Court partially grants writ, quashes order under Section 226(3), mandates fresh proceedings under Section 179. Bank account freeze.

The court partly allowed the writ-application, quashing the impugned order and notices under Section 226(3). The Department was given two months to initiate fresh proceedings under Section 179 with full details, ensuring compliance with legal requirements. The writ-applicant was instructed not to operate the bank account until the new proceedings were completed.

---

---

Issues Involved:
1. Validity of the impugned order under Section 179 of the Income Tax Act, 1961.
2. Adequacy of the show-cause notice under Section 179 of the Income Tax Act, 1961.
3. Responsibility and liability of directors for the outstanding tax dues.
4. Propriety of the Department's actions in recovering tax dues from the company before proceeding against the directors.
5. Freezing of the writ-applicant's bank account under Section 226(3) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the impugned order under Section 179 of the Income Tax Act, 1961:
The writ-applicant challenged the order passed under Section 179 of the Income Tax Act, 1961, which held the directors jointly and severally liable for the outstanding tax dues of Rs. 9074.34 lakhs. The court noted that the impugned order was the outcome of a show-cause notice dated 02.11.2017. The court observed that the order did not disclose any material showing steps taken by the Department to recover the dues from the company before proceeding against the directors.

2. Adequacy of the show-cause notice under Section 179 of the Income Tax Act, 1961:
The writ-applicant argued that the show-cause notice was bereft of material particulars regarding the steps taken by the Department to recover the tax from the company. The court agreed, stating that the notice was silent on the satisfaction of the condition precedent for taking action under Section 179, i.e., that the tax dues could not be recovered from the company. The court emphasized that the subjective satisfaction of the authority should be reflected in the order based on cogent materials.

3. Responsibility and liability of directors for the outstanding tax dues:
The court reiterated that under Section 179, directors could only be held liable if the non-recovery of tax could not be attributed to any gross neglect, misfeasance, or breach of duty on their part. The burden of proof lies on the directors to demonstrate that the non-recovery was not due to their fault. The court found that the impugned order did not provide sufficient evidence to establish that the directors were responsible for the non-recovery.

4. Propriety of the Department's actions in recovering tax dues from the company before proceeding against the directors:
The court highlighted that the Department must first establish that recovery from the company was not possible before proceeding against the directors. The additional affidavit-in-reply submitted by the Department indicated steps taken against the company, but the court noted that such details should have been included in the show-cause notice and the impugned order. The court decided to give the Department another opportunity to undertake a fresh exercise under Section 179, ensuring that all necessary details are provided in the show-cause notice.

5. Freezing of the writ-applicant's bank account under Section 226(3) of the Income Tax Act, 1961:
The writ-applicant's bank account was frozen following the impugned order. The court acknowledged the writ-applicant's commitment not to operate the bank account until the fresh proceedings are completed. Consequently, the court quashed the notices under Section 226(3) issued to the banks, directing the Department to initiate fresh proceedings within two months.

Conclusion:
The court partly allowed the writ-application, quashing the impugned order and the notices issued under Section 226(3). The Department was granted two months to initiate fresh proceedings under Section 179 with all necessary details, ensuring compliance with legal requirements. The writ-applicant was directed not to operate the bank account until the completion of the fresh proceedings.

---