2023 (2) TMI 467 - HC - Income Tax

Liability of directors of private company in liquidation - steps taken against the delinquent Company - lack of jurisdiction of the Assessing Officer to proceed with the show cause notices issued by it under Section 179 - According to the petitioner as he was not the Director of the Company he was not liable to receive any notice u/s 179 which provision can be invoked only against a Director of a private Company - HELD THAT - Applying the ratio of the Judgments cited above in Vanraj V. Shah 2019 (7) TMI 31 - BOMBAY HIGH COURT Rajendra R. Singh 2022 (7) TMI 1309 - BOMBAY HIGH COURT and Mehul Jadavji Shah 2018 (4) TMI 646 - BOMBAY HIGH COURT to the facts of the present case that the impugned show cause notices disclose no facts regarding the steps taken by the Revenue to recover tax dues from the delinquent Company. In fact the show cause notices are mere repetition of the contents of the show cause notice - An affidavit-in-reply filed before us by the Assessing Officer attempts to list out various steps taken by the Revenue to recover tax dues from the Company between the year 2016 until the year 2020. However as held by this Court in Mehul Jadavji Shah (supra) giving particulars of steps taken against the delinquent Company in an affidavit-in-reply or even in the impugned orders does not meet the requirements of a proper notice to the Director. A perusal of the impugned order discloses that it does not record any of the material which formed the basis for the Assessing Officer to conclude that all steps have been taken to recover the tax dues from the Company. Further the impugned order does not refer to the Assessing Officer s subjective satisfaction based upon material before it to conclude that all steps had been taken to proceed against the delinquent Company and such steps had failed. This being a sine qua non for proceeding further and for assuming jurisdiction under Section 179 failure to disclose this material and to record the satisfaction of the AO in the manner required by the provisions of Section 179 renders the impugned show cause notices and the impugned order dated 14/12/2020 unsustainable at law. We are therefore of the considered opinion that the impugned show cause notices and the impugned order issued under Section 179 are unsustainable and contrary to the Act.

Summary

Issues Involved:
1. Validity of show cause notices under Section 179 of the Income Tax Act, 1961.
2. Jurisdiction of the Assessing Officer under Section 179 of the Act.
3. Compliance with the procedural requirements of Section 179 of the Act.
4. Petitioner's status as a Director of the Company.
5. Interim applications seeking intervention and relief.

Detailed Analysis:

1. Validity of Show Cause Notices under Section 179 of the Income Tax Act, 1961:
The petitioner challenged the show cause notices dated 15.10.2019, 24.02.2020, 19.03.2020, and 04.12.2020, and the order dated 14.12.2020, issued under Section 179 of the Income Tax Act, 1961, as being contrary to law. The petitioner argued that these notices did not state the steps taken by the respondents to recover tax dues from the company, which is a prerequisite under Section 179. The court noted that the show cause notices were repetitive and lacked the necessary details required to establish the jurisdiction of the Assessing Officer under Section 179.

2. Jurisdiction of the Assessing Officer under Section 179 of the Act:
The court emphasized that the Assessing Officer can assume jurisdiction under Section 179 only if it is demonstrated that the tax dues could not be recovered from the company. This requirement was not met in the show cause notices, which did not disclose any efforts made by the revenue to recover the dues from the company. The court referred to previous judgments, including Vanraj V. Shah vs. Dy. Commissioner of Income Tax and Sonal Nimish Patel vs. Assistant Commissioner of Income Tax, which held that the absence of such details in the show cause notice renders the action under Section 179 unsustainable.

3. Compliance with Procedural Requirements of Section 179 of the Act:
The court found that the impugned order dated 14.12.2020 did not record any material or satisfaction of the Assessing Officer regarding the steps taken to recover the tax dues from the company. This non-compliance with the procedural requirements of Section 179 rendered the notices and the order unsustainable. The court highlighted that the foundational fact that the tax dues could not be recovered from the company must be stated in the show cause notice itself, as established in previous judgments.

4. Petitioner's Status as a Director of the Company:
The petitioner claimed that he was not a Director of the company at the relevant time, as he had not attended any Board meetings and was deemed to have vacated the office under Section 283 of the Companies Act, 1956, and Section 167 of the Companies Act, 2013. The court noted that this argument would be irrelevant if the petitioner could demonstrate that the show cause notices and the impugned order did not comply with the mandate of Section 179.

5. Interim Applications Seeking Intervention and Relief:
Two interim applications were filed seeking intervention and relief. The first application by the company sought dismissal of the writ petition and an order to prevent the petitioner from disposing of his personal assets. The second application by an individual supported the impugned orders and sought similar relief. The court rejected both applications, stating that the impugned show cause notices and the order were unsustainable, and therefore, the interim relief sought was also unsustainable.

Conclusion:
The court concluded that the impugned show cause notices dated 24.02.2020, 19.03.2020, and 04.12.2020, and the impugned order dated 14.12.2020, issued under Section 179 of the Income Tax Act, 1961, were unsustainable and contrary to the Act. Consequently, the court quashed and set aside the show cause notices and the impugned order. The interim applications seeking intervention and relief were also rejected. The petition was allowed, and the rule was made absolute in terms of Prayer Clauses (b) and (c1). No costs were awarded.