2019 (4) TMI 1132 - HC - Income Tax

Court stays tax demand on public limited company, citing lack of proper notice and unfair corporate veil piercing.

The Court issued a Notice returnable on 12.02.2019 and stayed the impugned order dated 31.12.2018 along with the consequential demand notice under section ... Notice under section 179 - Liability of directors of private company in liquidation - as submitted the company in question is a public limited company and not a private limited company and hence, it was not permissible to invoke section 179 -  HELD THAT:-  As submitted that the impugned order passed under section 179 of the Act goes beyond the showcause notice inasmuch as the showcause notice is issued in respect of assessment years 2008-09 and 2011-12 to the petitioner No.1Smt. Anandhi P. Naig and in respect of assessment year 2008-09 only to the petitioner No.2– Shri Pandoo P. Naig whereas, the impugned order has been passed in respect of several other assessment years. It was submitted that except for petitioners No.1 & 2, the rest of the petitioners have not being served with any notice under section 179 of the Act and therefore, the impugned order is in breach of the principles of natural justice as well as contrary to the statutory provisions. Having regard to the submissions advanced by the learned counsel for the petitioners, issue Notice, returnable on 12.02.2019. By way of adinterim relief, the impugned order dated 31.12.2018 passed under section 179 of the Act as well as the consequential demand notice under section 156 of the Act are hereby stayed. Issues:Impugned order passed under section 179 of the Income Tax Act, 1961 against seven persons without proper notice and opportunity of hearing.Analysis:The petitioners challenged the impugned order passed under section 179 of the Income Tax Act, 1961, against them without proper notice and opportunity of hearing. The petitioners argued that the company in question was a public limited company, not a private limited company as assumed in the order. They contended that the respondent failed to consider their reply to the showcause notice before passing the order. The petitioners highlighted that only two of them were served with the notice, while the rest were not, leading to a violation of natural justice principles and statutory provisions. The petitioners relied on the decision in Pravinbhai M. Kheni v. Assistant Commissioner of Income Tax and others to support their argument that piercing the corporate veil without proper notice was unjust. The Court, after considering the submissions, issued a Notice returnable on 12.02.2019 and stayed the impugned order dated 31.12.2018 along with the consequential demand notice under section 156 of the Act as ad-interim relief.