2020 (1) TMI 1158 - HC - Income Tax

Liability of directors of private company in liquidation - petitioner seeks quashing of the notice of demand under Section 156 as well as the consequential garnishee notices and individual recovery notices issued to the directors of the petitioner under Section 179 - HELD THAT - When the petitioner has filed the statutory appeal against the order of assessment and has also parallely filed an application for stay before the administrative Commissioner; without taking a decision either on the appeal or on the prayer for stay, it was not justified on the part of the revenue authority in issuing the impugned notices. In the circumstances, rejection of the prayer for stay by the AO when the appeal is pending before the first appellate authority and the stay prayer is pending before the administrative Commissioner, in our view, would not be of much consequence. Therefore, taking an overall view of the matter, we feel that the appeal filed by the petitioner under Section 246-A of the Act, which has been registered as CIT (A)-20.Mumbai/10324/2018-19 should be heard and decided by the first appellate authority in accordance with law within a period of four weeks from the date of receipt of an authenticated copy of this order. Ordered accordingly. During this period of four weeks, the impugned notices under Section 179 as well as under Section 226(3) of the Act shall remain in abeyance.

Summary

Issues:
Challenge to notice of demand under Section 156 of the Income Tax Act, 1961 and garnishee notices issued to directors under Section 179 of the Act.

Analysis:
The petitioner sought to quash a notice of demand under Section 156 of the Income Tax Act, 1961, and garnishee notices issued to the directors under Section 179 of the Act. The assessment order dated 27.12.2018 determined a taxable income for the petitioner based on fair market value of shares under Sections 60 and 63 of the Act. The demand notified a substantial sum as income tax payable. The petitioner appealed against this order before the Commissioner of Income Tax (Appeals) and submitted written arguments. Additionally, the petitioner approached the administrative Commissioner for stay of the demand, making a partial payment under protest. Despite pending stay application and appeal, notices were issued under Section 226(3) and Section 179 of the Act for recovery. The petitioner contended that issuing such notices without deciding on the stay application was unjustified. The revenue authority argued that a speaking order rejecting the stay request had been issued before issuing the notices.

The Court considered the arguments and held that without deciding on the appeal or stay application, issuing the impugned notices was unjustified. The rejection of the stay request by the Assessing Officer, while the appeal and stay application were pending, was deemed inconsequential. The Court directed the first appellate authority to hear and decide the appeal within four weeks, keeping the impugned notices in abeyance during this period. The petitioner was instructed to cooperate during the appeal process. The Court clarified that no opinion on merit was expressed, and all contentions were left open. If the appeal order favored the revenue authorities, the petitioner was granted an additional two weeks to avail statutory remedies. The writ petition was disposed of, emphasizing that the decision did not imply any judgment on the merits of the case.