12 Company – Recovery of tax from director – There should be proper proceedings against the company for recovery of tax and only thereafter the balance outstanding can be recovered from directors u/s. 179 – Precondition for a valid notice u/s. 179(1) is that the notice indicate the steps taken to recover the tax dues from the company and its failure – The notice and order u/s. 179(1) quashed and set aside

Mehul
Jadavji Shah vs. Dy. CIT (Bom); W. P. No. 291 of 2018; Date of Order:
05/04/2018:

A.
Y. 2011-12:

Section
179(1) :

Art.
226 of Constitution of India

The
petitioner was a director of a private limited company viz., Shravan Developers
Pvt. Ltd. He had resigned from the company in the year 2013. The company had
failed to pay tax dues of Rs. 4.69 crore for the A. Y. 2011-12. On 06/02/2017,
the Assessing Officer of the company issued notice u/s. 179(1) of the
Income-tax Act, 1961 seeking to recover from the petitioner the tax dues of Rs.
4.69 crore of the company for the A. Y. 2011-12. The petitioner responded to
the notice and sought details of the notices issued to the company for recovery
of the tax dues. However, without responding to the particulars sought, the
Assessing Officer passed order u/s. 179(1) on 26/12/2017 making a demand of Rs.
4.69 crore upon the petitioner.

The
petitioner filed a writ petition before the Bombay High Court challenging the
validity of recovery proceedings u/s. 179(1) of the Act and the order u/s.
179(1) dated 26/12/2017. The Bombay High Court allowed the writ petition,
quashed the order dated 26/12/2017 passed u/s. 179(1) of the Act, and held as
under:

“i)   It is clear that before the Assessing Officer
assumes jurisdiction u/s. 179(1) of the Act, 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 has to
be before any order u/s. 179(1) of the Act is passed adverse to the noticee.

ii)    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 vs. ACIT; W. P. No. 567 of 2016 dated 05/01/2018.

iii)   In the above circumstances, the impugned
order dated 26/12/2017 is quashed and set aside.”