Court directs reassessment under Section 179, sets aside order, grants fresh hearing, maintains attachment.

The court directed the Assessing Officer to reassess the petitioner's liability under Section 179, considering observations made. The impugned order was set aside, and the Assessing Officer was instructed to pass a fresh order after providing the petitioner an opportunity to be heard, preferably within three months. The attachment on the petitioner's residential flat would continue, but no action could be taken regarding the flat until a new order was issued. The rule was made absolute, with no order as to costs.

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Issues Involved:
1. Liability of the petitioner under Section 179 of the Income Tax Act, 1961.
2. Whether the expression "tax due" under Section 179 includes penalties.
3. Attribution of non-recovery of tax to gross neglect, misfeasance, or breach of duty by the petitioner.

Comprehensive, Issue-Wise Detailed Analysis:

1. Liability of the petitioner under Section 179 of the Income Tax Act, 1961:
The petitioner, an additional director of Yazad Investment & Finance Private Limited from January 2, 1987, to October 14, 1989, faced proceedings under Section 179 of the Income Tax Act, 1961, due to the company's inability to pay tax dues amounting to Rs. 25.64 lakhs for the assessment years 1990-1991 to 1995-1996. The Assessing Officer initially held the petitioner jointly and severally liable for the tax dues, which was later revised to Rs. 12.47 lakhs. The petitioner contended that the non-recovery of tax was not due to any neglect, misfeasance, or breach of duty on his part.

2. Whether the expression "tax due" under Section 179 includes penalties:
The petitioner argued that "tax due" under Section 179 should not include penalties imposed under Section 271(1)(c). The court examined the statutory language and noted that the Act distinguishes between tax and penalties. Section 2(43) defines "tax" but does not include penalties. The court referred to the Supreme Court's judgment in Harshad Shantilal Mehta v. Custodian, which clarified that "tax" does not encompass penalties or interest. Thus, the court concluded that "tax due" under Section 179 does not include penalties.

3. Attribution of non-recovery of tax to gross neglect, misfeasance, or breach of duty by the petitioner:
The petitioner contended that the non-recovery of tax was not due to his actions, as the decisions leading to the tax dues were made after his resignation. The court noted that the assessment order of March 31, 1990, highlighted two key issues: the valuation of opening stock and the write-back of interest, both decided after the petitioner ceased to be a director. The court emphasized that the Assessing Officer should have adequately considered whether the non-recovery was attributable to the petitioner's gross neglect, misfeasance, or breach of duty.

Conclusion:
The court directed the Assessing Officer to reassess the petitioner's liability under Section 179, considering the observations made. The impugned order dated March 24, 2009, was set aside, and the Assessing Officer was instructed to pass a fresh order after providing the petitioner an opportunity to be heard, preferably within three months. The attachment on the petitioner's residential flat would continue, but no action could be taken regarding the flat until a new order was issued. The rule was made absolute, with no order as to costs.

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