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Issues: Whether demand notices issued under Section 226(3) of the Income Tax Act, 1961 could be enforced against a company in respect of which an inquiry under Section 16 of the Sick Industrial Companies Act, 1985 was pending, without first obtaining consent under Section 22 of that Act.
Analysis: Section 22 of the Sick Industrial Companies Act, 1985 bars coercive recovery action against a sick industrial company during the pendency of the statutory inquiry, unless consent is obtained from the Board for Industrial and Financial Reconstruction. The demand notices were in the nature of recovery steps under the Income Tax Act, and the record showed that the relevant sick-company proceedings were already pending. In that situation, the revenue authorities could proceed only after securing the requisite consent under Section 22.
Conclusion: The demand notices could not be implemented without prior consent under Section 22 of the Sick Industrial Companies Act, 1985, and the issue was answered in favour of the assessee.
Final Conclusion: The recovery action was held to be conditionally suspended until the statutory consent requirement was satisfied, and the petitions were disposed of with liberty to the revenue to proceed in accordance with law after obtaining such consent.
Ratio Decidendi: Recovery proceedings against a sick industrial company under the Income Tax Act cannot be enforced coercively during a pending inquiry under Section 16 of the Sick Industrial Companies Act, 1985 unless prior consent under Section 22 is obtained from the competent board.
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