Michigan Rubber (India) Ltd. vs Asstt. Commr. of Income Tax, Bhopal

Shri Lal accepts notice and submits that in view of the grievances raised by the petitioner, matter may be heard finally and can be disposed of today itself. The contentions of the petitioner are that:- (a) the petitioner''s total income was assessed at Rs. 18,68,29,195/-, out of this an amount of Rs. 17,93,96,057/- was the amount of which the department had found that the sale of 34859 tyres were concealed by the petitioner which fact was revealed because of an information received by the Income Tax Department from the Central Excise Department. It is submitted that inclusion of the entire price of the tyres by way of profit is not permissible under the law. For this he has placed reliance to a judgment of the Division Bench of this Court in Commissioner of Income Tax Vs. Balchand Ajit Kumar, That the petitioner industry is a sick industry and the matter is pending before the Appellate Authority for Industrial and, Financial Reconstruction (hereinafter referred as AAIFR) in appeal and till the conclusion of the proceeding, no recovery could have been directed against the petitioner but inspite of this the respondent No. 1 has attached the bank accounts of the petitioner resulting hardship to the petitioner for making payment of day today expenses, as the petitioner is still running its industry. It is also submitted that in view of the law laid down by the Apex Court in Tata Davy Ltd. Vs. State of Orissa and Others, such recovery may be quashed, (c) That appeal against the order Annexure P-5 dated 31-12-2009 is pending before the respondent No. 3 but the matter has not been decided. The application filed by the petitioner for staying the operation of the order Annexure P-5 is still pending before the respondent No. 3. It is submitted by Shri Nema that the respondent No. 3 may be directed to decide the appeal expeditiously and till then entire recovery proceedings against the petitioner may be stayed.

Shri Lal, learned counsel appearing for the Department drawn our attention to para 4 of the order Annexure P-5 and submitted that it is a matter of concealment of sale, the Assessing Officer has rightly made addition in the income and the petitioner is liable to make payment of Income Tax. It is submitted that as there was no stay of recovery proceeding, the respondent No. 1 has rightly attached the bank accounts of the petitioner.

Before proceeding further, it would be appropriate if para 4 of the order as referred by Shri Lal is reproduced, which reads thus:-

It is seen that a search operation at the premises of the assessee was conducted on 30-11-2006 by Central Excise Department. As per information received from the Central Excise Department, it is seen that the assessee company has under-reported the production in the factory by atleast 34859, tyres valued at Rs. 17,93,96,057/-. A show cause notice was issued on 20-11-2009 to explain the reported under-production of Rs. 17,93,96,057/-. No satisfactory reply in this regard was furnished by the assessee. Further, details of opening and closing stock was called vide questionnaire u/s. 142(1) dated 6-5-2009. The Assessee in its reply dated 7-12-2009 stated that the required details shall be furnished shortly but no such details were furnished. It is seen from the details placed on record that GP of the assessee was 7.76% in the relevant financial year whereas in the AY 2005-06, the GP was 16.01%. No explanation in this regard was furnished. Under these circumstances, the provisions of Section 145(3) of the Act are hereby invoked and the books of accounts of assessee are rejected. A sum of Rs. 17,93,96,057/- being under production reported by the Central Excise (Intelligence) Department is hereby treated as concealment of sales and added to total income of assessee.

From the perusal of the aforesaid it is apparent that as per the information submitted by Central Excise Department, petitioner herein had concealed the sale of 34859 tyres valued at Rs. 17,93,96,057/- but it appears that the entire amount of this sale has been added by way of income in the order Annexure P-5. A Division Bench of this Court in Balchand Ajit Kumar (supra), considering the similar controversy held that the total sale could not be recorded as the profit of the assessee. The next profit rate has to be adopted and once it is adopted, the same can be treated as the income of the assessee. But in the present case it appears that the entire price of the tyres 34859 has been taken into consideration as profit of the petitioner which is apparently not correct. So far as the contention of the petitioner that the petitioner''s matter is pending before AAIFR is concerned, the position is not disputed before us. Once the matter is pending before the AAIFR, the law laid down by the Apex Court in Tata Davy (supra) will be applicable. The Apex Court in Tata Davy, considering the question held thus:-

We hold, in the premises, that the respondents cannot recover the aforementioned arrears of sales tax from the appellants without, first seeking the consent of the said Board in this behalf.

In view of the settled law, in Tata Davy, there is no iota of doubt that the respondents were not entitled to affect the recovery proceedings until and unless they could have sought permission of AAIFR in this regard.

So far as the third contention of the petitioner that the appeal preferred by the petitioner against the order Annexure P-5 is pending before the CIT A (respondent No. 3), which has not been decided till date is concerned, the matter, appears to be pending since last three years which deserves attention of respondent No. 3 for expeditious hearing. Apart from this, as per the statement of the petitioner, an application filed by the petitioner for staying the recovery is also pending which also deserves to be heard and decided by respondent No. 3.

In view of the aforesaid, without making any comment on the merits of the case, we dispose of this petition with the following directions:-

Petitioner herein is directed to move an application before respondent No. 3 for expeditious hearing of the appeal filed by the petitioner against the assessment order Annexure P-5 for the assessment year 2007-08 dated 31-12-2009.

If any such application is filed, the respondent No. 3 shall consider the prayer of the petitioner and if it is not possible for respondent No. 3 to hear and decide the appeal expeditiously, then to consider the prayer of the petitioner for grant of stay.

This exercise shall be made by respondent No. 3 within a period of 30 days from the date of filing of such an application.

So far as attachment of the bank accounts and recovery proceedings initiated against the petitioner is concerned, the Apex Court in Tata Davy (supra) has specifically held that until and unless permission is obtained from AAIFR, such recovery cannot be affected and we find that the action of the respondents by attachment of the bank accounts is illegal and accordingly the attachment of the bank accounts of the petitioner for enforcing the recovery under the assessment order Annexure P-5 is hereby quashed. However, respondent No. 1 and 2, as the case may be shall be free to move an application before the AAIFR for seeking its permission for affecting the recovery under the assessment order, and shall act in accordance with the permission as may be granted by the said Board. No order as to costs.