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TMI Blog2023 (2) TMI 869X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2. Briefly stated the material facts are as under : 2.1 A show cause notice dated 12th January 2017 was served upon the petitioner in terms of section 179 of the Act requiring the petitioner to show cause as to why recovery proceedings be not initiated against her in her capacity as a director of KAPL inasmuch as the assessee company was not traceable on the available addresses and further that the tax dues could not be recovered despite attachment of the bank accounts as the funds available were insufficient. An amount of Rs.1404.42 lacs was thus sought to be recovered from the petitioner. 2.2 With a view to prove that the non-recovery of the taxes due could not be attributed to any gross neglect, misfeasance, breach of duty on her part, in relation to the affairs of the company, the petitioner in her response to the show cause noticed dated 23rd October 2017, took a stand that the petitioner, as a director in the company had no liberty, authorization or independence to act in a particular manner for the benefit of KAPL and that she did not have any control over the company's affairs. It was stated that the petitioner did not have any authority to sign any cheque independentl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0% shares in the JVC, and had be to appointed by the Board. Clause 7.2.2 in Article 7 envisaged that the internal Auditors of the JVC were to be nominated by the investors. Reference was made to clause 8.1 in Article 8 to show that the management of the JVC had to be vested with the Board, which would exercise all such powers and do all such things as would be exercised or done by the JVC. Reliance was placed upon Clause 8.2.1 in Article 8 to highlight the fact that maximum strength of the Board was to be eight directors out of which 6 were of KFI. Clause Clause 8.4 in Article 8 was referred to show that the Chairman of the Board, at all times was to be from the Directors nominated by the investor and finally Clause 8.5.4 in Article 8 was referred to show that the decisions of the Board were to be taken by a simple majority till such time the investor held more than 50% of the total paid up share capital of the JVC. 6. In the reply to the show cause notice, the petitioner also stated and highlighted the fact that due to some differences that had cropped up with KFI since January 2009 the petitioner's husband was removed as Managing Director of KAPL in September 2009 along with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts on record, no proceedings under section 179 of the Act could have been initiated against the petitioner for the purposes of recovery from the petitioner the liability of the company for the assessment years 2007-08 and 2008-09. It was urged that even when the petitioner had placed enough material on record reflecting that the petitioner was not the Managing Director of the company and was not at the helm of affairs as such, and that she had not any independent authority to take any decision on behalf of the company nor did she have any independent operational control, yet the AO proceeded to hold that the petitioner had failed to prove that there was no gross neglect, malfeasance or breach of duty on her part in relation to the affairs of the company. 11. In the reply affidavit filed by the revenue, it is reiterated that the petitioner was an important working director of the assessee-company and was bestowed with many important responsibilities in order to run the day-to-day affairs of the company and her claim that she did not hold any important position for purposes of day-to-day affairs of the company was incorrect. This statement was sought to be made based upon th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious Board meetings which were attended by the petitioner from time to time from 2006 till 8th January 2008, there was no material highlighted by the AO, contrary to the material on record placed by the petitioner, based upon which the petitioner could be held to be guilty of gross neglect, malfeasance or breach of duty in regard to the affairs of the company. The petitioner having brought on record material to suggest lack of financial control, lack of decision making powers in the light of her stand that she had a very limited role to play in the company as a director and that the entire decision making process was with the directors appointed by the investors, i.e., KFI which was the single largest shareholder of the JVC had, in our opinion, sufficiently discharged the burden cast upon her in terms of section 179 to absolve herself of the liability of the company. 16. The AO appears to have applied himself more on the issue of the petitioner participating in the affairs of the company for purposes of pinning liability in terms of section 179 rather than discovering the element of 'gross neglect', misfeasance or 'breach of duty' on the part of the petitioner in relation to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets of the company due to which the dues of the department could not be recovered, To suggest that the petitioner did not oppose the GSFC's auction sale is begging the question. GSFC had sold the property after several attempts through auction. It is not the case of the department that proper price was not fetched." 17. A similar view was expressed in Ram Prakash Singeshwar Rungta & Ors. (Supra) in the following words : "12 ........On a plain reading of the impugned order, it is apparent that nothing has been stated therein regarding any gross-negligence, misfeasance or breach of duty on the part of the petitioners due to which the tax dues of the Company could not be recovered. The respondent, has, therefore, passed the impugned order under section 179(1) of the Act against the directors in respect of alleged neglect on their part in the functioning of the Company due to which the demand in question has arisen and not on account of any gross neglect, misfeasance or breach of duty on their part in the non-recovery of the dues of the Company. Thus, the very basis on which the respondent has proceeded, suffers from non-application of mind to the requirements for exercise of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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