2018 (3) TMI 959 - HC - Income Tax

Non compliance with condition precedent u/s 179(1) - recovery of dues of the company from the directors - revision application u/s 264 rejected - Held that - It is an agreed position between the parties that in view of the decision of this Court in Madhavi Kerker v. Assistant Commissioner of Income Tax 2018 (1) TMI 749 - BOMBAY HIGH COURT , the jurisdiction to proceed against the directors of the Company under Section 179(1) of the Act can only be exercised when the Revenue is unable to recover tax dues from the private limited company. This requirement of the Revenue having failed to recover its dues from the defaulting private limited company before proceeding against its Directors has been held to be a condition precedent for exercise of jurisdiction under Section 179(1) of the Act. The jurisdictional requirement must be intimated to the directors of the delinquent private limited company indicating the tax dues, the steps taken to recover the tax dues from the delinquent company and its failure. In the present facts it is undisputed position that the show cause notice to the Petitioner did not indicate the steps taken to recover the tax dues form delinquent private limited company and its failure to collect the same. Order set aside - AO is at liberty to pass a fresh order after issuing an appropriate notice to the Petitioner.

Summary

Issues:
Challenge to order under Section 179(1) of the Income Tax Act, 1961 and Section 264 - rejection of revision application.

Analysis:
The Petition challenges the order dated 2nd March 2016 by the Assessing Officer under Section 179(1) of the Income Tax Act, 1961, and the order dated 13th June 2017 by the Principal Commissioner of Income Tax under Section 264, rejecting the Petitioner's revision application from the earlier order. The Petitioner contends that the orders proceed on a misconception that the condition precedent under Section 179(1) has been fulfilled, i.e., failure to recover dues from the defaulting company before seeking recovery from its Directors. The Court refers to the decision in Madhavi Kerker v. Assistant Commissioner of Income Tax, establishing that jurisdiction to proceed against directors can only be exercised when the Revenue fails to recover tax dues from the company. The Court emphasizes that the Revenue must inform the directors about the steps taken to recover dues from the company and its failure, allowing the directors to raise objections. In this case, the show cause notice did not provide this essential information.

The Court sets aside the impugned orders of the Assessing Officer and Commissioner of Income Tax based on the principles established in Madhavi Kerkar. However, it clarifies that the attachment of the bank accounts of the delinquent company will continue. The Assessing Officer is granted the liberty to issue a fresh order after giving an appropriate notice to the Petitioner, in line with the directions in the Madhavi Kerkar case. The Writ Petition is allowed in the above terms, with no order as to costs.