Court revokes tax liability on director, criticizes Assessing Officer for impermissible action.

The court set aside the orders imposing tax liability on a director under Section 179 of the Income Tax Act, 1961, due to lack of proper consideration of the director's representation and failure to establish the company's inability to pay the dues. The court criticized the Assessing Officer for issuing a correction without recalling the initial order, deeming it impermissible post-decisional action. Consequently, the court revoked the orders and bank account attachments, allowing the Department to issue a fresh show-cause notice and pass a new order following legal procedures.

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Issues:
Challenge to order under Section 179 of the Income Tax Act, 1961.

Analysis:
The petitioner, a director of a private limited company, challenged an order passed by the Deputy Commissioner of Income Tax under Section 179 of the Income Tax Act, 1961. The order imposed liability on the petitioner to pay the outstanding tax dues of the company. The petitioner contended that the tax dues could be recovered from the company and were not due to any gross neglect, misfeasance, or breach of duty on his part. The Assessing Officer passed the order holding the petitioner liable without considering the detailed representation submitted by the petitioner. The court analyzed Section 179 of the Act, which allows recovery of tax dues from directors of a private company under certain legal requirements. It highlighted that recovery from a director is subject to proving that non-recovery cannot be attributed to gross negligence, misfeasance, or breach of duty on the part of the director.

The court emphasized that the first requirement for recovery from a director is the inability to recover tax dues from the private company. Even if this condition is met, the director has the right to prove that non-recovery is not due to their negligence, misfeasance, or breach of duty. The court noted that the show-cause notice did not establish that the dues should not be recovered from the company, shifting the burden to the director to prove non-attribution of neglect, misfeasance, or breach of duty. The Assessing Officer's order lacked necessary facts in the show-cause notice, rendering the recovery order baseless.

The court criticized the Assessing Officer for passing the order without considering the petitioner's detailed representation and subsequently issuing a 'Corrigendum' without recalling the initial order. Such post-decisional consideration was deemed impermissible. Consequently, the court set aside the orders dated 18.9.2018 and 8.3.2019, along with the attachment of the petitioner's bank accounts for recoveries. The court clarified that its decision did not prevent the Department from issuing a fresh show-cause notice and passing a new order in accordance with the law. The writ petition was disposed of accordingly.

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