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TMI Blog2017 (7) TMI 818X X X X Extracts X X X X X X X X Extracts X X X X ..... f the income tax authority. The notices, which we have referred to, are all issued to the company. These notices are in the form of recoveries or reminders of unpaid tax or penalty. None of these notices contain even a reference to any recoveries being made personally from the directors for the failure of the company to discharge its tax dues. If one reads the order, it seems to be suggesting that the sole requirement of applicability of section 179(1) is that the tax dues of a private company have remained unpaid. To the later requirement of the same not attributable to any gross negligent, misfeasance or breach of duty on part of director in relation to the affairs of the company is totally lost sight of. The language used in sub section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2004-05. 2. The company had filed the return of income for the assessment year 2004-05 declaring total income of ₹ 21,06,990/-. Assessment under section 143(3) of the Act was framed on 29.03.2007. Such assessment was, however, set aside by CIT (Appeals) as time barred. Notice of reopening was issued on 13.03.2008 and order of re-assessment was passed on 5.12.2008 determining the total income of the company at ₹ 64,73,810/- The appeal of the company was allowed by the CIT (Appeals) partially. By an order dated 30.11.2009 giving effect to the appellate order, the Income Tax authorities held that the company had to pay unpaid tax of ₹ 23,45,790/-. Penalty proceedings resulted into imposition of penalty under section 271( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the department is wholly illegal. Without a show-cause notice or hearing or citing reasons, the authority has passed order under section 179(1) of the Act which is not sustainable. None of the petitioners, were visited with any show cause notice why the recovery of the unpaid tax and penalty of the company should be made from the directors. He further pointed out that the impugned order under section 179(1) of the Act does not cite any reasons. 6. On the other hand, learned counsel Mr. Desai for the department vehemently contended that despite repeated notices, the company did not pay the dues. It is not the case of the petitioners that the dues of the company have been paid up. In that view of the matter, the consequence envisaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to establish that nonrecovery cannot be attributed to any gross negligent, misfeasance or breach of duty on his part in relation to the affairs of the company. 8. It is therefore, not correct to suggest that the moment the tax dues of a private company remain unpaid, the consequence under section 179(1) must follow against each of the directors. Before such an order can be passed, the statute envisages an important stage whereby the concerned director would have an opportunity to prove that the non-recovery cannot be attributed to any gross negligent, misfeasance or breach of duty on his part in relation to the affairs of the company. This opportunity would have to be made available to the director before an effective order under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or reminders of unpaid tax or penalty. None of these notices contain even a reference to any recoveries being made personally from the directors for the failure of the company to discharge its tax dues. 10.This apart even the order under section 179(1) of the Act is completely silent on the requirements of the statute being satisfied. We may reproduce the order: "In exercise of powers u/s. 179(1) of the Income Tax Act, a Directors of company and the legal representative of any such person who is deceased, shall be jointly and severally liable along with the company for the amount of tax, penalty or other sum payable by the company for the assessment year to which such previous year is relevant, and all the provisions of this Act for pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far and therefore, "whole directors of the company shall be jointly and severally liable to pay the outstanding demands." He accordingly, orders such directors to pay the said sum within ten days of the receipt of the order. This order betrays certain misconception about the requirement of section 179(1) of the Act. If one reads the order, it seems to be suggesting that the sole requirement of applicability of section 179(1) of the Act is that the tax dues of a private company have remained unpaid. To the later requirement of the same not attributable to any gross negligent, misfeasance or breach of duty on part of director in relation to the affairs of the company is totally lost sight of. The language used in sub section (1) of section 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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