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2023 (6) TMI 885 - HC - Income TaxLiability of directors u/s 179 - Recovery of dues of company - Onus to prove the gross neglect or misfeasance or breach of duty on his part - HELD THAT:- Where a Director proves that non recovery of tax dues cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the Company, he shall not be liable for payment of tax dues. Of course, the responsibility of establishing such fact is upon the Director. Once the Director places before the authority his material and reasons why it should be held that non-recovery cannot be attributed to any of the three factors on his part, the Authority is bound to examine such grounds and come to a reasoned conclusion in this respect. We are alive to the fact that the legislature in its wisdom has used the words “gross neglect” and not mere neglect on the part of the Director. This view finds support in the judgment of Maganbhai Hansrajbhai Patel [2012 (11) TMI 189 - GUJARAT HIGH COURT] where the said High Court has dealt with the same present provision of Section 179 - In the said judgment it is further held that gross negligence etc is to be viewed in the context of non recovery of tax dues of the Company and not with respect to general functioning of the company. Perusal of the documents produced on record shows that after Petitioner’s removal from the directorship which has taken place in the year 2009 itself, Petitioner had no connection with the said company or any access to its affairs. Perusal of the impugned Orders further show that both the ITO as well as revisional Authority have mainly proceeded on the basis that the Petitioner was director during the assessment years and do not really consider whether there was any gross neglect or misfeasance for breach of duty on his part in relation to affairs of the company “in the context of non recovery of tax dues”. In such situation it is difficult to sustain the impugned Orders, which without any basis, simply says that Petitioner (Director) has failed to prove that nonrecovery cannot be attributed to any gross neglect or misfeasance or breach of duty on his part. No material is highlighted by the ITO contrary to material placed on record by Petitioner, based on which he can be held to be guilty of gross neglect or misfeasance or breach of duty in the context of nonrecovery of tax dues. Having brought on record material to show lack of financial control, lack of decision making power and having very limited role in the assessee company even as director and entire decision making process being with the directors appointed by KFI (Being single largest share holder of the assessee company), in our opinion, Petitioner has sufficiently discharged the burden cast upon him in terms of section 179(1) of the Act to absolve him from the liability thereunder. Order passed in Petitioner’s revision, by Chief Commissioner of Income Tax(OSD) holding charge of Pr. Commissioner of Income Tax-10, Mumbai is quashed and set aside. Decided in favour of assessee.
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