DEVENDRA BABULAL JAIN V. INCOME TAX OFFICER, WARD 1(1)(4)

SCA/12929/2019

AI Insights

The case involves Devendra Babulal Jain and another petitioner, who were directors of M/s. G P Shah Investment, challenging an order by the Income Tax Officer under section 179 of the Income Tax Act, 1961. This order sought to hold the directors personally liable for the company's unpaid tax dues amounting to Rs. 5,51,56,520 for the Assessment Year 2013-2014. The petitioners argued that the conditions for such liability under section 179 were not satisfied, as there was no evidence of their negligence or misconduct. The court agreed, noting that the authorities had not taken adequate steps to recover the dues from the company before seeking to impose liability on the directors.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 671853 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 16-12-2022
• Assessment Year: misc
• Other Referred Cases: Bhagwandas J. Patel v. Deputy Commissioner of Income-tax, Indubhai T. Vasa v. Income Tax Officer, Ward 4(3), Amit Suresh Bhatnagar v. Income-tax officer, Mehul Jadavji Shah v. Deputy Commissioner of Income Tax, Sadhna Ramchandra Jeswani v. Income Tax Officer, Susan Chacko Perumal v. Assistant Commissioner of Income-tax, Gul Gopaldas Daryani v. Income Tax Officer, Rajeev Behl v. Principal Commissioner of Income-tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NIKUNT RAVAL
• Assessee Lawyers: JAIMIN DAVE
• Keywords: Assessment Order; Director's Liability; Income Tax; Private limited company; Tax dues
• Section: 143(3); 156; 226(3); 179

Judgement Text

"C/SCA/12929/2019 CAV JUDGMENT DATED: 16/12/2022 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 and HONOURABLE MR. JUSTICE BHARGAV D. KARIA ========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ========================================================== DEVENDRA BABULAL JAIN Versus INCOME TAX OFFICER, WARD 1(1)(4) ========================================================== Appearance: MR. JAIMIN R DAVE(7022) for the Petitioner(s) No. 1,2 MR NIKUNT RAVAL FOR MS KALPANA K RAVAL for the Respondent(s) No. 1 ========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 16/12/2022 CAV JUDGMENT Page 1 of 12 C/SCA/12929/2019 CAV JUDGMENT DATED: 16/12/2022 (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1.Heard learned advocate Mr.Jaimin Dave for the petitioners and learned advocate Mr. Nikunt Raval for the respondents. 2.The petitioners have challenged the order dated 24.01.2017 passed by respondent no.1 under section 179 of the Income Tax Act, 1961 (For short “the Act”) fastening the liability upon the petitioners to pay the outstanding dues of M/s. G P Shah Investment (here-in-after referred to as “the said company”) as the petitioners are the Directors of the said company for the Assessment Year 2013-2014. 3.Brief facts of the case are that the petitioners were appointed as the Directors of M/s. G P Shah Investment Private Limited. 3.1) Respondent no.1 carried out assessment under section 143(3) of the Act against the said company for the Assessment Year 2013-2014 and passed the assessment order dated 21.03.2016 Page 2 of 12 C/SCA/12929/2019 CAV JUDGMENT DATED: 16/12/2022 resulting into additional demand of Rs. 5,51,56,520/-. Consequently demand notice dated 21.03.2016 under section 156 of the Act was issued upon the said company raising demand of Rs. 5,51,56,520/-. 3.2) Being aggrieved by the said assessment order and demand notice, the said company preferred an appeal before the Commissioner of Income Tax Appeal-1, Surat on 30.05.2016. 3.3) Respondent thereafter issued show cause notice dated 10.11.2016 under section 179 of the Act to the petitioners. 3.4) The petitioners vide individual letters dated 23.11.2016 submitted reply to the said show cause notice. 3.5) Respondent no.1 thereafter passed the impugned order dated 24.01.2017 under section 179 of the Act. 3.6) Being aggrieved by the impugned action of the respondents, the petitioners have Page 3 of 12 C/SCA/12929/2019 CAV JUDGMENT DATED: 16/12/2022 preferred the present petition. 4.This Court by order dated 29.07.2019 issued the notice and stayed the operation and implementation of the impugned order dated 24.01.2017 passed under section 179 of the Act. 5.Learned advocate Mr. Jaimin Dave for the petitioners submitted that the impugned order passed under section 179 of the Act is without jurisdiction as the basic condition for invoking section 179 of the Act are not satisfied in the facts of the case. 5.1) It was submitted that for invoking jurisdiction under section 179 of the Act, twin conditions with regard to the amount of tax dues from a private limited company which is not recovered from such company is attributable to the gross negligence, misfeasance or breach of duty of the Director, is not satisfied in the present case. It was submitted that in the facts of the case there is nothing on record to Page 4 of 12 C/SCA/12929/2019 CAV JUDGMENT DATED: 16/12/2022 suggest that the respondent authorities have been satisfied before invoking powers under section 179 of the Act vis-a-vis the recovery of the outstanding dues of the private limited company and there is no finding that such non recovery of taxes is attributable to the gross negligence, misfeasance or breach of duty of the petitioners. It was submitted that except issuance of recovery notice, respondent no.1 has neither issued any notice of demand nor taken any assertive steps for the purpose of recovering the outstanding tax dues from the private limited company. In support of his submissions, reliance was placed on the following decisions: 1) In case of Bhagwandas J. Patel v. Deputy Commissioner of Income-tax reported in (1999) 238 ITR 127 (Gujarat). 2) In case of Indubhai T. Vasa v. Income Tax Officer, Ward 4(3) reported in (2006) 282 ITR 120( Gujarat). Page 5 of 12 C/SCA/12929/2019 CAV JUDGMENT DATED: 16/12/2022 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. Deputy Commissioner 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 in Special Civil Application No.5354/2018 and allied matter). 6) In case of Susan Chacko Perumal v. Assistant Commissioner of Income-tax reported in (2017) 399 ITR 74 (Gujarat). 7) In case of Gul Gopaldas Daryani v. Income Tax Officer reported in (2014) 367 ITR 558 (Gujarat). 6.On the other hand, learned advocate Mr. Nikunt Raval for the respondents submitted that the compliance of the provisions of section 179 of Page 6 of 12 C/SCA/12929/2019 CAV JUDGMENT DATED: 16/12/2022 the Act are made prior to passing of the impugned order. It was submitted that the private limited company of which the petitioners are the Directors is liable to pay the demand of more than Rs. 5 crores since 2016 and the said company did not make any payment of the outstanding demand within the due time inspite of giving recovery notice dated 20.06.2016 by the Recovery Officer. 6.1) It was pointed out that the bank account of the petitioners was also attached under section 226(3) of the Act on 2.08.2016. It was submitted that as per the provisions of section 179 of the Act, the petitioners are liable to pay the outstanding tax in capacity of the Directors of the assessee company who have neglected to make the payment of outstanding demand. 6.2) In support of his contention that despite all possible efforts, entire outstanding Page 7 of 12 C/SCA/12929/2019 CAV JUDGMENT DATED: 16/12/2022 tax dues could not be recovered from the company leaving department with no option but to recover the same from the Directors, reliance was placed on the judgment of Delhi High Court in case of Rajeev Behl v. Principal Commissioner of Income- tax reported in (2021) 132 taxmann.com 283 (Delhi). 6.3) It was further submitted that reliance placed by the petitioners on the various decisions of this Court are not applicable in the facts of the said case as it is for the petitioners to point out that the petitioners have not remained negligent for non recovery of the outstanding dues of the private limited company. 7.Having heard the learned advocates for the respective parties, it appears that the respondent authorities have failed to take any action for recovery of the outstanding dues except issuing notice for recovery and attaching the bank account of private limited company. Page 8 of 12 C/SCA/12929/2019 CAV JUDGMENT DATED: 16/12/2022 Section 179(1) of the Act reads as under : “Liability of directors of private company 44[***]. 179. (1) Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), where any tax due from a private company in respect of any income of any previous year or from any other company in respect of any income of any previous year during which such other company was a private company cannot be recovered, then, every person who was a director of the private company at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax unless he proves that the non- recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company.” 8.On perusal of the above provisions, it is clear that the Assessing Officer is required to make efforts for recovery of the outstanding dues from the assessee private limited company which has committed default in payment of the outstanding demand. The petitioners have prima facie shown that non recovery cannot be attributed to any gross negligence, misfeasance or breach of duty as Directors of the assessee company. In the impugned order, the Assessing Page 9 of 12 C/SCA/12929/2019 CAV JUDGMENT DATED: 16/12/2022 Officer has failed to consider the fact that the petitioners have tendered their explanation and the petitioners have not remained negligent nor there is any misfeasance or beach of trust on part of the petitioners and only because the petitioners have been unable to deposit 20% of the demand raised in the assessment order, the petitioners cannot be said to be negligent and respondent no.1 cannot therefore, invoke jurisdiction 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 the case, we notice that in showcause notice the Assessing Officer has not laid down sufficient foundation for invoking section 179 of the Act leave alone broadly pointing out he has not even alleged that non-recovery was on account of gross negligent, misfeasance or breach of duty on part of the petitioner in relation to the affairs of the company. His final conclusions in the impugned order are therefore based on the material at his command which was never shared with the petitioner. 9. In the result, impugned order is set aside only on this ground making it clear that nothing stated in the order would Page 10 of 12 C/SCA/12929/2019 CAV JUDGMENT DATED: 16/12/2022 prevent the Assessing Officer from initiating fresh exercise for the same purpose, if so advised and, if the material at his command is sufficient to permit him to do so.” 10. Similar view is also taken in decision in case for Bhagwandas J. Patel v. Deputy Commissioner of Income-tax reported in 238 ITR 127 (Guj). 11. Reliance placed by the learned advocate Mr. Nikunt Raval on the decision of Delhi High Court in case of Rajeev Behl v. Principal Commissioner of Income-tax (supra) is not helpful to the respondents inasmuch as the basic ingredients of section 179 are not complied with by the respondent authorities and therefore, impugned actions are without jurisdiction more particularly, when the petitioners have demonstrated that they have not remained negligent for non recovery of the outstanding dues. 12. In view of above foregoing reasons, petition succeeds and is accordingly allowed. Page 11 of 12 C/SCA/12929/2019 CAV JUDGMENT DATED: 16/12/2022 The impugned order dated 24.01.2017 is hereby quashed and set aside. 13. Rule is made absolute to the aforesaid extent. No order as to costs. (N.V.ANJARIA, J) (BHARGAV D. KARIA, J) RAGHUNATH R NAIR Page 12 of 12 "