2018 (8) TMI 1731 - HC - Income Tax

Service of notice - as aggrieved petitioner was not put on notice before passing the impugned order - Held that - No material is placed before this Court to substantiate the service of such notice to the petitioner, before passing the impugned order. It is only stated in the counter affidavit that the present impugned order was served on the petitioner. However, when the impugned order referred to the issuance of a show cause notice to the petitioner, proving such service of notice is on the respondent, which in my considered view, they miserably failed. Therefore, solely on the ground of violation of principles of natural justice, the impugned order has to go. Invalid demand - assessment order itself was set aside by the Tribunal and in the absence of any fresh order of assessment, the question of making a demand does not arise - Held that - order passed by the Tribunal would clearly indicate that it has set aside the assessment order itself and remitted the matter back to the file of the Assessing Officer. Therefore, it is not correct to say that the impugned demand is valid even in the absence of any fresh assessment order passed by the Assessing Officer in pursuant to such remand. Therefore, I find force in the submission made by the learned counsel for the petitioner that in the absence of any fresh order of assessment, the impugned demand cannot be sustained. Therefore, on this ground also, this Court is inclined to interfere with the impugned proceedings. Maintainability of the proceedings under Section 179 against the petitioner, a Director in a Public Limited Company - Held that - this Court is not inclined to go into such issue as this Court is satisfied to set aside the impugned order on the above said other two grounds. Moreover only when an order of assessment is passed, issuance of demand would arise. Only when a demand is made preceded by an assessment, the question of considering the validity of such demand issued under Section 179 of the said Act would arise. As this Court finds that such situation has not arisen in this case, it is not necessary to go into the third issue touching upon the maintainability of demand under section 179 of the said Act and give any finding on the same

Summary

Issues:
1. Jurisdiction of proceedings under section 179 of the Income Tax Act, 1961 against a Director of a Public Limited Company.
2. Violation of principles of natural justice in issuing the impugned order.
3. Validity of the demand made without a fresh order of assessment.

Issue 1: Jurisdiction of proceedings under section 179 against a Director of a Public Limited Company
The petitioner, a Director of a Public Limited Company, challenged the order under section 179 of the Income Tax Act, 1961, arguing that such proceedings are maintainable only against the Director of a Private Company. The petitioner contended that the impugned proceedings were without jurisdiction. The respondent, however, argued that the Company in question was a Shell Company evading notices, justifying the proceedings to protect revenue interests. The respondent cited a case where the Court lifted the corporate veil to ensure justice. The Court did not delve into this issue, as it found grounds to set aside the impugned order on other grounds. The issue's consideration was left open for future proceedings.

Issue 2: Violation of principles of natural justice
The petitioner argued that the impugned order was passed without providing notice, violating principles of natural justice. The respondent failed to substantiate the service of notice to the petitioner before passing the order. The Court noted that no material was presented to prove the service of notice, leading to a violation of natural justice. Consequently, the Court held that solely on this ground, the impugned order had to be set aside.

Issue 3: Validity of the demand without a fresh order of assessment
The petitioner contended that since the Tribunal set aside the assessment order and no fresh assessment order was issued, the demand made was invalid. The revenue argued that only certain issues were remitted for examination, not the entire assessment order. However, the Court disagreed, noting that the Tribunal had indeed set aside the assessment order itself and remitted the matter back to the Assessing Officer. Without a fresh assessment order, the demand could not be sustained. Therefore, the Court decided to interfere with the impugned proceedings based on this ground.

In conclusion, the High Court of Madras allowed the writ petition, setting aside the impugned order under section 179 of the Income Tax Act, 1961. The Court directed the respondent to defreeze the petitioner's bank accounts. It clarified that its order did not prevent the respondent from initiating proceedings against the petitioner through lawful means. The judgment highlighted the importance of adhering to principles of natural justice and the necessity of a fresh assessment order to validate a demand under the Act.