TMI Blog2013 (12) TMI 726X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Respondent : B. Agrawal,A. N. Mahajan ORDER (Delivered by Hon'ble Surya Prakash Kesarwani,J.) 1. In this writ petition, the petitioner has prayed for the following relief : "(i) issue a writ, order or direction in the nature of prohibition against respondent no.1 prohibiting it from continuing further with the proceedings; (ii) issue a writ, order or direction in the nature of certiorari calling for bringing up of the records of the said case and quashing the order dated 29.3.2007 (Annexure-10 to the writ petition); (iii) issue a writ, order or direction in the nature of mandamus directing the respondent -1 to desist from acting further as its order dated 29.3.2007 (Annexure-10 to the writ petition) and to treat it as non-est. (iv) issue a writ, order or direction in the nature of certiorari to quashing the order of attachment dated 22.9.2006 of the only residential flat of the petitioner situate at B-10/4 IInd Floor, Ramesh Nagar, New Delhi (Annexure-9-A to this writ petition). (v) issue any other writ, order or direction, which this Hon'ble Court may deem fit and proper in the facts and circumstances of this case ; (vi) award the cost to the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d penalties Rs. 3,20,500/- under Section 271 (1)(c) and 273 (2) (b). Aggrieved with the order of the ACIT, the petitioner filed an application under section 264 of the Act before the CIT, Muzaffarnagar who rejected the application vide order dated 29.3.2007 (Annexiure-10) and held as under : "6. Having considered the arguments Smt. Pratibha Garg my findings are discussed below : i. as per the provisions of Section 264 (3) an application for revision must be made within one year from the date on which the order was communicated to the applicant on the date on which he otherwise came to know of it, whichever is earlier. a. In the case before us the order passed under Section 179 by the ACIT is dated 15.3.2004 but Smt. Pratibha Garg claims to have received it only on 28.2.2006 i.e. after a lapse of almost 2 years. I find that a copy of the order under Section 179 dated 15.3.2004 passed by the ACIT, Muzaffarnagar was endorsed to Smt. Pratibha Garg, this endorsement raises the presumption that a copy of the order was communicated to her. Whenever, a copy of a Govt. order is endorsed to an individual, it raises a strong presumption that a copy of the order was dispatched to the ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the ITAT, New Delhi against the orders of the CIT (A). Smt. Pratibha Garg had requested for keeping these demands in abeyance till the disposal of the appeal by the tribunal. It was further stated that Smt. Pratibha Garg does not have any substantial income of her own hence she was in no position to pay these demands. She has stated that the demands be recovered from the shares and trade debtors seized from the premises of Smt. S.K.Garg during the course of search in 1985." a. From the above, it is clear that Smt. Pratibha Garg was granted adequate opportunity and that she did participate in the proceedings u/s.179. v. With regard to the plea of Smt. Pratibha Garg that recovery cannot be made from her before first attempting to recover tax from the company, I find that the AO had proceeded against the Director u/s. 179 only after having failed to recover the demand from the company. The ACIT in his order dated 15.3.2004 has stated as under : "The efforts made for recovery of demands in these cases were fruitless. The bank accounts of the company which were attached by the department had hardly any funds, hence the demands could not be recovered. Further, the latest ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance on the following judgments : (i) (1998) 231 ITR 871 SC, Harshad Shantilal Mehta V. Custodian and others. (ii) 1983 Law Suit (Del) 74 V. 10 and 11 (DB) S C Jain v. Union of India, para 11. (iii) (2006) 282 ITR 120 (Guj), Indubhai T. Vasa (Huf) v. Income Tax Officer. Submission on behalf of respondents 8. Sri Dhananjay Awasthi, learned counsel for the respondents submits that: (i) None of the grounds raised in the writ petition were raised before the CIT and, therefore, the arguments are not entertainable. (ii) No defect in the impugned order could be pointed out by the petitioner. (iii) The ratio of Harshad Mehta's judgment is not applicable to the provisions of Section 179 of the Act. (iv) As per explanation of Section 179 of the Act "tax due" includes penalty and interest. (v) The entire proceedings under Section 179 of the Act initiated against the petitioner and the impugned order passed by the authorities are wholly valid and they do not suffer from any infirmity. In support of his submissions Sri Dhananjay Awasthi has relied on the following judgments: (i) (1998) 229 ITR 570 (Alld), Roop Chandra Sharma v. Dy. Commissioner of Income Tax (Assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .e.f. 1.6.2013)- For the purposes of this Section, the expression "tax due" includes penalty, interest or any other sum payable under the Act]. 12. From the plain reading of Section 179 of the Act, it is clear that where any tax due from a private company in respect of any previous year or from any other company in respect of any income of any previous year during which other company was a private company, cannot be recovered, then, every person who was a Director of the private company at any time during relevant previous year shall be jointly and severely liable for payment of such tax unless he proves that the non recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on the part of the petitioner in relation to the affairs of the company. 13. The words "tax due" has not been defined under the Act. However, we find that the word "tax" has been defined under Section 2 (43) of the Act as under : " "tax" in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year income-tax and super-tax charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered as tax under Section 11(2)(a). We agree with the reasoning and conclusion drawn by the Special Court in this connection." (Emphasis supplied by us) 16. In view of the above discussions we hold that any "tax due" for the purposes of Section 179 of the Act would not include penalty and interest for the period prior to insertion of the explanation in Section 179 by Finance Act, 2013. 17. Question No. 2 and 3 :- (2) Whether the petitioner has established that the recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on the part of the petitioner in relation to the affairs of the company? (3) Whether the CIT has correctly held that the tax dues of the company are liable to be recovered from the petitioner as Director for the AY 1984-85 ? In the reply dated 16.9.2002, submitted to the Assistant Commissioner of Income Tax, Circle-2, Muzaffarnagar, the petitioner has clearly stated as under :- 18. In the order dated 15.3.2004 the ACIT while considering the submission of the petitioner for recovery from the assets of the company, observed as under : "The efforts made for recovery of demands in these case were fruitless. The bank ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be recovered from is trade debtors and shares and the named Directors of the company have not proved that non recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on the part of the petitioner in relation to the affairs of the company. No effort was made by the department to recover the tax due of the company from trade debtors and shares so as to assessee jurisdiction to invoke Section 179 against the petitioner. In the order dated 29.3.2007 (Annexure-9) passed on the application of the petitioner under Section 264 of the Act, the CIT, Muzaffarnagar has also neither disbelieved nor rejected the afore noted contention of the petitioner rather he held that "fact that she was an inactive Director has no relevance to the legal position, because Section 179 of the Act places a liability on the Directors of the companies without any consideration as to whether the Director was active or passive." 20. The CIT has completely ignored the findings of ACIT with regard to recovery from the shares seized from the premises are trade debtors. The view of the ACIT that the debtors of the company had not filed their return in this circle and hence it is not possible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive Director and she has not caused any loss to the company. She resigned from directorship of the company on 27.10.1983 i.e. in the middle of the AY 1984-85. The petitioner has thus proved that non recovery of the tax due against the company cannot be attributed to any gross neglect, misfeasance or breach of duty on her part in relation to the affairs of the company. Neither the ACIT nor the CIT have referred to any material nor they have referred to any evidence to indicate any gross neglect, misfeasance or breach of duty on the part of the petitioner in relation to the affairs of the company. In view of this factual position, we are of the view that Section 179 of the Act could not be invoked against the petitioner. 23. Question No.4 - In view of the conclusions reached by us in respect of question no.1, 2 and 3, we are of the view that the question of breach of principles of natural justice need not to be answered. 24. Sri Dhananjay Awasthi has heavily relied the judgment of this Court in the case of Roop Chandra Sharma (supra) and the judgment of Kerala High Court in the case of Alex Cherian (supra) to contend that the tax dues of the company are recoverable from the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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