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PARAS S SAVLA Versus ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 8

2016 (10) TMI 367 - GUJARAT HIGH COURT

Liability of directors of private company in liquidation - statutory creation of piercing of corporate veil - Held that:- In the present case, the respondents have instead of confronting the petitioner with necessary material why the corporate veil should be lifted and Section 179 of the Act be applied to him, issued the notice dated 18.11.2008 and called upon the petitioner to substantiate the claim that the company is a public limited company. This fact is not even seriously in dispute. The re .....

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to ₹ 3.55 Crores. - Under the circumstances, the impugned order is set aside leaving it open for the revenue, if it so desires, to take out fresh proceedings by issuing appropriate notice and taking further steps in accordance with law; bearing in mind observations made hereinabove. The petitions stand disposed of accordingly. It is clarified that all contentions and objections of the petitioners are kept open. - SPECIAL CIVIL APPLICATION NO. 2647 of 2009 With SPECIAL CIVIL APPLICATIO .....

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orded from Special Civil Application No.2647/2009. 2. The petitioner, an individual was the Director of a Public Limited Company called Yash Organics. He held such a position till 26.08.2000. Yash Organics faced income tax unpaid demand of ₹ 12.32 Crores (rounded off) for the block period from 02.08.1996 to 11.02.2000, pursuant to the order of assessment dated 22.02.2002 passed by the Assessing Officer under Section 158BC of the Income Tax Act, 1961 ('the Act' for short). 3. Agains .....

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13.45 crores (rounded off) with interest should not be made against him. The petitioner replied to the said showcause notice under a letter dated 10.10.2008 raising multiple defences. The tax recovery officer under letter dated 18.11.2008 referred to the petitioner's defences that the company was not a private limited company and called upon the petitioner to furnish evidences to substantiate such a claim. Further pleas of the petitioner were ignored and the Assessing Commissioner passed the .....

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nt was ordered to be done afresh by the assessing officer for which the proceedings were remanded. The assessing officer once again raised the same demand in the order of assessment against which the company preferred an appeal before the Commissioner who substantially allowed the appeal of the company reducing the tax demand to ₹ 3.55 Crores (rounded off). Against such an order, both the Company as well as the Department have approached the Tribunal and the Appeals are pending. 5. The fac .....

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llment of certain conditions. It is true that the Division Bench of this Court in the case of Pravinbhai M. Kheni v. Assistant Commissioner of Income-tax and Others reported in 353 ITR 585 had recognised limited exceptions under which it may be possible for the revenue to apply Section 179 to the Directors of a public limited company by lifting the corporate veil. However, in the judgment itself, certain safeguards have been provided to avoid any possible misuse of such powers. The Court observe .....

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directors, is a well know principle. Its assets are distinct and separate and distinct from those of its members. Its creditors cannot obtain satisfaction from the assets of its members. However, with ever developing world and expanding economic complexities, the courts have refused to limit the scope and parameters or areas where corporate veil may have to be lifted. 16. However cautiously, the concept of piercing of corporate veil is applied by the courts in various situations. Two situations .....

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