2018 (6) TMI 700 - HC - Income Tax

Assessee in default u/s 220 - seeking tax clearance certificate u/s 230 - Liability of directors of private company in liquidation u/s 179 - personal liability - jointly and severally liability - petitioner was in jail when notice was ordered - non affording the petitioner an opportunity of hearing - Held that - In the light of the various orders issued by the authorities under the Act against the petitioner in his personal capacity and in the light of Ext.P13 order, the petitioner cannot dispute his liability mentioned therein. The liability of the petitioner mentioned in Ext.P8 order is more than 400 Crores. In the circumstances, the second respondent cannot be found fault with for having insisted Tax Clearance Certificate for the petitioner to leave the country under the first proviso to subsection (1A) of Section 230 of the Act. There cannot be any dispute to the fact that an order under Section 179 of the Act cannot be passed without affording the parties concerned an opportunity of hearing. - In so far as the petitioner was in jail when notice was ordered in the proceedings initiated against him under Section 179 of the Act, the said notice should have been served on him through the Superintendent of the jail wherein he was detained. The said course admittedly has not been adopted by the respondents. - Order is liable to be set aside and the matter has to be considered afresh.

Summary

Issues:
Challenge to orders issued under Sections 230 and 179 of the Income Tax Act.

Analysis:
1. The petitioner, a third accused in a CBI case, challenged orders Ext.P8 and P13 issued under Sections 230 and 179 of the Income Tax Act. Ext.P8 order stated the petitioner's outstanding liability and restriction on leaving India without a Tax Clearance Certificate. Ext.P13 order held the petitioner jointly liable for the company's tax dues.

2. The petitioner claimed ignorance of the case due to residing abroad for medical treatment. He obtained court permission to travel abroad twice. Ext.P8 order declared him an assessee in default with significant liabilities. The petitioner challenged the orders based on ongoing appeals against the demands raised.

3. Respondents argued that the petitioner evaded proceedings, necessitating orders based on available records. They highlighted the petitioner's role as a director of the company and non-cooperation in investigations. The respondents justified the orders based on available company records and the petitioner's shareholding.

4. The petitioner contended that Ext.P13 order was illegal as it was issued without notice. The court noted the importance of natural justice in passing orders under Section 179 of the Act. As the petitioner was in judicial custody during the notice period, proper service was crucial, which was not done.

5. The court found Ext.P13 order lacking compliance with natural justice principles and directed fresh orders with an opportunity for the petitioner to be heard. The court instructed the competent authority to reconsider the necessity of an order under Section 230 post the Section 179 proceedings and appellate orders.

6. The writ petition was partially allowed, quashing Ext.P13 order and instructing the second respondent to issue fresh orders under Section 179 after affording the petitioner a hearing. Subsequently, the second respondent was directed to review the need for an order under Section 230 based on the Section 179 outcome and appellate orders within a specified timeline. Ext.P8 order would remain in force until the fresh orders were issued under Section 230.