TMI Blog2014 (4) TMI 210X X X X Extracts X X X X X X X X Extracts X X X X ..... tention of the counsel for the Revenue that the petitioners should have offered the said properties for recovery to the Department, can still not bring the action of the petitioners within the expression of gross neglect, misfeasance or breach of duty on their part – thus, the order passed by the CIT set aside – Decided in favour of Assessee. - Special Civil Application No 6557 of 2004. - - - Dated:- 19-2-2014 - AKIL KURESHI AND SONIA GOKANI MS. JJ JUDGMENT Akil Kureshi J.- The petitioners have challenged the order dated July 1, 2003, passed by the Income-tax Officer under section 179(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act ), as confirmed by an order dated February 16, 2004, passed by the Commissioner of Incometax in revision petition filed by the petitioners. The facts are as under : 2.1 The petitioners were the directors of one M/s. K. N. Minerals Pvt. Ltd. (hereinafter referred to as the company ). For the assessment year 1998-99, the return filed by the petitioners was taken in scrutiny and certain additions were made by the Assessing Officer. The assessment order though was carried in appeal, the Commissioner of Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had obtained loans from three directors to the tune of more than Rs. 17.85 lakhs. 2.3 Second reply was filed by the petitioners on October 21, 2002, before the Income-tax Officer in which similar contentions were taken. 2.4 The Income-tax Officer, however, was not convinced by such explanation and he passed the order dated July 1, 2003, holding that the provisions of section 179(1) of the Act would be applicable in the present case. He held that being the directors of the company, it was their duty to pay tax dues from the company. They failed to discharge such duty, hence, the provisions of section 179(1) of the Act are attracted. He, therefore, directed recovery of the outstanding dues of the company from the petitioners along with interest and penalty. 2.5 The petitioners challenge such order before the Commissioner of Income-tax (Appeals) by filing a revision petition under section 264 of the Act. In such application, the petitioners reiterated their stand that there was no gross neglect, misfeasance or breach of duty on their part in the affairs of the company and, therefore, the order under section 179 of the Act was bad in law. 2.6 The Commissioner, however, dism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach of duty on his part in relation to the affairs of the company. It is of course true that the responsibility of establishing such facts is cast upon the director. Therefore, 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 he proves that the non-recovery cannot be attributed to the three factors mentioned above. Thus the responsibility to establish such facts are 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 three factors, the authority would have to examine such grounds and come to a conclusion in this respect. Significantly, the question of lack of gross negligence, misfeasance or breach of duty on the part of the director is to be viewed in the context of non-recovery 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 unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any from the register of companies, the directors agreed to forgo their loans to the company which were in excess of Rs. 16 lakhs. When such facts were established, in our opinion, the Assessing Officer ought to have held that the petitioners had succeeded in establishing that non-recovery of the tax dues of the company could not be attributed to gross neglect, misfeasance or breach of duty on the part of the directors in relation to the affairs of the company. In the impugned order in this respect, it had observed as under : 5.1 . . . As a director of the company it was duty bound on the part of the directors of the company to pay tax due from the company and the directors failed to discharge that duty, hence the provisions of section 179(1) are clearly attracted. Reliance is placed on the decision of Union of India v. Praveen D. Desai [1988] 173 ITR 303 (Bom). 5.2 On verification of the relevant details it is found that there is gross negligence on the part of the directors in the day-to-day affairs of the company. In the auditor's report special remark is put which read as under : '. . . The company has sold all its assets in settlement ..... X X X X Extracts X X X X X X X X Extracts X X X X
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