2019 (2) TMI 179 - HC - Income Tax

Notice u/s 179 - Liability of directors of private company in liquidation - showcause notice under section 179 issued only to petitioner no.1, Smt. Anandhi P. Naig and petitioner no.2, Shri Pandoo P. Naig and that the other persons were not served with any such notice and were not given any opportunity of hearing - Held that - Except for petitioners No.1 & 2, the rest of the petitioners have not being served with any notice under section 179 of the Act and therefore, the impugned order is in breach of the principles of natural justice as well as contrary to the statutory provisions. Having regard to the submissions advanced by the learned counsel for the petitioners, issue Notice, returnable on 12.02.2019. By way of adinterim relief, the impugned order dated 31.12.2018 passed under section 179 of the Act as well as the consequential demand notice under section 156 of the Act are hereby stayed.

Summary

Issues:
1. Impugned order passed under section 179 of the Income Tax Act, 1961 against multiple persons without proper notice.
2. Allegation of considering the company as a private limited company instead of a public limited company.
3. Violation of principles of natural justice and statutory provisions in passing the impugned order.
4. Request for ad-interim relief against the impugned order.

Analysis:

1. The petitioners challenged the impugned order passed under section 179 of the Income Tax Act, 1961 against seven persons for assessment years 2008-09, 2011-12, 2012-13, and 2014-15. The petitioners argued that only two of them were served with a show cause notice, while the others were not given any opportunity to respond. The petitioners contended that they had insufficient time to reply to the notice, and despite pointing out that the company in question was a public limited company, the respondent proceeded with the order without considering their contentions.

2. The petitioners raised concerns regarding the status of the company, claiming it to be a public limited company and not a private limited company as considered in the impugned order. They argued that the respondent sought to pierce the corporate veil without proper notice to all concerned parties. Citing a previous court decision, the petitioners highlighted the discrepancies in the impugned order, which covered assessment years beyond those mentioned in the show cause notice.

3. The petitioners contended that the impugned order suffered from various infirmities, including the incorrect status of the company and the lack of notice to all affected parties. They argued that the order went beyond the scope of the show cause notice, thereby violating the principles of natural justice and statutory provisions. The petitioners emphasized that apart from two of them, the rest were not served with any notice under section 179 of the Act, rendering the order contrary to legal principles.

4. After considering the submissions of the petitioners, the court issued a notice returnable on a specified date. Additionally, an ad-interim relief was granted, staying the impugned order dated 31.12.2018 passed under section 179 of the Act, along with the consequential demand notice under section 156 of the Act. Direct service of the order was permitted on the same day for compliance.