Successor liability under section 170(3) requires a hearing before fastening recovery on the successor.

Successor liability under section 170(3) of the Income-tax Act could not be fastened without giving the successor a reasonable opportunity of hearing. Because the determination directly affected the successor's civil liability, the authority had to hear objections on recovery from the predecessor, the quantum sought to be recovered, and the legal basis for invoking successor liability. An order made without such notice and hearing breached natural justice and was legally unsustainable. The cancellation of the liability order was therefore upheld.

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Issues: Whether the order fastening liability on the successor under section 170(3) was invalid for want of notice and opportunity of hearing, and whether the cancellation of that order was to be upheld.

Analysis: Liability under section 170(3) could arise only after the Income-tax Officer recorded the requisite finding, but such a determination affected the successor's civil liability and could not be made without hearing the affected party. The successor was entitled to place its objections on the alleged impossibility of recovery from the predecessor, the quantum sought to be recovered, and the legal basis for invoking successor liability. An order passed without affording that opportunity offended the principles of natural justice and was legally unsustainable.

Conclusion: The order under section 170(3) was invalid, and the cancellation of that order was rightly upheld.

Final Conclusion: The departmental challenge failed because the liability order was set aside on the ground that it had been made in breach of natural justice.

Ratio Decidendi: A determination that a sum cannot be recovered from the predecessor under section 170(3) of the Income-tax Act, 1961, cannot validly be made against the successor without giving the successor a reasonable opportunity to be heard.

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