2004 (1) TMI 42 - HC - Income Tax

Notices issued by the Income-tax Recovery Officer - order made by the Assessing Officer under section 179 - liability of directors of a private limited company under liquidation - We are not stating anything on the merits of the case, as from the record placed before us, it appears that reply to notice under section 179 was filed. However, in the order, it is mentioned that the directors have not filed any reply to these notices till date.

Summary

Issues:
1. Challenge against notices issued by the Income-tax Recovery Officer and order made by the Assessing Officer under section 179 of the Income-tax Act, 1961.

Analysis:
The High Court, comprising Judges B. C. Patel and Badar Durrez Ahmed, addressed the challenge brought by the petitioners against the notices issued by the Income-tax Recovery Officer and the order made by the Assessing Officer under section 179 of the Income-tax Act, 1961. The court noted that due to the different notices and separate causes of action, two petitions should have been filed. The Registry was directed to assign a separate number to one of the petitioners and requested the counsel to pay the court fee if necessary.

Regarding the liability of directors of a private limited company under liquidation as per section 179, the court emphasized the importance of the Assessing Officer considering the case presented by the director before making an adverse order. While directors are jointly and personally liable for tax payment, if they can demonstrate that non-recovery is not due to gross negligence, misfeasance, or breach of duty on their part, the outcome may vary. The court highlighted that natural justice principles must be followed, instructing the Assessing Officer to review the reply submitted by the assessee and make a decision within four weeks from the receipt of the court's order.

The court acknowledged that the directors had submitted a reply to the notice under section 179, contrary to what was mentioned in the order. It was clarified that the Assessing Officer should consider this reply, placed on record, to ensure a fair decision. To safeguard the Revenue's interests, the court accepted the Revenue's counsel's argument and required the petitioners to file an undertaking disclosing their properties that would not be disposed of until the Assessing Officer's decision. Consequently, the court quashed and set aside the Assessing Officer's previous order dated January 8, 2000, disposing of the petition accordingly.

To expedite the proceedings, both parties agreed that the petitioners would appear before the Assessing Officer on February 5, 2004, facilitating a smoother resolution of the matter.