the Tribunal in maintaining the attachment.

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