Case: Molly Trading Company Private Limited & Another Vs. Union of India Through The Secretary, Ministry of Finance & Others

F.I. REBELLO, J.By an order under Section 226(3)(vi) and Section 226(3)(x) of the Income Tax Act, 1961 the Tax Recovery Officer 16(1) held that the petitioners and M/s.Subhash Arora Investment Co. P. Ltd. owed a debt to Shri Amit Jhaveri and in view of that held that the money attached from the bank account of M/s.Molly Trading Co. Pvt. Ltd., cannot be termed as wrong and hence the amount cannot be refunded.A notice was issued to the assessee company on 18th July, 2007 under Section 226(3) directing to pay a sum of Rs.4,15,54,248/- as due of Shri Amit Jhaveri on account of Income Tax. A similar notice was issued to HDFC Bank directing the bank to pay the amount due and/or held by them on account of M/s.Molly Trading Co. Pvt. Ltd., the petitioner. Accordingly HDFC had sent the sum of Rs.4,35,459/- being balance in the account of M/s.Molly Trading Co. Pvt. Ltd. vide banks letter dated 30th July, 2007. On behalf of the assessee company M/s.Jain Singhal & Associates by letter of 28th July, 2007 had taken a stand that nothing was payable by the assessee to Mr. Amit Jhaveri. Subsequent to that the assessee had filed Writ Petition No.1457 of 2008. This Court accepted the statement of the respondent therein, that the final order pursuant to notice dated 18th July, 2007 will be made as expeditiously as possible. The petitioners also filed an affidavit of Satinder Kshetrapalas Director of the assessee. It was stated therein that they had no financial transactions with Mr. Amit H.Jhaveri of any nature during the last five years and that no amount is due to Mr. Jhaveri as on date and no amount is paid to him during the last five years.The 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 which in fact is a sister concern and the petitioners had pledged the shares of HCL Infosystems Ltd., to Mr. Amit Jhaveri. Considering those facts, the Tax Recovery Officer held that the money received from the Molly Trading Company Limited cannot be termed as wrong and hence cannot be refunded.2. We may mention that Subhash Arora Investment Pvt. Ltd., and another had filed Writ Petition bearing No.1456 of 2008 challenging the notice and summons issued to petitioner No.1 and sister concern under Section 226(3) of the IT Act and the order dated 23rd November, 2007 whereby the Tax Recovery Officer had declined to lift the attachment levied on the petitioners, bankers and its depository participants or business associates. After considering the contentions the Tribunal noted that Amit Jhaveri had taken loan and Overdraft facility from Bank of Bank of Baroda and that proceedings had been initiated by the Bank against the said Shri Amit Jhaveri. In those proceedings in the year 1999 it was agreed that the petitioner will pay Rs.1.70 crores on or before 10th June, 1999 and the bank will release the share of the petitioners (Subhash Arora Investment. On proceedings being transferred to D.R.T. by order dated 7th April, 2004 the D.R.T. directed the petitioners to deposit Rs.1.70 crores with 15% interest per annum. Accordingly, the petitioner No.1 deposited a FDR for a sum of Rs.3,51,85,723/-. The bank as well as Amit Jhaveri had filed Writ Petitions challenging that order. It was contended that since the liability of the petitioner had crystallized and arisen before the attachment notice the petitioner could not have been treated as assessee in default. The learned Bench after considering the various contentions held that the decision of the TRO in declining to lift the attachment cannot be faulted.3. It may be noted that in Writ Petition No.8136 of 2004 with Writ Petition No.10325 of 2004 which are against the orders of D.R.T. and order passed in Appeal on behalf of Mr. Arora a statement was made that he wants to apply for withdrawal of the FDR worth about Rs.3.5 crores without prejudice. Liberty has been granted to him.4. Shri Amit Jhaveri has also filed his affidavit and has filed compilation of documents. He has produced first a subscription agreement dated 5th May, 1990 whereby M/s. Molly Trading Company Limited is a party as a guarantor. In terms of Clause 4.5(a) the guarantor has agreed that the guarantee therein is continuing guarantee till the entire liability of the debenture holder is fully met. M/s. Molly Trading Private Limited has also pledged the shares of HCL with Jhaveri. Apart from that, there are atleast two promissory notes dated 5th May, 1993 and 8th April, 1993 in the sum of Rs.25.00 lakhs and Rs.50.00 lakhs wherein M/s.Molly Trading Company Pvt. Ltd., is the guarantor for the money advanced by Jhaveri to M/s.Subhash Arora Investments (I) Pvt. Ltd. Neither in the affidavit filed before the Tax Recovery Officer nor in the petition has the petitioner disclosed these aspects.5. It is, therefore, clear from the pleadings and documents on record that the petitioner is a guarantor for the loan taken by Shri Subhash Arora on behalf of the M/s.Subhash Arora Investments (I) Pvt. Ltd., The amount is crystalized and in respect of which M/s.Subhash Arora Investments (I) Pvt. Ltd., had deposited the F.D.R. before the DRT which FDR they had sought leave to apply for withdrawal.6. During the course of the hearing as it was noticed that the same Lawyers are appearing both for M/s. Molly Trading Company Pvt. Ltd., and another as also M/s.Subhash Arora Investments (I) Pvt. Ltd., learned Counsel was asked whether Subhash Arora as the common Director, would make a statement and give undertaking on behalf of Subhash Investment through Subhash Arora that F.D. deposited before the D.R.T. would not be withdrawn, the learned Counsel on taking instructions states that he has no such instructions.7. From the documents on record once the petitioner is a guarantor for the loan taken by M/s.Subhash Arora (I) Private Limited and that debt has not been discharged, the liability of the petitioners continues to remain joint and several along with M/s.Subhash Investments. Apart from that the petitioners have suppressed the fact that they had stood as guarantors for the loan atleast to the tune of Rs.75.00 lakhs as can be seen from the documents on record. The affidavit filed by the petitioner before the T.R.O., they only averred that they do not owe any monies for the last five years.8. It is true that the Tax Recovery Officer has not dealt with this aspect as this was not set out in the affidavit of the petitioner before the Tax Recovery Officer. We are, however, concerned with the exercise of extra ordinary jurisdiction. Both on merits as also on account of suppression of material facts (that they were guarantors) in our opinion this would not be a fit case to exercise our extra ordinary jurisdiction.9. Learned Counsel has sought to draw our attention to the judgment of the Madhya Pradesh High Court in New Amir Iron Works and Anr. vs. Union of India & Ors., 252 ITR 663 (M.P.). The M.P. High Court proceeded on the footing that it was for the Recovery Officer to show that the affidavit was false and ought to have afforded sufficient opportunity to the assessee. We are really not concerned with the ratio of that judgment for the reasons set out in the order. Even otherwise from the facts on record before the Court it is clear that a false affidavit was filed before the Tax Recovery Officer.

Decision reasoning: 0[ds]It is, therefore, clear from the pleadings and documents on record that the petitioner is a guarantor for the loan taken by Shri Subhash Arora on behalf of the M/s.Subhash Arora Investments (I) Pvt. Ltd., The amount is crystalized and in respect of which M/s.Subhash Arora Investments (I) Pvt. Ltd., had deposited the F.D.R. before the DRT which FDR they had sought leave to apply for withdrawal.6.During the course of the hearing as it was noticed that the same Lawyers are appearing both for M/s. Molly Trading Company Pvt. Ltd., and another as also M/s.Subhash Arora Investments (I) Pvt. Ltd., learned Counsel was asked whether Subhash Arora as the common Director, would make a statement and give undertaking on behalf of Subhash Investment through Subhash Arora that F.D. deposited before the D.R.T. would not be withdrawn, the learned Counsel on taking instructions states that he has no such instructions.7.From the documents on record once the petitioner is a guarantor for the loan taken by M/s.Subhash Arora (I) Private Limited and that debt has not been discharged, the liability of the petitioners continues to remain joint and several along with M/s.Subhash Investments. Apart from that the petitioners have suppressed the fact that they had stood as guarantors for the loan atleast to the tune of Rs.75.00 lakhs as can be seen from the documents on record. The affidavit filed by the petitioner before the T.R.O., they only averred that they do not owe any monies for the last five years.8.It is true that the Tax Recovery Officer has not dealt with this aspect as this was not set out in the affidavit of the petitioner before the Tax Recovery Officer. We are, however, concerned with the exercise of extra ordinary jurisdiction. Both on merits as also on account of suppression of material facts (that they were guarantors) in our opinion this would not be a fit case to exercise our extra ordinary jurisdiction.9.Learned Counsel has sought to draw our attention to the judgment of the Madhya Pradesh High Court in New Amir Iron Works and Anr. vs. Union of IndiaOrs., 252 ITR 663  (M.P.). The M.P. High Court proceeded on the footing that it was for the Recovery Officer to show that the affidavit was false and ought to have afforded sufficient opportunity to the assessee. We are really not concerned with the ratio of that judgment for the reasons set out in the order. Even otherwise from the facts on record before the Court it is clear that a false affidavit was filed before the Tax Recovery Officer.