2018 (4) TMI 646 - HC - Income Tax

Jurisdiction to proceed against the Directors of a delinquent Private Limited Company under Section 179(1) - recover from the petitioners as Directors of a Private Limited Company, the tax dues of the Private Limited Company in respect of the Assessment Year 2008-09 which it failed to honour - Held that - It is an agreed position between the parties that the issue arising herein would stand concluded in favour of the petitioners by the decision of this Court in Madhavi Kerkar V/s. Assistant Commissioner of Income Tax (2018 (1) TMI 749 - BOMBAY HIGH COURT) as held that the jurisdiction to proceed against the Directors of a delinquent Private Limited Company under Section 179(1) of the Act will only arise when the Revenue is unable to recover the tax dues from the delinquent Private Limited Company. The show cause notice issued to the Directors of the Private Limited Company must indicate briefly the steps taken to recover the tax dues from the delinquent Private Limited Company and the failure to recover the same. In the above view, the impugned orders under Section 179(1) of the Act is quashed and set aside.

Summary

Issues:
Challenge to order under Section 179(1) of the Income-Tax Act, 1961 for Assessment Year 2011-12.

Analysis:
The petitioner, a former Director of a delinquent Private Limited Company, challenged an order seeking to recover tax dues from him under Section 179(1) of the Income-Tax Act, 1961. The petitioner argued that the order lacked jurisdiction as recovery from the company was possible. The Revenue contended that the petitioner's shareholding and recovery efforts justified the order. The Court clarified that Section 179(1) does not differentiate between directors based on shareholding and emphasized the necessity of failed recovery efforts before invoking jurisdiction.

The Court highlighted that the notice must detail efforts and failures in recovering dues from the delinquent company to provide the noticee with a chance to object. It stressed that mere statements of failed recovery without specifics are insufficient. The Court referred to a previous case to support the requirement of proper notice. In this case, the show cause notice lacked particulars of recovery attempts, leading to the quashing of the impugned order.

The Court directed the Assessing Officer to issue a fresh order after providing a proper notice to the petitioner, including recovery steps and failures. The petitioner was to be heard on objections before a new order was passed. Any bank accounts attached before a certain date would remain so until the fresh order, ensuring fairness in the process. The petitioner's cooperation in the process was noted, and no costs were awarded in the disposition of the Writ Petition.