2020 (2) TMI 960 - HC - Income Tax

Liability of directors of private company in liquidation u/s 179 - Recovery proceedings - argument is that instead of recovering the aforesaid amount in tune with the provisions of Section 179 the Department proceeded to put the immovable properties to auction - HELD THAT - It is too late in the day for the writ-applicants to redress any grievance of any nature having not challenged the order passed u/s 179 and having permitted the order to attain finality. At this point of time, it would not be appropriate for this Court to disturb the entire auction proceedings undertaken by the Department. The company has defaulted in payment of income tax to the tune of ₹ 1907.90 Lakh. In such circumstances, even if the say of the writ-applicants is accepted that the company has to recover an amount of ₹ 694.60 Lakh, the company would not be in a position to make the payment of the outstanding tax liability. Therefore, when the order dated 27.12.2017 passed under Section 179 has attained finality and is implemented with the auction of the immovable properties, no interference is called for at this belated stage. The grievance of the writ-applicants with regard to so called irregularities and illegalities in the auction proceedings conducted by the respondents can be agitated before the appropriate forum. Merely because the company is now a running concern by virtue of the orders passed by the NCLT, Mumbai in the Insolvency Petition filed by the ARCIL, it would not alter the situation with regard to the recovery of the dues of the income tax under the provisions of the Act1961. The order passed by the NCLT has been quashed by the Supreme Court. 10. In the result, this writ-application fails and is hereby rejected.

Summary

Issues Involved:
1. Challenge to show-cause notice and order under Section 179 of Income Tax Act, 1961
2. Quashing of auction sale conducted by respondent
3. Granting status quo on properties in auction sale notice
4. Previous rejection of writ-applications by Co-Ordinate Bench
5. Finality of order under Section 179 of Income Tax Act, 1961
6. Challenge to auction proceedings by writ-applicants
7. Company's default in payment of income tax
8. Interference in auction proceedings at a belated stage
9. Grievances of writ-applicants regarding auction irregularities
10. Rejection of the writ-application

Detailed Analysis:

1. The writ applicants sought relief through a writ application under Article 226 challenging the show-cause notice and order dated 27.12.2017 under Section 179 of the Income Tax Act, 1961. They also requested to quash the auction sale conducted by respondent no.1 and grant status quo on properties mentioned in the auction sale notice dated 23.12.2019.

2. The history of litigation revealed that previous writ-applications filed by the writ-applicants were rejected by a Co-Ordinate Bench of the Court. The rejection was based on the finality of the order passed under Section 179 of the Income Tax Act, 1961, which had not been challenged by the writ-applicants.

3. Despite challenges to the auction proceedings through other writ-applications, the auction sale had reached finality with the Department accepting the entire amount from the auction purchaser as sale proceeds.

4. The Court opined that it was too late for the writ-applicants to challenge the order passed under Section 179 of the Act in 2017. The argument presented by the writ-applicants regarding the recovery of a substantial amount by the company was considered belated, as they had not contested the initial order in a timely manner.

5. The company's default in paying income tax amounting to &8377;1907.90 Lakh was highlighted, making it impractical for the company to settle the outstanding tax liability even if the writ-applicants' claims of recovering &8377;694.60 Lakh were accepted.

6. The Court emphasized that at this stage, interference in the auction proceedings was unwarranted, and any grievances regarding irregularities in the auction could be addressed through appropriate forums.

7. The rejection of the writ-application was based on the finality of the order passed under Section 179 of the Income Tax Act, 1961, and the impracticality of disturbing the auction proceedings at a late stage.

8. The Court permitted the writ-applicants to pursue an application filed under Section 154 of the Act, addressing the Deputy Commissioner for further review, while maintaining the rejection of the writ-application.

This comprehensive analysis outlines the various issues raised, the Court's observations, and the final decision regarding the writ-application challenging the income tax proceedings and auction sale.