TMI Blog2023 (2) TMI 467X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Revenue to recover tax dues from the delinquent Company. In fact, the show cause notices are mere repetition of the contents of the show cause notice - An affidavit-in-reply filed before us by the Assessing Officer attempts to list out various steps taken by the Revenue to recover tax dues from the Company between the year 2016 until the year 2020. However, as held by this Court in Mehul Jadavji Shah (supra), giving particulars of steps taken against the delinquent Company in an affidavit-in-reply or even in the impugned orders does not meet the requirements of a proper notice to the Director. A perusal of the impugned order discloses that it does not record any of the material which formed the basis for the Assessing Officer to conclude that all steps have been taken to recover the tax dues from the Company. Further, the impugned order does not refer to the Assessing Officer's subjective satisfaction based upon material before it, to conclude that all steps had been taken to proceed against the delinquent Company and such steps had failed. This being a sine qua non for proceeding further, and for assuming jurisdiction under Section 179 failure to disclose this mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies Act, 2013, since, he has not attended three consecutive meetings of the Board of Directors of the said company or for that the matter, all meetings of Board of Directors during the period of 12 months without seeking leave, he is deemed to have vacated the Office of Director of the said company. According to the petitioner, as he was not the Director of the Company, he was not liable to receive any notice under Section 179 of the Act, which provision can be invoked only against a Director of a private Company. (4) It is further the petitioner s contention that he has filed before this Court an affidavit dated 01.02.2022, reiterating the facts stated by him in his affidavit-in-reply before the respondent No.2 dated 19.03.2020 in answered to the show cause notice. He further submits that neither the show cause notice issued to him nor the order dated 14.12.2020 issued under Section 179 of the Act, states the steps taken by the respondents to recover tax dues from the company. It is the petitioner s submission that it is obligatory on the part of the respondents to demonstrate by referring to material before it, and by making specific references to such material as to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k India Private Ltd. (the Company), through its authorized signatory Jigar Chheda on 01.08.2022, seeking intervention and leave to make submissions with respect to the petition. In this interim application (IA), the company has also sought dismissal of the writ petition, and an order to prevent the petitioner from disposing of any of his personal assets so as to protect the interest of the respondent revenue ; it has also sought an order to maintain status quo till conclusion of the intervention application. The interim application has further sought setting aside of the interim order dated 16.12.2020 passed by this Court in favour of the petitioner. The company alleged in the IA, that the petitioner had averred false facts in the petition and had approached this Court with unclean hands by suppressing material facts. The applicant further avers that the petitioner has committed fraud upon the company and that the petitioner had actually attended all the Board meetings, signed its annual return, and was infact a Director of the Company and therefore, liable. (7) The second Interim Application bearing IA(L)No.26761/2022 has been filed by Samir B. Savjani, praying for intervention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to proceed only if it has initiated action against the company to recover its tax dues, and on its failure to recover such dues from the private company, it can initiate action against the Directors. He submits that in the present case, the absence of any reference to the attempts made by the revenue to recover tax dues from the company, the respondents would not be vested with any jurisdiction to proceed against the Directors of the company. He argues, that notwithstanding the fact that the petitioner is not the Director of the company, the revenue could not proceed against him in terms of Section 179 of the Act, without specifically averring in the show cause notice the various steps taken by it to proceed against the company to recover its dues. He further argues that since the notice under Section 179 of the Act is totally silent on this aspect and does not record the satisfaction of the concerned Officer, after considering the steps taken against the company for recovery, the recovery would not be permissible. He submits that the notice does not comply with the pre-requisites and necessary conditions to be fulfilled before action under Section 179 of the Act, can be in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the petitioner, therefore, submits that a lack of these jurisdictional facts being stated in the show cause notice would render the impugned order dated 14.12.2020 contrary to the provisions of Section 179 of the Act and therefore, not sustainable in the eyes of law. (15) Shri Suresh Kumar, learned counsel for the respondents has opposed the petition and submitted that though the impugned show cause notices did not state the details and facts which constitute the steps taken by the revenue for recovery of the tax dues from the company, the revenue had filed a detailed affidavit before this Court setting out all steps taken by it, from the year 2016 till year 2020 for making efforts to recover the dues from the company. It is his contention that a reading of the aforementioned affidavit would leave no manner of doubt that the Officer who has issued the show cause notices was satisfied that there was enough material to conclude that the revenue was unable to recover taxes from the company and was left with no choice but to proceed against the Directors of the company. He further argues that the impugned order dated 14.12.2020 is passed in accordance with the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Company in Interim Application IA(L)No.24778/2022. He also took us through various documents annexed to his Interim Application to contend that the petitioner has come to this Court with unclean hands and has not disclosed various criminal proceedings which were pending against him in the State of Gujarat and at Mumbai. He reiterated the arguments for the Company, that this Court ought to restrain the petitioner from disposing of any of his personal assets to enable the Revenue to recover dues from the Company. (19) We have considered the submissions of the parties before us and the entire record of the petition; we have also perused the record of the two Interim Applications with their annexures. We have also considered the Notes of Arguments placed by the parties before us. (20) Before we proceed to decide the legality of the impugned show cause notices and the impugned order dated 14/12/2020, it would be apposite to quote the provisions of Section 179 of the Income Tax Act, 1961 :- Liability of directors of private company in liquidation. 179. (1) Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), [where any tax due from a private comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 179, from every person who was a director of a private company during the time when the tax dues arose, such tax could be recovered from such director holding him jointly and severally liable for payment of such tax. However, the same cannot be recovered from him unless he proves that non-recovery cannot be attributed to any gross negligence, misfeasance or breach of duty on his part in relation to the affairs of the Company. First requirement for application of subsection (1) of Section 176, therefore, is that the tax dues in question could not be recovered from private company. Even if this requirement is satisfied, it is open for the concerned director to prove that such nonrecovery cannot be attributed to any gross negligence, misfeasance or breach of duty on his part in relation to the affairs of the company. On all these counts, therefore, the petitioner had a right to oppose and resist the proposal of the Assessing Officer. 5. In the show-cause notice, it is not even averred that the dues of the company should not be recovered from the said Company and that therefore, the onus would be on the director to prove that the same could not be attributed to his gross negle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause it is convenient to do so far affecting recovery of the tax dues. 18. With a view to show that the respondent No.1 had mechanically resorted to the provisions of section 179 of the Act, the petitioner has relied upon an order of attachment, dated 6th March 2019, whereby the Tax Recovery Officer-2, Thane has ordered the attachment of land at Village Kalivali, Taluka Panvel, Dist. Raigad to show that if respondent had made an effort, the tax dues could be recovered from the company. An additional affidavit has also been filed by the petitioner. In response to this additional affidavit, an affidavit in reply has also been filed by the Deputy Commissioner of Income Tax-1(2)(1), Mumbai in which a stand is taken that steps for sale of the property attached would be initiated after getting the fair market value determined. This statement itself has the effect of nullifying the action initiated under section 179 of the Act against the petitioner rendering the order impugned unsustainable in law. (25) The Gujarat High Court in the case of Sonal Nimish Patel(supra) has held that it is prerequisite and necessary condition to be fulfilled before action under Section 179 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore us by way of an additional affidavit-in-reply as regards the steps taken against the company for the recovery of the dues, we would like to give one chance to the department to undertake a fresh exercise so far as Section 179 of the Act, 1961, is concerned. If the show-cause notice is silent including the impugned order, the void left behind in the two documents cannot be filled by way of an affidavit-in-reply. Ultimately, it is the subjective satisfaction of the authority concerned that is important and it should be reflected from the order itself based on some cogent materials. However, with a view to protect the interest of both, the writ applicant as well as Revenue, we are inclined to quash the impugned order and give one opportunity to the Revenue to initiate the proceedings afresh by issuance of fresh show-cause notice with all necessary details so that the writ-applicant can meet with the case of the Revenue. We are inclined to adopt such measure keeping in mind the statement made by the learned counsel Mr. Soparkar that till the fresh proceedings are not completed, his client will not operate the bank account. Notice may be taken of the fact that the Gujar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /acquire jurisdiction only on failure to recover its dues from a Private Limited Company after proper efforts. But is also gives an opportunity to the assessee to point out why the efforts made are inadequate and/or improper. 8. In view of the above, it is clear that before the Assessing Officer assumes jurisdiction efforts to recover the tax dues from the delinquent Private Limited Company should have failed. This effort and failure of recovery of the tax dues must find mention in the show cause notice howsoever briefly. This would give an opportunity to the noticee to object to the same on facts and if the Revenue finds merit in the objection, it can take action to recover it from the delinquent Private Limited Company. This before any order under section 179 (1) of the Act is passed adverse to the noticee. In this case, admittedly the show cause notice itself does not indicate any particulars of the failed efforts to recover the tax dues from the delinquent Private Limited Company. Thus, the issue stands covered in favour of the petitioner by the order of this Court in Madhavi Kerkar (supra). In the above circumstances, the impugned order dated 26th December, 2017 is quash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent case, that the impugned show cause notices disclose no facts regarding the steps taken by the Revenue to recover tax dues from the delinquent Company. In fact, the show cause notices dated 24/02/2020, 19/03/2020 and 04/12/2020 are mere repetition of the contents of the show cause notice dated 15/10/2019. An affidavit-in-reply dated 21/04/2022 filed before us by the Assessing Officer attempts to list out various steps taken by the Revenue to recover tax dues from the Company between the year 2016 until the year 2020. However, as held by this Court in Mehul Jadavji Shah (supra), giving particulars of steps taken against the delinquent Company in an affidavit-in-reply or even in the impugned orders does not meet the requirements of a proper notice to the Director. (32) A perusal of the impugned order dated 14/12/2020 discloses that it does not record any of the material which formed the basis for the Assessing Officer to conclude that all steps have been taken to recover the tax dues from the Company. Further, the impugned order does not refer to the Assessing Officer's subjective satisfaction based upon material before it, to conclude that all steps had been taken to pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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