Dismissal of Writ Petition on Tax Challenges & Neglect: Private Agreements Invalid

The court dismissed the writ petition, ruling against the petitioner on various issues including the challenge to tax orders, recovery of outstanding tax demand, adequacy of assets, gross neglect by the petitioner, validity of private agreements in apportioning tax liability, and compliance with natural justice principles. The court held that the petitioner failed to demonstrate that the non-recovery of tax dues was not due to his neglect, misfeasance, or breach of duty. Private agreements were deemed invalid in allocating tax liabilities, and the Revenue was found to have taken necessary steps before pursuing the directors. The petition was dismissed without costs.

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Issues Involved:

1. Challenge to orders under Section 264 and Section 179 of the Income Tax Act, 1961.
2. Recovery of outstanding tax demand from the petitioner.
3. Adequacy of assets of Realtech Group to pay tax demand.
4. Gross neglect, misfeasance, or breach of duty by the petitioner.
5. Validity of private agreements (MOU and Settlement Deed) in apportioning tax liability.
6. Compliance with principles of natural justice.

Issue-Wise Detailed Analysis:

1. Challenge to Orders under Section 264 and Section 179 of the Income Tax Act, 1961:
The petitioner challenged the orders dated 01st April 2021 and 29th January 2018 under Sections 264 and 179 of the Income Tax Act, respectively. The petitioner sought to restrain the respondents from recovering the outstanding demand of Rs. 5,89,68,019/- from him, pertaining to Assessment Years 2006-07 to 2009-10.

2. Recovery of Outstanding Tax Demand from the Petitioner:
The petitioner argued that no action had been taken by the Assessing Officer to recover the demand from the Realtech Group of Companies. The court, however, found that the Assessing Officer had issued demand notices, notices under Section 221(1), and attached the bank accounts of the companies, making partial recoveries. Despite these efforts, the entire outstanding tax dues could not be recovered, necessitating recovery from the directors, including the petitioner.

3. Adequacy of Assets of Realtech Group to Pay Tax Demand:
The petitioner contended that there were adequate assets within the Realtech Group to cover the tax liabilities. However, the court noted that the tax dues could not be recovered from the assets of the companies, and Section 179 only permits recovery against a director and not against other group companies, which are distinct legal entities.

4. Gross Neglect, Misfeasance, or Breach of Duty by the Petitioner:
The petitioner argued that the Revenue had failed to demonstrate his gross neglect, misfeasance, or breach of duty. The court clarified that under Section 179, the burden is on the director to prove that non-recovery was not due to his gross neglect, misfeasance, or breach of duty. The court cited the Bombay High Court's decision in Union of India and Ors vs Manik Dattatreya Lotlikar, which held that the burden of proof lies on the director.

5. Validity of Private Agreements (MOU and Settlement Deed) in Apportioning Tax Liability:
The petitioner relied on a Memorandum of Understanding (MOU) and a Settlement Deed, which allocated tax liabilities to another director, Mr. Pankaj Dayal. The court held that private parties cannot apportion income tax liability through private agreements as it involves rights in rem, which are unsuited for private arbitration and can only be adjudicated by courts or tribunals. The court referenced Booz Allen & Hamilton Inc. vs SBI Home Finance Limited & Ors. to support this view.

6. Compliance with Principles of Natural Justice:
The petitioner claimed that he was not given a fair and reasonable opportunity to present his case. The court found that the petitioner was given an opportunity to file his reply and was informed of the consequences of non-compliance. Notices were issued to all directors, and the petitioner failed to respond. Therefore, the court concluded that principles of natural justice had been fully complied with.

Conclusion:
The court dismissed the writ petition, holding that the petitioner failed to prove that the non-recovery of tax dues was not due to his gross neglect, misfeasance, or breach of duty. The court emphasized that private agreements cannot bind statutory authorities and that the Revenue had taken all possible steps to recover the dues from the companies before proceeding against the directors. The petition was dismissed with no order as to costs.

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