AI Drafter 
TaxTMI 
TaxTMI 
2023 (5) TMI 226
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....itioner that this Company named as 'Annapuran Polymers Pvt. Ltd.,' later on went into liquidation and one Shri P.P. Rawat was appointed as Official Liquidator vide Resolution dated 25.03.2014. 2.1. It is further the case of the petitioner that on 28.02.2018 i.e. almost after an unreasonable period, a show cause notice in purported exercise of power under Section 179 of the Income Tax Act came to be issued to the petitioner calling upon the petitioner to show cause as to why order under Section 179 of the Income Tax Act not be made against the petitioner for pending tax dues of 'Annapurna Polymers Pvt. Ltd.,' for the Assessment Year 2011-12 amounting to Rs.1,16,58,350/-. The said notice came to be replied on 12.03.2018 inter alia explaining that the tax dues relate to a disputed issue which is under litigation and the notice does not state any efforts undertaken to recover money from the Company itself and further non-recovery of said dues are not attributable to any gross neglect, misfeasance or breach of duty by the petitioner in the affairs of the Company and as such, impugned notice is vague, reflecting no such condition precedent and by not stating any facts, representation ....
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....osition as well, still this notice has been adjudicated upon by the authority and an order came to be passed on 29.03.2019 and, therefore, according to learned advocate Mr. Soparkar when the foundation of initiation of steps under Section 179 of the Income Tax Act is not sustainable, further steps pursuant to it also deserves to be quashed as violative of fundamental legal proposition and as such, has also requested that this order which has been passed on 29.03.2019 also deserves to be quashed. 4.2. During the course of submissions, learned advocate Mr. Soparkar has further submitted that even while passing the order, aforesaid circumstances were specifically pointed out that failure to collect the demand is not only the element which can be considered while exercising powers under Section 179 of the Income Tax Act. A bare reading of the said order according to learned advocate Mr. Soparkar is completely suffering from the non-application of mind, but also laconic in nature and as such, when the basic elements while exercising jurisdiction under Section 179 of the Income Tax Act are not taken into consideration, the order deserves to be corrected and as such, has requested not ....
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....ontention, learned advocate Mr. Patel has referred to a decision delivered by Madras High Court in the case of B. Muralidhar v. Deputy Commissioner of Income Tax reported in [2019] 110 taxmann.com 54 (Madras) and by referring to this decision a contention is reiterated that since the petitioner was Director of the Company and in the capacity is jointly and severally responsible for payment of tax determined by the authority and as such, when the tax amount is not available from the Company, it is always open for the authority to invoke jurisdiction under Section 179 of the Income Tax Act and the said fact is not in dispute that at the relevant point of time the petitioner was once upon a time Director of the Company. Hence, the plea taken by the petitioner is not sustainable. Apart from that, it was the duty on the part of the petitioner to prove and satisfy the criteria/ingredients of Section 179 of the Income Tax Act and as such, even notice if to be treated as silent, then also it was obligation of the petitioner to prove such circumstance, which according to him are not circumstance relateable under Section 179 of the Income Tax Act. 5.1. Moreover, learned advocate Mr. Patel....
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....As against this, the reply which has been given by the petitioner on 12.03.2018 is explaining the circumstances and justification as to why notice deserves to be recalled. Since non-recovery of the dues is not attributable to the petitioner on account of any gross neglect, misfeasance or breach of duty, nor all these circumstances are reflecting in notice. Further perusal of the order which has been passed on 29.03.2019 has indicated that the primary reason for failure to collect demand is on account of total closure of the business operation, non-existence of office premises and as such, no provision was made by the Company or any of its director to ensure payments of government dues and tried to justify without examining the ingredients of Section 179 of the Income Tax Act, the reason assigned to the effect that there is total absence of any identifiable assets, immovable assets of the Company which can be attached and recovery made therefrom, nil balance in the bank account and debtors which was attached or any other sources from which the recovery could be made and that is the reason for the authority to come to a conclusion that Section 179 of the Income Tax Act can be resorte....
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....s to be revenue loss at the instance of the Company, by maintaining equities, we may direct the authority to re-consider the decision and initiate fresh step in accordance with law after proper procedure. 9. At this stage, we may refer to a decision delivered by this Court for the purpose of justifying to direct the respondent authority to re-consider the case since the basic criteria having been examined is not taken into consideration. 9.1. In light of the aforesaid and further in light of the propositions which are observed by the Division Bench of this Court in the case of Ram Prakash Singeshwar Rungta (supra) as indicated by the learned counsel appearing for the petitioner, we deem it proper to quote hereunder :- 9.1 Referring to the impugned order, it was submitted that the Assessing Officer has not addressed the issue from the perspective as laid down by this court in the case of Maganbhai Hansrajbhai Patel v. Assistant Commissioner of Income-Tax and another, (2013 ) 353 ITR 567 (Guj.), inasmuch as, there is no finding to the effect that there was any gross negligence, misfeasance or breach of duty on the part of the directors resulting into non-recovery of th....
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....rt recorded that the authority completely failed to appreciate in proper perspective the requirement of section 179(1) of the Act. The court observed that once it is shown that there is a private company whose tax dues have remained outstanding and the same cannot be recovered, any person who was a director of such a company at the relevant time would be liable to pay such dues. However, such liability can be avoided if it proves that the nonrecovery cannot be attributed to the three factors mentioned in the said order. Thus, the responsibility to establish such facts is on the director. However, once the director places before the authority his reasons why it should be held that non-recovery cannot be attributed to any of the above three factors, the authority would have to examine such grounds and come to a conclusion in this respect. The court observed that the lack of grossnegligence, misfeasance or breach of duty on the part of the directors is to be viewed in the context of nonrecovery of the tax dues of the company. In other words, as long as the director establishes that the non-recovery of the tax cannot be attributed to his gross neglect, etc. his liability under section ....
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.... compliance with Section 179 of the Act. It is the petitioner's case in the petition that, an amount of Rs. 49.81 crores are loans advanced to companies/associates of its Director, Mr. Praful Setna. The attempts at recovery if made known in the show cause notice, would have given an opportunity to the petitioner to bring the above facts to the notice of the Assessing Officer who could have recovered from them before proceeding with the notice. Therefore, the giving of particulars of efforts made and failure to recover the tax dues for the delinquent Private Limited Company in a notice issued under Section 179(1) of the Act is a sina-qua non for proceeding further. This is so as not only the Assessing Officer can assume/acquire jurisdiction only on failure to recover its dues from a Private Limited Company after proper efforts. But is also gives an opportunity to the assessee to point out why the efforts made are inadequate and/or improper. In fact in Madhavi Kerkar (supra), we have observed as under :- 7. So far as the second and third submission on behalf of the Revenue that in the facts of this case, the efforts which were made to recover the tax dues from the delinq....
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....asis of the Assessing Officer exercising jurisdiction and the notice' directors response, if any, should be considered in the order passed under Section 179 (1) of the Act. In this case the show cause notice dated 16th December 2015 under Section 179 (1) of the Act does not indicate or give any particulars in respect of the steps taken by the Income Tax Department to recover the tax dues of the defaulting Private Limited Company and its failure. The Petitioner in response dated 29th December 2015 to the above notice, questioned the jurisdiction of the Revenue to issue the notice under Section 179 (1) of the Act and sought details of the steps taken by the department to recover tax dues from the defaulting Private Limited Company. In fact, in its reply dated 29th December 2015, the Petitioner pointed out that the defaulting Company had assets of over Rs. 100 Crores. Admittedly, in this case no particulars of steps taken to recover the dues from the defaulting Company were communicated to the Petitioner nor indicated in the impugned order. In this case we find that except a statement that recovery proceedings against the defaulting assessee had failed, no particulars of the same ....
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....ce to the petitioner which must indicate briefly the steps to be taken by the department to recover the tax dues from the private limited company in default and its failure to recover is possible to be attributed to the petitioner. We may also deem it proper to quote the proposition of law laid down by the Hon'ble Apex Court on the issue of proper notice being noticed while initiating the step. Following are the observations contained in relevant paragraphs of decisions of Hon'ble Apex Court in the case of Commissioner of Central Excise, Bangalore v. M.s, Brindavan Beverages (P) Ltd., & Ors., reported in 2007 (5) SCC 388 (paragraph 10) as well as in the case of Uma Nath Pandey v. State of U.P. reported in AIR 2009 SC 2374 (paragraph 8), we may deem it proper to quote hereunder the said relevant observations :- "10. There is no allegation of the respondents being parties to any arrangement. In any event, no material in that regard was placed on record. The show cause notice is the foundation on which the department has to build up its case. If the allegations in the show cause notice are not specific and are on the contrary vague, lack details and/or unintelligible that is ....
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....isfaction of the condition precedent for taking action under Section 179 of the Act, 1961, viz. that the tax dues cannot be recovered from the Company. In the show−cause notice, there is no whisper of any steps having been taken against the Company for recovery of the outstanding amount. Even in the impugned order, no such details or information has been staled. 22. In such circumstances, referred to above, the question is, whether such an order could be said to be sustainable in law. The answer has to be in the negative. At the same time, in the peculiar facts and circumstances of the case and more particularly, when it has been indicated before us by way of an additional affidavit−in−reply as regards the steps taken against the company for the recovery of the dues, we would like to give one chance to the department to undertake a fresh exercise so far as Section 179 of the Act, 1961, is concerned. If the show−cause notice is silent including the impugned order, the void left behind in the two documents cannot be filled by way of an affidavit−in−reply. Ultimately, it is the subjective satisfaction of the authority concerned that is impo....