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TMI Blog2023 (2) TMI 467X X X X Extracts X X X X X X X X Extracts X X X X ..... cause notices under Section 179 of the Income Tax Act,1961, (for short 'the Act') dated 15.10.2019, 24.02.2020, 19.03.2020, 04.12.2020 and order dated 14.12.2020 issued by the respondent No.2, as being contrary to law. (3) It is the petitioner's case as averred in the petition, that he had received show cause notices dated 24.02.2020, 19.03.2020 and 04.12.2020 from the respondent No.2 purportedly invoking powers under Section 179 of the Act. He further avers that the issuance of a similar notice dated 15.10.2019 also impugned herein by the respondents came to his knowledge from the reply filed by the respondents, which notice he claims, was never served upon him. The petitioner has averred that he had filed an affidavit-in-reply dated 19.03.2020 to the income tax authorities stating therein that the petitioner had not attended any Board meetings of M/s. White Water Park India Private Ltd. (for short 'the Company') during the financial year 2006-07 till date, nor handled any income tax assessment of the said company for the Assessment Year 2007-08 as its Director. He claims that under the provisions of Section 283 of the Companies Act, 1956, as also under the provisions of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther affidavit-in-reply was filed by the respondents on 26.02.2022 which the petitioner also submits as documents attached to it, which are supplied by the said Mr.Samir Savjani, who the petitioner claims has been instigating the respondents to proceed against the petitioner without any cause. The petitioner has filed an affidavit in rejoinder dated 01.02.2022 controverting facts stated by the respondents in their affidavit-in-reply dated 16.02.2021. Thereafter, the respondents have filed an affidavit in sur-rejoinder attempting to bring on record various steps taken by the department of recovery tax dues from the company. Pursuant to this Court's observations that the revenue was required to explain the steps taken to recover the tax dues from the company, affidavit dated 21.04.2022 was filed by the respondents through one Juliet Ravichandran, ITO-5(3)(1)(Mumbai) 570, setting out the steps taken by the department from 2016 until the year 2020 to recover the dues from the said company. (6) Whilst the petition was pending, two interim applications came to be filed before this Court. The first of these applications is Interim Application IA(L) No.24778/2022 filed by M/s. White Wate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mir Savjani, for disposal of the petition finally at the stage of admission whilst hearing the intervention application along with petition. (10) Shri Rahul Gaikwad, learned counsel for the petitioner has submitted before us that it is the petitioner's case that he was not a Director of the Company much prior to the issuance of the impugned show cause notices and the impugned order, by virtue of the fact that he had not attended a single Board meeting of the company. He further submits that in terms of the provisions of Section 283 of the Companies Act, 1956 (old Act) and in terms of the provisions of Section 167 of the Companies Act, 2013 (new Act), the petitioner is deemed to have vacated the Office of the Director since he was absent for all the meetings of the Board of Directors during any period prior to the issuance of the show cause notices. As such, he submits that the petitioner not being a Director of the Company, he is not liable for any notice from the respondents under Section 179 of the Act. (11) It is further the submission of learned counsel for the petitioner that in terms of the requirement of under Section 179 of the Act, the revenue can assume jurisdiction to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcle 4(1)(2), where it was held that the first requirement to attract liability of a Director, of a private limited company is that the revenue was unable to recover the tax from the company itself. It is held in that judgment that such a requirement was a pre-requisite and a necessary condition to be fulfilled before any action under Section 179 could be taken and that, it was necessary for the revenue to establish these facts in the notice itself, as also for the Officer to record his satisfaction on such material that was considered by him to conclude that recovery against the company was not possible. (14) Learned counsel for the petitioner then referred to the judgment of this Court dated 26.07.2022 in Writ Petition No.3590/2019 in Rajendra R. Singh Vs. Assistant Commissioner of Income Tax Act-9(2)(2), Mumbai and others, in which this Court has held that orders under Section 179 of the Act, are unsustainable if the Assessment Officer has not enumerated in the notice the steps taken towards recovery of tax dues from the private company or there is a lack of recording his satisfaction that such tax cannot be recovered from the company. The learned counsel for the petitioner, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er (DIN) would show that the petitioner was appointed as a Director as on 01/04/2001; he further submits that the Director's report of the Company and the correspondence between various Government Departments and the Company would bear out that the petitioner was in fact Director of the Company; he submits that when show causes notices were issued to the petitioner, he has fraudulently sought to portray a picture that he was no more at the helm of the affairs of the Company by virtue of his claim that he had not attended the requisite number of meetings in terms of the Companies Act. He further submits that the whole purpose of filing of this petition was to prevent the Tax Authorities from moving against his personal assets, which according to the Intervenor includes the immovable properties listed in the Intervention Application. He further argues that on this ground, the petitioner is required to be restrained from disposing of any of his personal assets to protect the interest of Revenue. (18) Shri Samir Savjani, applicant in Interim Application IA(L)No.26761/2022 argued in person and adopted the arguments of the Revenue and of the Company in Interim Application IA(L)No.24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urisdiction to recover the tax from a Director of a Private Company only when the officer is unable to recover such dues from that Company. It is also clear from this provision that the Assessing Officer assumes jurisdiction under Section 179 of the Act only when there is failure to recover dues from the Private Company after efforts have been made by the Revenue to recover such dues. (22) The argument that the petitioner was not a Director of the Company would be irrelevant at this stage, if the petitioner was able to demonstrate from the contents of the show cause notices and the impugned order that there was no compliance with the mandate of Section 179 of the Act. (23) In Vanraj Shah (supra), a Division Bench of this Court has set out the legal requirements contained in Section 179 of the Act, for the Assessing Officer to acquire jurisdiction to proceed under that provision against a Director of a Defaulting Private Company. This Court in Vanraj V. Shah Vrs. Dy. Commissioner of Income Tax - 10(1)(1) and another in Paragraph Nos.4 and 5 has held as under :- "4. In terms of sub-section (1) of Section 179, from every person who was a director of a private company during the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecovered, the Assessing Officer has to enumerate the steps taken towards recovery of tax dues from the company. For example, attachment of the accounts of the company as also, its movable and immovable assets, efforts made by the Assessing Officer in identification of the various movable and immovable assets of the company, and so on and so forth. The Show cause notice under section 179 of the Act, dated 24th January, 2018, on the other hand, reads as under :- "1 In the case of M/s. Crest Paper Mills Limited (PAN : AAACCC4343D), the demand of Rs.3,98,19,430/- is outstanding. 2 The aforesaid demands have been raised vide order giving effect to the order of CIT (A) u/s 250 of the IT Act and have been outstanding since long but the same has not been paid by the assessee company so far ...." 17. A reading the show cause notice would therefore clearly suggest that there was no satisfaction recorded that the tax cannot be recovered. It needs to be understood that recovery procedure under section 179 of the Act against the directors is not to be resorted to casually and only because it is convenient to do so far affecting recovery of the tax dues. 18. With a view to show th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfaction of the condition precedent for taking action under Section 179 of the Act, 1961, viz. that the tax dues cannot be recovered from the Company. In the show-cause notice, there is no whisper of any steps having been taken against the Company for recovery of the outstanding amount. Even in the impugned order, no such details or information has been staled." (26) We take note of the fact that in that case, an additional affidavit-in- reply was filed to demonstrate the steps taken by the Revenue against the Company for recovery of dues. The Gujarat High Court has further considered whether the absence of facts required to be stated in the show cause notices could be supplanted by filing of an affidavit-in-reply stating such facts, and has observed in Paragraph No.22 as under :- "22. In such circumstances, referred to above, the question is, whether such an order could be said to be sustainable in law. The answer has to be in the negative. At the same time, in the peculiar facts and circumstances of the case and more particularly, when it has been indicated before us by way of an additional affidavit-in-reply as regards the steps taken against the company for the recovery of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar as the second and third submission on behalf of the Revenue that in the facts of this case, the efforts which were made to recover the tax dues from the delinquent company though not stated in the show cause notice are found in the impugned order or in any event in the affidavit-in-reply dated 14th February, 2018. Thus, is sufficient compliance with Section 179 of the Act. It is the petitioner's case in the petition that, an amount of Rs.49.81 crores are loans advanced to companies/associates of its Director, Mr. Praful Setna. The attempts at recovery if made known in the show cause notice, would have given an opportunity to the petitioner to bring the above facts to the notice of the Assessing Officer who could have recovered from them before proceeding with the notice. Therefore, the giving of particulars of efforts made and failure to recover the tax dues for the delinquent Private Limited Company in a notice issued under section 179(1) of the Act is a sinaqua non for proceeding further. This is so as not only the Assessing Officer can assume/acquire jurisdiction only on failure to recover its dues from a Private Limited Company after proper efforts. But is also gives an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of provisions of Section 179 of the Act. There were no jurisdictional issues raised in that petition of the nature and the grounds raised in the present petition. It is in that light that the Madras High Court held that Section 264 of the Act provided the petitioner with an adequate alternate remedy of filing Revision under Section 264 of the Act rather than invoking jurisdiction of the High Court under Article 226. (30) In the present petition, the main ground of challenge is lack of jurisdiction of the Assessing Officer to proceed with the show cause notices issued by it under Section 179 of the Act and to pass impugned order in absence of stating the jurisdictional facts that were required under the provisions of the Act. The challenge therefore, is to the sustainability of the notice and the order on the touch stone of the provisions of Section 179 of the Act. (31) Applying the ratio of the Judgments cited above, in Vanraj V. Shah (supra), Rajendra R. Singh (supra) and Mehul Jadavji Shah (supra) to the facts of the present 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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