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Court overturns tax orders, emphasizes recovery from directors only if company can't pay. Fresh order directed. Bank account attachment upheld. The Court sets aside the orders of the Assessing Officer and Commissioner of Income Tax, emphasizing that recovery from directors can only occur if dues ...
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Court overturns tax orders, emphasizes recovery from directors only if company can't pay. Fresh order directed. Bank account attachment upheld.
The Court sets aside the orders of the Assessing Officer and Commissioner of Income Tax, emphasizing that recovery from directors can only occur if dues are not recoverable from the company. The Court directs the Assessing Officer to issue a fresh order after providing proper notice to the Petitioner. The attachment of the company's bank accounts is upheld. The Writ Petition is allowed with no costs.
Issues: Challenge to order under Section 179(1) of the Income Tax Act, 1961 and Section 264 - rejection of revision application.
Analysis: The Petition challenges the order dated 2nd March 2016 by the Assessing Officer under Section 179(1) of the Income Tax Act, 1961, and the order dated 13th June 2017 by the Principal Commissioner of Income Tax under Section 264, rejecting the Petitioner's revision application from the earlier order. The Petitioner contends that the orders proceed on a misconception that the condition precedent under Section 179(1) has been fulfilled, i.e., failure to recover dues from the defaulting company before seeking recovery from its Directors. The Court refers to the decision in Madhavi Kerker v. Assistant Commissioner of Income Tax, establishing that jurisdiction to proceed against directors can only be exercised when the Revenue fails to recover tax dues from the company. The Court emphasizes that the Revenue must inform the directors about the steps taken to recover dues from the company and its failure, allowing the directors to raise objections. In this case, the show cause notice did not provide this essential information.
The Court sets aside the impugned orders of the Assessing Officer and Commissioner of Income Tax based on the principles established in Madhavi Kerkar. However, it clarifies that the attachment of the bank accounts of the delinquent company will continue. The Assessing Officer is granted the liberty to issue a fresh order after giving an appropriate notice to the Petitioner, in line with the directions in the Madhavi Kerkar case. The Writ Petition is allowed in the above terms, with no order as to costs.
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