Devendra Babulal Jain v. Income Tax Officer, Ward 1(1)(4

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 12929 of 2019 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE N.V.ANJARIA andHONOURABLE MR. JUSTICE BHARGAV D. KARIA ========================================================== ========================================================== DEVENDRA BABULAL JAIN Versus INCOME TAX OFFICER, WARD 1(1)(4) ==========================================================Appearance: MR. JAIMIN R DAVE(7022) for the Petitioner(s) No. 1,2MR NIKUNT RAVAL FOR MS KALPANA K RAVAL for the Respondent(s) No.1 ========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIAand HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 16/12/2022 CAV JUDGMENT (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1.Heard learned advocate Mr.Jaimin Dave for thepetitioners and learned advocate Mr. NikuntRaval for the respondents.petitioners and learned advocate Mr. NikuntRaval for the respondents. 2.The petitioners have challenged the order dated24.01.2017 passed by respondent no.1 undersection 179 of the Income Tax Act, 1961 (Forshort “the Act”) fastening the liability uponthe petitioners to pay the outstanding dues ofM/s. G P Shah Investment (here-in-after referred to as “the said company”) as thepetitioners are the Directors of the saidcompany for the Assessment Year 2013-2014. 3.Brief facts of the case are that the petitioners were appointed as the Directors ofM/s. G P Shah Investment Private Limited. 3.1) Respondent no.1 carried out assessment under section 143(3) of the Act against the saidcompany for the Assessment Year 2013-2014 and passed the assessment order dated 21.03.2016 resulting into additional demand of Rs.5,51,56,520/-. Consequently demand notice dated21.03.2016 under section 156 of the Act wasissued upon the said company raising demand ofRs. 5,51,56,520/-. 3.2) Being aggrieved by the said assessmentorder and demand notice, the said companypreferred an appeal before the Commissioner ofIncome Tax Appeal-1, Surat on 30.05.2016. 3.3) Respondent thereafter issued show causenotice dated 10.11.2016 under section 179 of theAct to the petitioners. 3.4) The petitioners vide individual lettersdated 23.11.2016 submitted reply to the saidshow cause notice. 3.5) Respondent no.1 thereafter passed theimpugned order dated 24.01.2017 under section179 of the Act. 3.6) Being aggrieved by the impugned actionof the respondents, the petitioners have preferred the present petition. 4.This Court by order dated 29.07.2019 issued thenoticeandstayedtheoperationandimplementation of the impugned order dated24.01.2017 passed under section 179 of the Act. 5.Learned advocate Mr. Jaimin Dave for thepetitioners submitted that the impugned orderpassed under section 179 of the Act is withoutjurisdiction as the basic condition for invokingsection 179 of the Act are not satisfied in thefacts of the case. 5.1) It was submitted that for invokingjurisdiction under section 179 of the Act, twinconditions with regard to the amount of tax duesfrom a private limited company which is notrecovered from such company is attributable tothe gross negligence, misfeasance or breach ofduty of the Director, is not satisfied in thepresent case. It was submitted that in the factsof the case there is nothing on record to 5.Learned advocate Mr. Jaimin Dave for thepetitioners submitted that the impugned orderpassed under section 179 of the Act is withoutjurisdiction as the basic condition for invokingsection 179 of the Act are not satisfied in thefacts of the case. 5.1) It was submitted that for invokingjurisdiction under section 179 of the Act, twinconditions with regard to the amount of tax duesfrom a private limited company which is notrecovered from such company is attributable tothe gross negligence, misfeasance or breach ofduty of the Director, is not satisfied in thepresent case. It was submitted that in the factsof the case there is nothing on record to suggest that the respondent authorities havebeen satisfied before invoking powers undersection 179 of the Act vis-a-vis the recovery ofthe outstanding dues of the private limitedcompany and there is no finding that such nonrecovery of taxes is attributable to the grossnegligence, misfeasance or breach of duty of thepetitioners. It was submitted that exceptissuance of recovery notice, respondent no.1 hasneither issued any notice of demand nor takenany assertive steps for the purpose ofrecovering the outstanding tax dues from theprivate limited company. In support of hissubmissions, reliance was placed on thefollowing decisions: 1) In case of Bhagwandas J. Patel v. DeputyCommissioner of Income-tax reported in (1999)238 ITR 127 (Gujarat). 2)In case of Indubhai T. Vasa v. Income TaxOfficer, Ward 4(3) reported in (2006) 282 ITR120( Gujarat). 3)In case of Amit Suresh Bhatnagar v. Income-tax officer reported in (2009) 308 ITR 113 (Gujarat). 4)In case of Mehul Jadavji Shah v. DeputyCommissioner of Income Tax reported in (2018)403 ITR 201 (Bombay). 5) In case of Sadhna Ramchandra Jeswani v.Income Tax Officer (judgment dated 27.08.2019 inSpecial Civil Application No.5354/2018 andallied matter). 6)In case of Susan Chacko Perumal v. AssistantCommissioner of Income-tax reported in (2017)399 ITR 74 (Gujarat). 7)In case of Gul Gopaldas Daryani v. IncomeTax Officer reported in (2014) 367 ITR 558 (Gujarat). 6.On the other hand, learned advocate Mr. NikuntRaval for the respondents submitted that thecompliance of the provisions of section 179 of the Act are made prior to passing of theimpugned order. It was submitted that theprivate limited company of which the petitionersare the Directors is liable to pay the demand ofmore than Rs. 5 crores since 2016 and the saidcompany did not make any payment of theoutstanding demand within the due time inspiteof giving recovery notice dated 20.06.2016 bythe Recovery Officer. 6.1) It was pointed out that the bankaccount of the petitioners was also attachedunder section 226(3) of the Act on 2.08.2016. Itwas submitted that as per the provisions ofsection 179 of the Act, the petitioners areliable to pay the outstanding tax in capacity ofthe Directors of the assessee company who haveneglected to make the payment of outstandingdemand. 6.2) In support of his contention thatdespite all possible efforts, entire outstanding tax dues could not be recovered from the companyleaving department with no option but to recoverthe same from the Directors, reliance was placedon the judgment of Delhi High Court in case ofRajeev Behl v. Principal Commissioner of Income-tax reported in (2021) 132 taxmann.com 283 (Delhi). 6.3) It was further submitted that relianceplaced by the petitioners on the variousdecisions of this Court are not applicable inthe facts of the said case as it is for thepetitioners to point out that the petitionershave not remained negligent for non recovery ofthe outstanding dues of the private limitedcompany. 6.2) In support of his contention thatdespite all possible efforts, entire outstanding tax dues could not be recovered from the companyleaving department with no option but to recoverthe same from the Directors, reliance was placedon the judgment of Delhi High Court in case ofRajeev Behl v. Principal Commissioner of Income-tax reported in (2021) 132 taxmann.com 283 (Delhi). 6.3) It was further submitted that relianceplaced by the petitioners on the variousdecisions of this Court are not applicable inthe facts of the said case as it is for thepetitioners to point out that the petitionershave not remained negligent for non recovery ofthe outstanding dues of the private limitedcompany. 7.Having heard the learned advocates for therespective parties, it appears that therespondent authorities have failed to take anyaction for recovery of the outstanding duesexcept issuing notice for recovery and attachingthe bank account of private limited company. Section 179(1) of the Act reads as under : “Liability of directors of privatecompany [44][***]. 179. (1)Notwithstandinganythingcontained in the Companies Act, 1956 (1 of1956), where any tax due from a privatecompany in respect of any income of anyprevious year or from any other company inrespect of any income of any previous yearduring which such other company was aprivate company cannot be recovered, then,every person who was a director of theprivate company at any time during therelevant previous year shall be jointlyand severally liable for the payment ofsuch tax unless he proves that the non-recovery cannot be attributed to any grossneglect, misfeasance or breach of duty onhis part in relation to the affairs of thecompany.” 8.On perusal of the above provisions, it is clear that the Assessing Officer is required to makeefforts for recovery of the outstanding dues from the assessee private limited company whichhas committed default in payment of theoutstanding demand. The petitioners have primafacie shown that non recovery cannot beattributed to any gross negligence, misfeasanceor breach of duty as Directors of the assesseecompany. In the impugned order, the Assessing Officer has failed to consider the fact thatthe petitioners have tendered their explanationand the petitioners have not remained negligentnor there is any misfeasance or beach of truston part of the petitioners and only because thepetitioners have been unable to deposit 20% ofthe demand raised in the assessment order, thepetitioners cannot be said to be negligent andrespondent no.1 cannot therefore, invokejurisdiction under section 179 of the Act. 9.This Court in case of Sadhna Ramchandra Jeswani v. Income Tax Officer (supra) in similar situation has held as under : “8. Reverting back to the facts of thecase, we notice that in showcause noticethe Assessing Officer has not laid downsufficient foundation for invoking section179 of the Act leave alone broadlypointing out he has not even alleged thatnon-recovery was on account of grossnegligent, misfeasance or breach of dutyon part of the petitioner in relation tothe affairs of the company. His finalconclusions in the impugned order aretherefore based on the material at hiscommand which was never shared with thepetitioner. 9. In the result, impugned order is setaside only on this ground making it clearthat nothing stated in the order would prevent the Assessing Officer frominitiating fresh exercise for the samepurpose, if so advised and, if thematerial at his command is sufficient topermit him to do so.” 10.Similar view is also taken in decision incase forBhagwandas J. Patel v. DeputyCommissioner of Income-tax reported in 238 ITR127 (Guj). 9. In the result, impugned order is setaside only on this ground making it clearthat nothing stated in the order would prevent the Assessing Officer frominitiating fresh exercise for the samepurpose, if so advised and, if thematerial at his command is sufficient topermit him to do so.” 10.Similar view is also taken in decision incase forBhagwandas J. Patel v. DeputyCommissioner of Income-tax reported in 238 ITR127 (Guj). 11.Reliance placed by the learned advocate Mr.Nikunt Raval on the decision of Delhi High Courtin case of Rajeev Behl v. Principal Commissionerof Income-tax (supra) is not helpful to therespondents inasmuch as the basic ingredients ofsection 179 are not complied with by therespondent authorities and therefore, impugnedactionsarewithoutjurisdictionmoreparticularly, when the petitioners havedemonstrated that they have not remainednegligent for non recovery of the outstandingdues. 12. In view of above foregoing reasons,petition succeeds and is accordingly allowed. The impugned order dated 24.01.2017 is herebyquashed and set aside. 13.Rule is made absolute to the aforesaidextent. No order as to costs. (N.V.ANJARIA, J) RAGHUNATH R NAIR (BHARGAV D. KARIA, J)