2018 (5) TMI 442 - HC - Income Tax

Court quashes tax order due to lack of notice, upholds natural justice principles

Jaison S. Panakkal Versus Principal Chief Commissioner of Income Tax & Another

The Court quashed the order under Section 179(1) of the Income Tax Act, 1961, as it was issued without a proper show cause notice, violating principles of ... Jurisdiction of the AO to commence proceedings u/s 179 (1) - proceedings against the Director of a delinquent company for a recovery of the tax dues of the delinquent company - Held that:- Jurisdiction to commence proceedings against the Director of a delinquent company for a recovery of the tax dues of the delinquent company, would require the notice to the Directors/ former Directors, itself, indicating what steps had been taken to recover the dues from the delinquent company and the failure thereof. Only when the above exercise has been done and is indicated in the show cause notice that the AO and can claim to have satisfied the condition precedent for commencing proceedings under Section 179(1) of the Act. The Respondent very fairly states that the issue stands concluded against the Revenue in the present facts, by the decision of this Court in Madhavi Kerkar (2018 (1) TMI 749 - BOMBAY HIGH COURT) and Mehul J. Shah (2018 (4) TMI 646 - BOMBAY HIGH COURT). The impugned order dated 15th February, 2018 is quashed and set aside. Issues:Challenge to order under Section 179(1) of the Income Tax Act, 1961 without prior show cause notice.Analysis:The petitioner challenged an order dated 15th February, 2018, passed under Section 179(1) of the Income Tax Act, 1961, by the Assessing Officer. The petitioner, a former Director of a company, was directed to pay tax dues of Rs. 38.34 Crores for Assessment Year 2008-09 to 2010-11. The petitioner contended that the order was issued without serving a show cause notice, denying the opportunity to present a defense, thus violating natural justice.The Respondents claimed that a show cause notice dated 26th July, 2017 was sent via Registered Post but returned with the remark 'not known.' However, the notice did not mention the attempts to recover tax dues from the company. The petitioner argued that this lack of information rendered the proceedings without jurisdiction.A similar issue regarding the jurisdiction of the Assessing Officer emerged in previous cases. The Court had ruled that proceedings against a Director for recovery of a company's tax dues required a notice indicating the steps taken to recover the dues from the company and the failure thereof. Since the show cause notice in the present case did not meet this requirement, the impugned order was quashed and set aside.The Respondent's Counsel acknowledged that the issue was settled against the Revenue based on previous court decisions. The Court's decision in this case aligned with the precedents set in earlier judgments, leading to the quashing of the impugned order.While setting aside the order, the Court clarified that the Revenue could still take appropriate steps to recover the tax dues from the petitioner, provided they meet jurisdictional requirements and adhere to principles of natural justice. Consequently, the recovery proceedings linked to the impugned order were also quashed.The writ petition was disposed of with no order as to costs, concluding the legal proceedings surrounding the challenge to the order under Section 179(1) of the Income Tax Act, 1961 without a prior show cause notice.