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TMI Blog2023 (5) TMI 226X X X X Extracts X X X X X X X X Extracts X X X X ..... d the same being suffering from the vice of non-application of mind, we may deem it proper to quash the same, of course with liberty to the respondent authority to pass a fresh order after issuing proper notice to the petitioner which must indicate briefly the steps to be taken by the department to recover the tax dues from the private limited company in default and its failure to recover is possible to be attributed to the petitioner. We may also deem it proper to quote the proposition of law laid down by the Hon ble Apex Court on the issue of proper notice being noticed while initiating the step. We hereby allowed the petition by quashing and setting aside the notice as well as order passed by the respondent authority and while allowing the petition we reserve liberty for respondent by observing that it shall be open for the respondent to issue fresh notice for the purpose of proceedings against the petitioner under Section 179 of the Income Tax Act and shall pass a fresh order in accordance with law on the subject in question, if it deems fit. - HONOURABLE MR. JUSTICE ASHUTOSH SHASTRI and HONOURABLE MR. JUSTICE J. C. DOSHI MR B S SOPARKAR(6851) FOR THE PETITIONER(S) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . B.S. Soparkar, learned advocate appearing for the petitioner has vehemently contended that notice itself is vague, without reflecting any condition precedent as mentioned in Section 179 of the Income Tax Act and by issuing such vague notice, the petitioner is deprived of making effective representation and thereby violated a well-recognized principle of natural justice. It has been contended that the basic elements which are mentioned in Section 179 of the Income Tax Act are not reflecting even otherwise on the case on hand, namely, that it does not reflect that any steps or efforts have been made to recover the money from the Company for the Assessment Year 2011-12 and further non-recovery of such alleged dues are not attributable to any gross neglect, misfeasance or breach of duty by the petitioner in the affairs of the Company and, therefore, when such elements are missing, the notice is unsustainable in the eye of law. It has further been contended that the though the petitioner was one time Director in the Company, somewhere in May, 1989, but then the petitioner had already sold off his shares in December, 2013 and then resigned from the post of Director from 02.01.2014 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions, the Court was pleased to set aside the action under Section 179 of the Income Tax Act. Yet another decision is also pressed into service in the case of Suresh Narain Bhatnagar v. Income Tax Officer reported in [2014] 43 taxmann.com 420 (Gujarat) wherein also similar proposition with reference to Section 179 of the Income Tax Act has been made and thereby the action under Section 179 of the Income Tax Act came to be set aside. Hence, by referring to all these decisions, learned advocate Mr. Soparkar has submitted that powers which are exercised are not exercised within four corners of the law. 4..4 Yet another decision which has been tried to be referred to is the decision of the Bombay High Court in the case of Mehul Jadavji Shah v. Deputy Commissioner of Income Tax reported in [2018] 92 taxmann.com 401 (Bombay) and by referring to issue relating to foundation i.e. show cause notice, it has been reiterated that the action even by the Bombay High Court was found to be not sustainable under Section 179 of the Income Tax Act and as such, by referring to this decision, a contention is reiterated that notice issued under Section 179 of the Income Tax Act as well as or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernative remedy efficacious enough and as such, even if this revision is possible to be preferred, but then same is not efficacious remedy and as such, writ jurisdiction is always possible to be invoked and further has submitted that even with regard to this appeal filed by the Company for Assessment Year 2011-12, came to be allowed vide order dated 07.09.2022 and as such, even on such circumstance also, there is hardly any reason for the authority to initiate any steps against the petitioner. 6.1. In the alternative form of submission, learned advocate Mr. Soparkar has submitted that since basic ingredients which are required to be considered as mentioned in Section 179 of the Income Tax Act have not been dealt with at all, no satisfaction or positive conclusion is reflecting in the order in question and since the notice itself is silent and vague by setting aside the same, at least the matter deserves to be reconsidered in light of the aforementioned background and as such, has requested to pass suitable order in the interest of justice. 7. Having heard the learned advocates appearing for the respective parties and having gone through the material placed before us, on perus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of law. At this stage we may refer to Section 179 of the Income Tax Act, which reads as under :- Liability of directors of private company in liquidation.- Section 179: (1) Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), where any tax due from a private company in respect of any income of any previous year or from any other company in respect of any income of any previous year during which such other company was a private company cannot be recovered, then, every person who was a director of the private company at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company. [(2) Where a private company is converted into a public company and the tax assessed in respect of any income of any previous year during which such company was a private company cannot be recovered, then nothing contained in sub-section (1) shall apply to any person who was a director of such private company in relation to any tax due in respect of any income o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and unsecured loans given to the Company. It was submitted that, the Assessing Officer, in the order under section 179(1) of the Act has not even referred to the same nor has he given any reasons for rejecting the submissions put forth by the petitioners. It was, accordingly, urged that the impugned order is not in consonance with the provisions of section 179 of the Act and, hence, is not sustainable. 12. Before adverting to the merits of the case, it may be germane to refer to the decision of this court in the case of Maganbhai Hansrajbhai Patel v. Assistant Commissioner of Income-Tax (supra) wherein this court has, inter alia, held that sub-section (1) of section 179 provides for joint and several liability of the directors of a private company wherein the tax due from such company in respect of any income of any previous year cannot be recovered. The first requirement, therefore, to attract such liability of the director of a private limited company is that the tax cannot be recovered from the company itself. Such requirement is held to be a prerequisite and a necessary condition to be fulfilled before action under section 179 of the Act can be taken. The court placed r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the petitioner due to which the tax dues from the company could not be recovered. The court held that in the absence of any such consideration, the Assistant Commissioner could not have been ordered recovery of dues of the company from the director. 13. Examining the facts of the present case in the light of the principles propounded in the above decision, a perusal of the notice under section 179 of the Act reveals that the same is totally silent as regards the satisfaction of the condition precedent for taking action under section 179 of the Act, namely, that the tax dues cannot be recovered from the Company. In the notice under section 179 of the Act also there is no reference to any steps having been taken for recovery of the outstanding amount from the company. Even in the impugned order, except for a statement to the effect that in spite of all efforts, demand could not be recovered from the Company since it has closed down its activities since 1999, nothing has been stated as regards the steps that had been taken for recovery of the outstanding amount from the Company. The affidavit-in-reply filed by the respondent is also totally silent in this regard. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld have given an opportunity to the petitioner to bring the above facts to the notice of the Assessing Officer who could have recovered from them before proceeding with the notice. Therefore, the giving of particulars of efforts made and failure to recover the tax dues for the delinquent Private Limited Company in a notice issued under Section 179(1) of the Act is a sina-qua non for proceeding further. This is so as not only the Assessing Officer can assume/acquire jurisdiction only on failure to recover its dues from a Private Limited Company after proper efforts. But is also gives an opportunity to the assessee to point out why the efforts made are inadequate and/or improper. Infact in Madhavi Kerkar (supra), we have observed as under :- 7. Therefore, the Revenue would acquire/get jurisdiction to proceed against the directors of the delinquent Private Limited Company only after it has failed to recover its dues from the Private Limited Company, in which the Petitioner is a director. This is a condition precedent for the Assessing Officer to exercise jurisdiction under Section 179 (1) of the Act against the director of the delinquent company. In our view the jurisdictional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of the tax dues must find mention in the show cause notice howsoever briefly. This would give an opportunity to the noticee to object to the same on facts and if the Revenue finds merit in the objection, it can take action to recover it from the delinquent Private Limited Company. This before any order under Section 179(1) of the Act is passed adverse to the noticee. In this case, admittedly the show cause notice itself does not indicate any particulars of the failed efforts to recover the tax dues from the delinquent Private Limited Company. Thus, the issue stands covered in favour of the petitioner by the order of this Court in Madhavi Kerkar (supra). In the above circumstances, the impugned order dated 26th December, 2017 is quashed and set aside. 9. However, it is made clear that the Assessing Officer is at liberty to pass a fresh order after issuing appropriate notice to the petitioner which must indicate briefly the steps taken by the Department to recover the tax dues from the delinquent private limited company and its failure to recover the same. Needless to state, the Assessing Officer would hear the petitioner on its objection and pass a fresh order in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate the stand of the appellant, the conclusions of the Commissioner as affirmed by the CEGAT cannot be faulted. 8. The adherence to principles of natural justice as recognized by all civilized States is of supreme importance when a quasi-judicial body embarks on determining disputes between the parties, or any administrative action involving civil consequences is in issue. These principles are well settled. The first and foremost principle is what is commonly known as audi alteram partem rule. It says that no one should be condemned unheard. Notice is the first limb of this principle. It must be precise and unambiguous. It should appraise the party determinatively the case he has to meet. Time given for the purpose should be adequate so as to enable him to make his representation. In the absence of a notice of the kind and such reasonable opportunity, the order passed becomes wholly vitiated. Thus, it is but essential that a party should be put on notice of the case before any adverse order is passed against him. This is one of the most important principles of natural justice. It is after all an approved rule of fair play. xxx xxx xxx. 12. In light of the aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned counsel Mr.Soparkar that till the fresh proceedings are not completed, his client will not operate bank account. 23. In view of the above, this writ application is partly allowed. The impugned notice as well as the order is hereby quashed and set aside. It shall be open for the respondent to issue fresh show cause notice for the purpose of proceeding against the writ applicant under Section 179 of the Act, 1961. We would like to give a time bound program so that the proceedings may not go on for an indefinite period. We are also issuing such direction because of the statement being made that the writ applicant will not operate the bank account till the fresh proceedings are initiated and completed. In such circumstances, we grant two months' time from the date of receipt of the writ of this order to the Department to initiate fresh proceedings and pass appropriate orders in accordance with law. Till the final order is passed, the writ applicant shall not operate the bank account concerned. 13. In view of the aforesaid discussion, we hereby allowed the petition by quashing and setting aside the notice dated 28.02.2018 as well as order dated 29.03.2019 passed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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