2018 (1) TMI 749 - HC - Income Tax

Liability of directors of private company in liquidation - condition precedent to exercise jurisdiction under Section 179 - Held that - Admittedly, in this case no particulars of steps taken to recover the dues from the defaulting Company were communicated to the Petitioner nor indicated in the impugned order. In this case we find that except a statement that recovery proceedings against the defaulting assessee had failed, no particulars of the same are indicated, so as to enable the Petitioner to object to it on facts. In the above view, we set aside the impugned order dated 31st December 2015. This as the condition precedent to exercise jurisdiction under Section 179 (1) of the Act is not satisfied. At no time has the Petitioner been given a chance to meet the Revenue s case that it has taken steps to recover the amount from the defaulting Private Limited Company so as to meet the jurisdictional condition precedent before passing an order under Section 179 (1) - AO is at liberty to pass a fresh order after issuing the appropriate notice to the Petitioner indicating briefly, the steps taken by the department to recover the tax dues from the defaulting Private Limited Company and its failure to recover the same

Summary

Issues involved:
Challenge to order under Section 179 (1) of the Income Tax Act, 1961 for Assessment Years 2006-07 to 2011-12 on grounds of jurisdiction.

Analysis:
The petitioner challenged the order dated 31st December 2015 passed by the Assistant Commissioner of Income Tax under Section 179 (1) of the Income Tax Act, 1961, claiming it lacked jurisdiction. The petitioner argued that the revenue can only proceed against directors of a Private Limited Company to recover dues if the company cannot pay, and in this case, no effort was made to recover dues from the company. The petitioner relied on the decision in Dinesh Tailor v. Tax Recovery Officer and Ors. (2010) 326 ITR 85 (Bom.). The petitioner highlighted that their objection on jurisdiction was not addressed in the response to the notice under Section 179 (1) of the Act.

The respondent contended that the department conducted recovery proceedings against the assessee company but failed to recover any dues, justifying the exercise of jurisdiction under Section 179 of the Act. However, the court emphasized that the jurisdiction to proceed against directors of a delinquent Private Limited Company arises only after the department fails to recover dues from the company. The court stressed that the notice issued under Section 179 (1) must indicate the steps taken to recover dues and their failure. In this case, the court found that no specific details were provided to the petitioner regarding the efforts made to recover dues from the defaulting company.

Consequently, the court set aside the impugned order dated 31st December 2015 due to the failure to satisfy the jurisdictional condition precedent under Section 179 (1) of the Act. The court directed the Assessing Officer to issue a fresh order after informing the petitioner about the steps taken to recover dues from the defaulting company. The court maintained the attachment order dated 11th January 2016 until a final order is passed. The petitioner agreed to cooperate, and the Assessing Officer was instructed to expedite the process within eight weeks for Assessment Years 2006-07 to 2011-12.

In conclusion, the writ petition was disposed of, with no costs imposed. The judgment emphasized the importance of satisfying the jurisdictional requirements before proceeding against directors of a delinquent Private Limited Company under Section 179 (1) of the Income Tax Act, 1961.