N Padmaja, Hyderabad V. ACIT, Circle-3(2), Hyderabad, Hyderabad

ITA 1580/HYD/2014

• Counselvise Citation: 158022514 RSA 2014
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 12-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 15-10-2014
• Court: TRIBUNAL
• Department Lawyers: RAMAKRISHNA BANDI
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Recovery proceedings; Opportunity of being heard; Right to appeal
• Section: 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 1579/HYD/2014 ASSESSMENT YEAR: 2009-10 SRI N. SURYA PRAKASH RAO, HYDERABAD [PAN: ABEPN6337L] VS ASST. COMMISSIONER OF INCOME TAX, CIRCLE-3(2), HYDERABAD I.T.A. NO. 1580/HYD/2014 ASSESSMENT YEAR: 2009-10 SMT. N.PADMAJA, HYDERABAD [PAN: ABCPN2453P] VS ASST. COMMISSIONER OF INCOME TAX, CIRCLE-3(2), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI P. MURALI MOHAN RAO, AR FOR REVENUE : SHRI RAMA KRISHNA BANDI , D R DATE OF HEARING : 1 2 - 0 2 - 201 5 DATE OF PRONOUNCEMENT : 31 - 0 3 - 2015 O R D E R PER B. RAMAKOTAIAH, A.M. : THESE TWO APPEALS PERTAIN TO TWO DIRECTORS OF A COM PANY AGAINST WHOM, ORDERS HAVE BEEN PASSED U/S.179(1) OF THE INC OME TAX ACT (ACT) ON 31-10-2012 HOLDING ASSESSEES JOINTLY AND SEVERAL LY LIABLE FOR TAXES I.T.A. NOS. 1579 & 1580/HYD/2014 SRI N. SURYA PRAKASH RAO SMT. N. PADMAJA :- 2 -: DUE FROM M/S.SPR INFRASTRUCTURE (INDIA) LTD., IN WH ICH ASSESSEES ARE DIRECTORS. IN THAT ORDER, THE COMPANY WAS CONSIDERE D AS PRIVATE COMPANY. LATER, ASSESSING OFFICER PASSED AN ORDER U/S.154 MODIFYING THE STATUS OF THE COMPANY TO THAT OF PUBLIC LIMITED COMPANY BY THE ORDER DT.20-03-2013. HOWEVER, IN THAT ORDER, HE WENT ON TO HOLD THAT EVEN THOUGH THE COMPANY IS A PUBLIC LIMITED COMPANY, SUB STANTIAL INTEREST WAS HELD BY THE DIRECTORS AND THEREFORE BY LIFTING THE CORPORATE VEIL, HE HELD THAT THE DIRECTORS ARE PERSONALLY LIABLE TO PA Y THE TAXES WHICH ARE DUE AND NOT RECOVERABLE FROM THE COMPANY M/S.SPR IN FRASTRUCTURE (INDIA) LTD., 2. AGGRIEVED ON THE ABOVE ORDERS, ASSESSEES PREFERR ED APPEALS BEFORE THE LD. COMMISSIONER OF INCOME TAX(APPEALS)-IV, HYD ERABAD CONTESTING THAT THE ORDERS PASSED U/S.179(1), AS MODIFIED BY T HE ORDER U/S.154 IS NOT CORRECT AS THE PROVISIONS DO NOT APPLY TO THE D IRECTORS OF A PUBLIC LIMITED COMPANY. IT WAS ALSO CONTENDED THAT ASSESS ING OFFICER DID NOT GIVE ANY REASONABLE OPPORTUNITY OF BEING HEARD BEFO RE PASSING EITHER OF THE ORDERS. 3. LD.CIT(A) HOWEVER, HELD THAT APPEAL IS NOT MAINT AINABLE ON THE REASON THAT THIS IS AN ORDER ON WHICH PROVISIONS OF SECTION 246A(1)(C) ARE NOT APPLICABLE. HER ORDER VIDE PARA 2 IS AS UNDER: 'AN ORDER U/S.179(1) IS NOT APPEALABLE U/S.246A. T HOUGH THE IMPUGNED ORDER IN APPEAL HAS BEEN PASSED U/S.154, IT DOES NOT HAVE 'THE EFFECT OF ENHANCING THE ASSESSMENT OR RE DUCING THE REFUND' AND THEREFORE, DOES NOT FALL WITHIN THE AMBIT OF S EC.246A(1)(C). I, THEREFORE, HOLD THAT THE IMPUGNED ORDER IS NOT APP EALABLE U/S.246A'. ASSESSEES ARE IN APPEAL BEFORE US. I.T.A. NOS. 1579 & 1580/HYD/2014 SRI N. SURYA PRAKASH RAO SMT. N. PADMAJA :- 3 -: 4. AT THE OUTSET, WE ASKED THE LD.COUNSEL HOW THE A PPEALS ARE MAINTAINABLE WHEN THERE IS NO PROVISION UNDER THE I NCOME TAX ACT TO MAKE THE ORDER U/S.179, AN APPEALABLE ORDER. THE L D.COUNSEL FILED DETAILED WRITTEN SUBMISSIONS WHICH ARE PARTLY EXTRA CTED AS UNDER: '4. IN THIS CONNECTION THE APPELLANT HEREIN PRAYS T HAT THE APPEAL BEFORE THE HON'BLE ITAT MAY BE ADJUDICATED ON MERITS OF THE CASE, IN VIEW OF THE FOLLOWING IN WH ICH CASE 'JUSTICE' IS NOT DENIED TO THE APPELLANT. I. THE ORIGINAL ORDER PASSED U/S 179(1) WAS ITSELF INVALID ABINITIO, SINCE THE PROVISIONS OF SECTION 179(1) CANNOT BE APPLIED TO THE COMPANY M/ S. SPR INFRASTRUCTURE (I NDIA) LTD. WHICH, ADMITTEDLY, IS A PUBLIC LTD. COMPANY. IN THE ORDER PASSED U/S 179(1) DATED 31-10-2012, THE COMP ANY VIZ., M/S SPR INFRASTRUCTURE (INDIA) LTD. WAS CONSIDERED ONLY AS A COMPANY IN WHICH PUBLIC ARE SUBSTANTIALL Y INTERESTED WHERE AS THE ASSESSING OFFICER MODIFIED THE ORDER U/S 179(1) AND PASSED THE ORDER U/S 154 DATE D 20- 03-2013. IT IS SUBMITTED THAT THE QUESTION WHETHER A COMPANY IS A DEEMED PUBLIC COMPANY OR NOT CANNOT B E A MATTER OF RECTIFICATION U/S 154. IN SUPPORT OF THI S, THE APPELLANT RELIES ON THE CASE LAW OF RAJAMONI AMMU (N) V. DCIT (1990) 86 CTR (KER.) 12. II. WHILE INVOKING THE PROVISIONS OF SECTION 179(1 ), THE ASSESSING OFFICER HAS NOT ACTED AS PER THE PROVISI ONS OF THE I.T. ACT, 1961 AS DETAILED BELOW: (A) IN ORDER TO INVOKE SECTION 179, THE PRIMARY CO NDITION IS THAT THE AMOUNT SHOULD NOT BE RECOVERABLE FROM THE COMPANY I.E. M/ S SPR INFRASTRUCTURE (INDIA) LTD A ND THIS CONDITION IS NOT SATISFIED IN THE APPELLANT'S CASE . IN THIS CONNECTION, THE APPELLANT RELIES ON THE FOLLOWING CASE LAWS: INDUBHAI T.VASA (HUF) V. ITO [2006] 282 ITR 120 (GUJ.) ARVIND KUMAR GUPTA V. TRO [2005] 276 ITR 373 (ALL) DIPAK DUTTA V. UNION OF INDIA [2004] 268 ITR 302 (CAL.) (B) THE ASSESSING OFFICER IS REQUIRED TO GIVE A FI NDING THAT THE AMOUNT IN ARREARS IS NOT RECOVERABLE FROM THE COMPANY I.T.A. NOS. 1579 & 1580/HYD/2014 SRI N. SURYA PRAKASH RAO SMT. N. PADMAJA :- 4 -: BEFORE PROCEEDINGS AGAINST THE APPELLANT-DIRECTOR. IN THIS CONNECTION, THE APPELLANT RELIES ON THE CASE LAW O F C. RAJENDERAN V. ITA [2002] 253 ITR 139 (MAD.) (C) WITHOUT ESTABLISHING THAT EFFECTIVE STEPS FOR RECOVERY OF OUTSTANDING DUES FROM THE COMPANY HAVE BEEN TAKEN, IT IS NOT CORRECT ON THE PART OF THE ASSESSING OFFICER T O FASTEN THE LIABILITY ON THE DIRECTORS U/S 179(1) OF THE ACT. IN SUPPORT OF THIS, THE APPELLANT RELIES ON THE FOLLOWING CASE L AWS: AMIT SURESH BHATNAGAR V. ITO [2009] 308 ITR 113 (GUJ.) INDUBHAI T VASA (HUF) V. ITO [2006] 282 ITR 120 (GUJ.) III. NO OPPORTUNITY WAS GIVEN TO THE APPELLANT HER EIN. IV. THE APPELLANT HEREIN, WAS PREVENTED FROM PROVI NG HIMSELF THAT NON RECOVERY OF TAXES IN THE CASE OF THE COMPANY WAS NOT DUE TO GROSS NEGLIGENCE OR MISFEAS ANCE OR BREACH OF DUTY ON HIS PART. V. THE RECTIFICATIONS MADE IN THE ORIGINAL ORDER PASS ED U/S 179(1) CANNOT BE CONSIDERED AS 'MISTAKES APPARENT F ROM RECORD' FOR THE PURPOSE OF PASSING THE IMPUGNED ORD ER U/S 154. VI. THE POWER CONFERRED BY THE PROVISIONS OF SECTIO N 154 IS A POWER TO CORRECT MISTAKE AND NOT A POWER TO REVIE W. VII. THE POWER OF RECTIFICATION U/S 154 CANNOT B E USED TO CURE LAPSES. THE POWER U/S 154 IS ONE TO CORRECT ERRORS AND NOT PERPETRATION OR READJUSTMENT OF ERRORS. VIII. THE POWER TO RECTIFY U/S 154 CANNOT BE UTILIZED TO CHANGE THE STATUS OF THE ASSESSEE FROM A PUBLIC LI MITED COMPANY TO A COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED. IX. THE POINT WHICH IS NOT EXAMINED ON FACT OR IN LAW CANNOT BE DEALT WITH AS 'MISTAKE APPARENT ON RECOR D' AS HELD IN THE CASE OF CIT V. HERO CYCLES (P) LTD., R EPORTED IN I.T.A. NOS. 1579 & 1580/HYD/2014 SRI N. SURYA PRAKASH RAO SMT. N. PADMAJA :- 5 -: [228 ITR 463 (SC)]. 5. PRAYER: SINCE THE PROVISIONS OF SEC.179(1) ARE NOT APPLICABLE TO M/S SPR INFRASTRUCTURE (INDIA) LTD., WHICH IS A PUBLIC LTD. COMPANY, THE ORDER PASSED U/S 179(1) DATED 31-10-2012 PASSED IN THE APPELLANT'S CASE IS NULL AND VOID. ACCORDINGLY, THE IMPUGNED ORDER U/S 154 DATE D 20- 03-2013 WHICH HAS MODIFIED THE ORDER U/S 179(1) DATED 31-10-2012 BECOMES INVALID. IT IS, THEREFORE, REQU ESTED YOUR HONOUR TO KINDLY ALLOW THE APPELLANT'S APPEAL AND CANCEL THE ORDER PASSED U/S 154 OF THE ACT'. 5. LD.DR HOWEVER, RELIED ON THE ORDERS OF THE CIT(A ) THAT THE ORDER IS NOT AN APPEALABLE ORDER, THEREFORE, THERE IS NO NEE D TO CONSIDER THE PRESENT APPEALS AND CIT(A) IS CORRECT IN DISMISSIN G THE APPEALS AS NOT MAINTAINABLE. 6. WE HAVE CONSIDERED THE ISSUE AND PERUSED THE PRO CEEDINGS AND PROVISIONS OF LAW. BEFORE ADVERTING THE ISSUE, IT WOULD BE NECESSARY TO EXAMINE THE PROVISIONS OF SEC 179 OF IT ACT 1961. S ECTION 179 IS AS UNDER: 'SECTION 179: LIABILITY OF DIRECTORS OF PRIVATE C OMPANY IN LIQUIDATION. 179. [(1)] NOTWITHSTANDING ANYTHING CONTAINED IN TH E COMPANIES ACT, 1956 (1 OF 1956), [WHERE ANY TAX DUE FROM A P RIVATE COMPANY IN RESPECT OF ANY INCOME OF ANY PREVIOUS YEAR OR FROM ANY OTHER COMPANY IN RESPECT OF ANY INCOME OF ANY PREVIOUS Y EAR DURING WHICH SUCH OTHER COMPANY WAS A PRIVATE COMPANY] CA NNOT BE RECOVERED, THEN, EVERY PERSON WHO WAS A DIRECTOR O F THE PRIVATE COMPANY AT ANY TIME DURING THE RELEVANT PREVIOUS Y EAR SHALL BE JOINTLY AND SEVERALLY LIABLE FOR THE PAYMENT OF SU CH 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. [(2) WHERE A PRIVATE COMPANY IS CONVERTED INTO A P UBLIC COMPANY AND THE TAX ASSESSED IN RESPECT OF ANY INCOME OF A NY PREVIOUS YEAR DURING WHICH SUCH COMPANY WAS A PRIVATE COMPANY CA NNOT BE RECOVERED, THEN, NOTHING CONTAINED IN SUB-SECTION (1) SHALL APPLY TO I.T.A. NOS. 1579 & 1580/HYD/2014 SRI N. SURYA PRAKASH RAO SMT. N. PADMAJA :- 6 -: ANY PERSON WHO WAS A DIRECTOR OF SUCH PRIVATE COMP ANY IN RELATION TO ANY TAX DUE IN RESPECT OF ANY INCOME OF SUCH PR IVATE COMPANY ASSESSABLE FOR ANY ASSESSMENT YEAR COMMENCING BEFO RE THE 1ST DAY OF APRIL, 1962.] [EXPLANATION.FOR THE PURPOSES OF THIS SECTION, TH E EXPRESSION 'TAX DUE' INCLUDES PENALTY, INTEREST OR ANY OTHER SUM P AYABLE UNDER THE ACT.]' THE BOARD CIRCULAR NO.179 DT.30-09-1975 ALSO REITER ATES THE SAME AS UNDER: '17. SECTION 179 OF THE INCOME-TAX ACT IMPOSES, IN CERTAIN CASES, A PERSONAL LIABILITY ON THE DIRECTORS OF A PRIVATE C OMPANY IN RESPECT OF THE TAX PAYABLE BY THE COMPANY. UNDER THIS PROVISI ON, IN A CASE WHERE A PRIVATE COMPANY IS WOUND UP ON OR AFTER 1 ST APRIL, 1962, AND IT IS FOUND THAT ANY TAX ASSESSED ON THE COMPA NY, WHETHER BEFORE THE COMMENCEMENT OF THE LIQUIDATION, OR IN THE COURSE OF OR AFTER THE LIQUIDATION, CANNOT BE RECOVERED FROM TH E COMPANY, THEN, EVERY PERSON WHO WAS A DIRECTOR OF THE COMPANY AT ANY TIME DURING THE RELEVANT PREVIOUS YEAR IS HELD JOINTLY AND SEV ERALLY RESPONSIBLE FOR THE PAYMENT OF THE TAX THAT CANNOT BE SO RECOV ERED. A DIRECTOR CAN ESCAPE THIS VICARIOUS LIABILITY IF HE PROVES T HAT THE NON-RECOVERY CANNOT BE ATTRIBUTED TO ANY GROSS NEGLECT, MISFEAS ANCE OR BREACH OF DUTY ON HIS PART. THE AMENDING ACT HAS ENLARGED TH E SCOPE OF THIS PROVISION SO AS TO IMPOSE PERSONAL LIABILITY ON TH E DIRECTORS OF A PRIVATE COMPANY IN RESPECT OF ANY TAX PAYABLE BY THE COMPANY EVEN IN CASES WHERE THE COMPANY HAS NOT GONE INTO LIQUIDATION. FURTHER, WHERE A PRIVATE COMPANY IS C ONVERTED INTO A PUBLIC COMPANY AND THE TAX ASSESSED IN RESPECT OF ANY INCOME OF ANY PREVIOUS YEAR DURING WHICH SUCH COMPANY WAS A PRIVATE COMPANY CANNOT BE RECOVERED FROM THE COMPANY, PERS ONS WHO WERE DIRECTORS OF THE COMPANY IN ANY SUCH PREVIOUS YEAR WILL BE JOINTLY AND SEVERALLY RESPONSIBLE FOR THE PAYMENT OF SUCH UN-RECOVERED TAX, SO, HOWEVER, THAT THE PERSONAL LIABILITY OF A DIRECTOR IN SUCH A CASE WILL NOT EXTEND TO THE TAX PAYABLE FOR ANY AS SESSMENT YEAR PRIOR TO THE ASSESSMENT YEAR 1962-63'. THE PROVISIONS ARE ATTRACTED WHERE - ANY TAX WAS DUE FROM ANY SUCH COMPANY - IN RESPECT OF ANY INCOME OF ANY PREVIOUS YEAR DUR ING WHICH SUCH COMPANY WAS A PRIVATE COMPANY WHICH CANNOT BE RECOV ERED THEN I.T.A. NOS. 1579 & 1580/HYD/2014 SRI N. SURYA PRAKASH RAO SMT. N. PADMAJA :- 7 -: - EVERY PERSON WHO WAS A DIRECTORS OF THE COMPANY AT ANY TIME DURING THE RELEVANT PREVIOUS YEAR - SHALL BE JOINTLY AND SEVERALLY LIABLE - FOR THE PAYMENT OF SUCH TAX, UNLESS HE PROVES THA T NON-RECOVERY OF THE TAX CANNOT BE ATTRIBUTED TO ANY GROSS NEGLEC T, MISFEASANCE OR BREACH OF DUTY ON HIS PART IN RELATION TO THE AF FAIRS OF THE COMPANY. THE BARE PERUSAL OF SECTION 179 SHOWS THAT BEFORE R ECOVERY IN RESPECT OF DUES FROM THE PRIVATE COMPANY CAN BE INITIATED AGAI NST THE DIRECTORS, IT IS NECESSARY FOR THE REVENUE TO ESTABLISH THAT SUCH RECOVERY CANNOT BE MADE AGAINST THE PRIVATE COMPANY AND THEN AND THEN ALONE, IT CAN REACH THE DIRECTORS WHO ARE RESPONSIBLE FOR THE CONDUCT O F BUSINESS DURING THE PREVIOUS YEAR IN RELATION TO WHICH LIABILITY EXISTS (BHAGWAN DAS J.PATEL V. DCIT [238 ITR 127 (GUJ)]). THE SECTION CANNOT BE U SED AGAINST THE DIRECTOR WHILE THE RECOVERY PROCEEDINGS AGAINST THE COMPANY ARE CONTINUING [GADADHAR DEY AND ANR. VS. TRO (96 ITR 5 43) (CALCUTTA)]. 7. BEFORE HOLDING ANY DIRECTOR AS VICARIOUSLY LIABL E FOR THE TAXES OF A PRIVATE LIMITED COMPANY, THE REVENUE HAS TO ESTABLI SH THAT THE TAXES COULD NOT BE RECOVERED FROM THE PRIVATE LIMITED COM PANY. THE STATUS OF COMPANY IN WHICH THE ASSESSEES ARE DIRECTORS WAS AL SO ACCEPTED AS A PUBLIC LIMITED COMPANY. IT SEEMS ASSESSING OFFICER HAS NOT DONE ANY SUCH EXERCISE TO ESTABLISH APPLICATION OF SEC.179. HOWEVER, THIS IS BESIDES THE ISSUE. HERE WE ARE CONCERNED WITH THE Q UESTION WHETHER THE APPEALS ARE MAINTAINABLE. AS THERE IS NO PROVISIO N TO MAKE AN APPEAL AGAINST THE ORDER OF THE ASSESSING OFFICER U/S.179( 1), THE CIT(A) IS CORRECT IN DISMISSING THE APPEAL AS NOT MAINTAINABL E. WE ALSO DO NOT GET ANY JURISDICTION TO DECIDE THE ISSUE ON MERITS, AS THERE IS NO RIGHT OF APPEAL PROVIDED UNDER THE STATUTE. THIS FORUM CANNO T ADJUDICATE ON THE I.T.A. NOS. 1579 & 1580/HYD/2014 SRI N. SURYA PRAKASH RAO SMT. N. PADMAJA :- 8 -: ISSUES EITHER LEGALLY OR ON MERITS. FOR THESE REAS ONS, WE ARE OF THE OPINION THAT APPEALS PREFERRED BY ASSESSEES CANNOT BE MAINTAINED. 8. IN THE CASE OF M.RAJAMONI AMMA VS. DCIT [195 ITR 873 (SC)] IT WAS HELD BY HONOURABLE SUPREME COURT THAT COMPANY BEING A PUBLIC LIMITED COMPANY, THE PROCEEDINGS AGAINST DIRECTORS FOR RECOVERY OF THE TAX DUE FROM THE COMPANY CANNOT BE TAKEN AND CERTAI NLY NOT PROCEEDED WITH U/S.179. ARTICLE 265 OF THE CONSTITUTION CLEA RLY PROHIBITS ANY ATTEMPT TO RECOVER TAXES EXCEPT UNDER THE AUTHORIT Y OF LAW. IN CASE THE REVENUE PROCEEDS WITH RECOVERY OF TAXES OF A PUBLIC LIMITED COMPANY FROM ITS DIRECTORS IN THEIR PERSONAL CAPACITY, THEN , THE OPTION LEFT WITH ASSESSEE IS TO PREFER A WRIT BEFORE THE JURISDICTIO NAL HIGH COURT. ASSESSEE IS FREE TO TAKE ANY OTHER LEGAL REMEDIES A VAILABLE, IN CASE THE REVENUE AUTHORITIES PROCEED AGAINST ASSESSEE FOR RE COVERY OF TAXES OF A PUBLIC LIMITED COMPANY U/S.179 OF THE ACT. 9. WITH THESE OBSERVATIONS, THE APPEALS ARE DISMISS ED AS NOT MAINTAINABLE. ORDER PRONOUNCED IN OPEN COURT ON 31 ST MARCH, 2015. SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTA NT MEMBER HYDERABAD, DATED 31 ST MARCH, 2015 TNMM I.T.A. NOS. 1579 & 1580/HYD/2014 SRI N. SURYA PRAKASH RAO SMT. N. PADMAJA :- 9 -: COPY TO : 1. SRI N. SURYA PRAKASH RAO, C/O. P. MURALI & CO., CHA RTERED ACCOUNTANTS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD. 2.SMT. N. PADMAJA, C/O. P. MURALI & CO., CHARTERED ACCOUNTANTS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD. 3. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3(2 ), HYDERABAD. 4. CIT(APPEALS)-IV, HYDERABAD 4. CIT-III, HYDERABAD 5. D.R. ITAT, HYDERABAD.