TaxTMI 
TaxTMI 
2024 (7) TMI 830
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....nt of rival parties and are being disposed of for the sake of convenience with this common order. 2.1 For the purpose of the present discussions, the case in ITA No. 146/Jodh/2023 is taken as a lead case. Based on the above arguments we have also seen that for these appeals grounds are similar, facts are similar, and arguments were similar and therefore, were heard together and are disposed by taking lead case facts, grounds, and arguments from the folder in ITA No. 146/Jodh/2023. 3. Before moving towards the facts of the case we would like to mention that the assessee has assailed the appeal in ITA No. 146/Jodh/2023 on the following grounds; "1. The ld. CIT(Appeals) has erred in sustaining the addition of Rs. 1202630/- being one third amount credited in the bank account of AKCL Exports Limited during the year as income of the appellant. The addition for credit in account of other assessee as income of the appellant is bad in law and bad on facts. 4. The fact as culled out from the records is that the assessee is one of the directors of M/s AKCL Exports Limited (in short "AKCL"), the company incorporated under Companies Act, 1956. The said company's name was struc....
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....e relevant finding of the ld. CIT(A) is only on the ground that the directors who are operating account of dissolved company are responsible for explaining the nature and source of the deposits. The decisions relied upon by the assessee not accepted and based on that finding the ld. CIT(A) sustained the order of ld. AO. 6. Feeling dissatisfied with the above finding of ld. CIT(A), the assessee preferred the present appeal challenging the addition sustained by ld. CIT(A). In support of grounds so raised, the ld. AR of the assessee submitted that similar issue of the additions were dealt with by this bench in the case of Husband of the assessee Shri Kushal Chand Lodha vs. DCIT in ITA No. 258 to 262/Jodh/2023 dated 01.01.2024 wherein the bench has allowed the appeal of the assessee on similar facts vide paras 7 to 14 of that order and supply relied upon the order of the Bench. 7. Per contra, the ld. DR relied on the finding of the orders of the lower authorities. No contrary decision placed on record by the ld. DR but prayed that the bench may take judicious view in the matter considering the findings recorded in the orders of the lower authorities. 8. We have heard the rival....
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....nt of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company. (2) Where a private company is converted into a public company and the tax assessed in respect of any income of any previous year during which such company was a private company cannot be recovered, then, nothing contained in sub-section (1) shall apply to any person who was a director of such private company in relation to any tax due in respect of any income of such private company assessable for any assessment year commencing before the 1st day of April, 1962.] Explanation. -For the purposes of this section, the expression "tax due" includes penalty, interest, fees or any other sum payable under the Act." 9. We refer to the decision of the Hon'ble Supreme Court in case of CIT vs Gopal Scrips (P) Ltd (supra) whereby the decision of the Hon'ble Jurisdictional Rajasthan High Court was set-side wherein the appeal filed by the Revenue was dismissed by the Hon'ble High Court being infructious on account of name of the assessee company being struck off from the Register of Compani....
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.... deciding the appeal afresh on merits in accordance with law. 10. Mere perusal of the impugned order quoted supra would go to show that the High Court dismissed the appeal on the ground that it has rendered infructuous because it was brought to its notice that the name of the company the respondent-assessee has been struck off from the Register of the Company under Section 560(5) of the Companies Act, 1956. 11. In other words, the High Court was of the view that since the respondent Company stands dissolved as a result of the order passed by the Registrar of the Companies under Section 560(5) of the Companies Act, the appeal filed against such Company which stands dissolved does not survive for its consideration on merits. 12. In our view, the High Court was wrong in dismissing the appeal as having rendered infructuous. 13. The High Court failed to notice Section 506(5) proviso (a) of the Companies Act and further failed to notice Chapter XV of the Income Tax Act which deals with "liability in special cases" and its clause (L) which deals with "discontinuance of business or dissolution". 14. The aforementioned two provisions, namely, one....
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.... effect has not been filed within one hundred and eighty days of its incorporation under sub-section (1) of section 10A; or (e) the company is not carrying on any business or operations, as revealed after the physical verification carried out under sub-section (9) of section 12.] He shall send a notice to the company and all the directors of the company, of his intention to remove the name of the company from the register of companies and requesting them to send their representations along with copies of the relevant documents, if any, within a period of thirty days from the date of the notice. (2) Without prejudice to the provisions of sub-section (1), a company may, after extinguishing all its liabilities, by a special resolution or consent of seventy-five per cent. members in terms of paid-up share capital, file an application in the prescribed manner to the Registrar for removing the name of the company from the register of companies on all or any of the grounds specified in sub-section (1) and the Registrar shall, on receipt of such application, cause a public notice to be issued in the prescribed manner: Provided that in the case of a compa....
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....elf that sufficient provision has been made for the realisation of all amount due to the company and for the payment or discharge of its liabilities and obligations by the company within a reasonable time and, if necessary, obtain necessary undertakings from the managing director, director or other persons in charge of the management of the company: Provided that notwithstanding the undertakings referred to in this sub- section, the assets of the company shall be made available for the payment or discharge of all its liabilities and obligations even after the date of the order removing the name of the company from the register of companies. (7) The liability, if any, of every director, manager or other officer who was exercising any power of management, and of every member of the company dissolved under sub-section (5), shall continue and may be enforced as if the company had not been dissolved. (8) Nothing in this section shall affect the power of the Tribunal to wind up a company the name of which has been struck off from the register of companies 9. When the Company is being struck off, there will be certain consequences. The Section 250 of th....
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....within the time specified in the notice (not being before the money becomes due or is held) so much of the money as is sufficient to pay the amount due by the assessee in respect of arrears or the whole of the money when it is equal to or less than that amount. (ii) A notice under this sub- section may be issued to any person who holds or may subsequently hold any money for or on account of the assessee jointly with any other person and for the purposes of this sub- section, the shares of the joint holders in such account shall be presumed, until the contrary is proved, to be equal. (iii) ............... .................. .................... (x).................. 12. Further, as per Section 179 of Income Tax Act, if the tax due from Private company in respect of any income of any previous year cannot be recovered, then every person who was a Director of the private Company at any time during the relevant previous year shall be jointly and severally liable for the payment of such taxes unless he proves that non-recovery cannot be attributed to any gross neglect misfeasance or breach of duty on his part in relation of the Compan....
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....d for having become in-fructuous without adjudicating the actual tax dues or the liability of the assessee to pay such tax in the manner known to the Law and based on the such dismissal of the proceedings, if the Revenue proceeds for the recovery of the 'such tax due', the rights of the Directors of the Company will be seriously jeopardy and the same will amount to denial of the rights guaranteed under the Law. 16. In the instant Appeal, if we allow the request of the Revenue dismiss the Appeal as in-fructuous, one hand the appeal will be dismissed having become in-fructuous on the other hand, the Revenue Department will initiate proceedings under Section 179 of the Income Tax Act and that too without even adjudicating in the manner prescribed under Law on the 'quantum of actual tax due' or 'liability to pay tax', in such even great in justice will be caused, which cannot be permitted. 17. When the Revenue Department has not forgone the right to recover tax due or Written-off the demand on the ground of Company being struck off by the ROC, the right of the assessee to determine the tax liability in due process of law cannot be denied by dismissing the Appeal pendi....
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....s since the Company had been struck off from the register of ROC and the said Company dissolved. The operative portion of the Hon'ble High Court is as under:- "On the last date of hearing when the matter came up before the Court on 05.07.2016, counsel for the appellant was directed to seek instructions about the present status of the Respondent assessee (Company) whether it is in existence or has become non operational or defunct by passage of time. Sh. Anuroop Singhi, Adv., appearing for the appellant has placed for our perusal a communication issued from the office of Registrar of Companies dated 07.04.2011 indicating that pursuant to subsection( 5) of Section 560 of the Companies Act, 1956 the name of Gopal Shri Scrips Pvt. Ltd., has been struck off from the register and the said company is dissolved. In the light of the communication placed for our perusal dated 07.04.2011, no purpose is going to be served in examining the substantial question of law which has been raised for consideration in the instant appeal and on account of these change in circumstances, the present appeal has become infructuous and accordingly stands dismissed. However, the appe....
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....y against such Company arising under the Companies Act and under the Income Tax Act is required to be dealt with. 16. Since the High Court did not decide the appeal keeping in view the aforementioned two relevant provisions, the impugned order is not legally sustainable and has to be set aside. 17. In view of the foregoing discussion, the appeal succeeds and is accordingly allowed. The impugned order is set aside. The case is remanded to the High Court for deciding the appeal afresh on merits in accordance with law keeping in view the relevant provisions of Companies Act and the Income tax Act uninfluenced by any observations made by us on merits. 22. The Hon'ble Supreme Court in the case of M/s. Gopal Scrips Pvt. Ltd (supra) while allowing the Civil Appeal of the Revenue, dealt and relied on Section 560(5) of the Companies Act, 1956 and held that the Appeal filed by the Revenue is maintainable. The identical provisions have been introduced in the Companies Act, 2013 in Sub-Section sub- Sections (6) and (7) of Section 248 of the Companies Act. Therefore, the ratio laid down in the case of Gopal Scrips Pvt. Ltd (supra) is squarely applicable to the issue i....
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....n'ble Supreme Court and the Coordinate Bench have a direct bearing on the matter under consideration as in the present case, it appears that the Revenue has apparently not taken any action against the company in view of its name being struck off the Register of Companies and proceeded directly against the directors. There cannot be any dispute that the directors carry the joint and several liability as provided under section 179 of the Act but before invoking section 179, the Revenue has to determine the tax liability in the hands of the company and exhaust all legal remedies against it before proceedings against the Directors who in turn have the necessary shelter so provided in section 179 of the Act. In this regard, useful reference can be drawn to the decision of Hon'ble Bombay High Court in case of Manjula D. Rita and Bhavya D. Rita Vs. PCIT(in Writ Petition No. 1672 of 2021 dt. 19/06/2023) wherein it was held as under: "7 In our view, not only this order dated 9th March 2020 but also the order passed on 7th May 2018 under Section 179 of the Act require to be quashed and set aside. Considering the order dated 7th May 2018, there is no ground made out in the order for ....
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....from the company cannot be recovered. Only after the first requirement is satisfied would the onus shift on any Director to prove that non recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company. We would also add that this Court has in Prakash B. Kamat V/s. Principal Commissioner of Income Tax-10 and Ors. 1 has held that the true purport of Section 179(1) of the Act is that a person must not only be a Director at the relevant assessment year but also a Director at the time when the demand was raised and such Director can be held responsible only and only when "non recovery" is attributable to gross neglect, misfeasance or breach of duty on the part of such Director. 10 In this case, we also find that in view of non issuance of notice, the deceased has not been even given an opportunity to establish that the non recovery cannot be attributable to any of the three factors on his part, i.e., gross neglect or misfeasance or breach of duty. As held in Maganbhai Hansrajbhai Patel V/s. Assistant CIT 2 , the gross negligence etc. is to be viewed in the context of non recovery of tax dues of the compan....
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....andson Shri Manan Lodha who was an NRI during the period. As per return of income filed by Shri Manan Lodha his total income was Rs. 41,505/-only. However, no details of any income earned by him as an NRI was submitted, despite several queries raised. The ld. AO thus noted that the source of gift is not supported by any substantive evidence and the ld. AO also noted that if the Grand son of the assessee is working/doing business abroad, what prevents him from submitting the source of his income to establish his creditworthiness? Shri Manan Lodha is also assessed with the undersigned and no evidence to substantiate his creditworthiness was submitted. Hence, the source of gift claimed to have been received from Shi Manan Lodha considered as unexplained and unsubstantiated and hence addition of Rs. 25,00,000/- was made as income from unexplained sources u/s 69A of the Act. 11. Aggrieved from the above addition, the assessee preferred an appeal raising the specific ground before ld. CIT(A) considering the evidence and arguments placed before ld. CIT(A). The ld. CIT(A) has directed to delete the said addition of Rs. 25,00,000/- and the relevant finding of ld. CIT(A) is as under:- ....
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....specifically held by the ld. CIT(A) directing the ld. AO to delete the addition and the ground raised before him was considered as infructuous. 13. In support of the ground, the ld. AR of the assessee specifically submitted that finding of the ld. CIT(A) which reads as under : The appellant argued that assessment of Mr. Manan Lodha is also made and the credits in the account of Mr. Manan Lodha are also added in the hands of Mr. Manan Lodha. It is argued that it has resulted into double addition. The source of money in the hands of Manan Lodha and further the payment made out of such deposits also added in the hands of appellant. This argument of the appellant is logical. The unexplained amount added in the hands of Sh. Manan Lodha is not required to be added in the hands of appellant as it will amount to double addition of the same amount. The appellant is getting relief on this ground of appeal therefore, other issues raised by the appellant become only academic and therefore not decided. Therefore, the AO shall delete the addition of Rs. 25,00,000/- subject to verification that the same amount has been added in the hands of Mr. Manan Lodha and it is double ad....