IN THE ITAT BANGALORE BENCH ‘A’
Assistant Commissioner of Income-tax
IT APPEAL NOS. 119 TO 121 (BANG.) OF 2010
[ASSESSMENT YEAR 2001-02]
JUNE 15, 2012
George George K. Judicial Member
These three appeals instituted by the erstwhile directors – Shri N. Gowrishankar, Shri T.V. Vishwanath Gupta and N Jagannath, in their individual capacity – of M/s. Kwality Biscuits Limited [KBL], are directed against the consolidated order of the learned CIT(A)-I, Bangalore dated 10.12.2009. The relevant assessment year is 2001-02.
2. In all these appeals, the grounds raised are identical. For the sake of convenience and clarity, they are reformulated as under:
(i) that the CIT(A) misdirected himself in assuming that the assessees were not aggrieved by the order passed u/s 143(3) (sic) 143 (3) r.w.s. 147 of the Act in the case of KBL and, thus, the impugned order requires to be quashed; &
(ii) that once the tax due from KBL was sought to be recovered from the present assessees, they have become aggrieved by the impugned order passed.
3. As the issues raised by the above mentioned assessees being similar , these appeals were heard, considered together and disposed off in this consolidated order.
4. Briefly stated the facts are as follows:-
All the above named assesses were erstwhile directors of KBL against which the AO, for the reasons recorded in his impugned order for the AY under consideration, raised a substantial demand of Rs. 12,82,27,734/- by his order passed u/s 143(3) r.w.s. 147 of the Act dated 28.12.2006 and, it appears, subsequently, made the ex-directors liable to pay a portion of tax by virtue of s.179 of the Act.
5. Apprehending this, all the assesses have approached the learned CIT (A) for relief. All of them, in their identical submissions have pleaded before the learned CIT (A) that –
– “they were the directors of KBL upto 5.12.2001 and, subsequently, they have no connection with any proceedings initiated against KBL and that they were not appraised of the assessment made in the case of KBL, demand raised and the action initiated to recover such liabilities from KBL etc.,
– the Revenue had informed the erstwhile directors of KBL (the present assesses) vide letter dated 31.3.2008 that garnishee proceedings have been initiated against them as Ex-directors of KBL, presumably, by invoking the provisions of s. 179 of the Act;
– when contested the same, the initiation of garnishee proceedings against them, as the provisions of s.179 cannot be invoked against them etc., according to the assessees, the garnishee proceedings initiated were not pursued and, subsequently withdrawn;
– apprehending that the threat of the provisions of s. 179 of the Act continues and the liability of KBL to be saddled on them, they took a view that they were aggrieved by the order passed u/s 143(3) r.w.s. 147 of the Act passed in the case of KBL.
Rely on the following case laws:
♦ Adi Pherozshah Gandhi v. H.M. Seervai AIR 1971 SC 385;
♦ Baburam v. State of U.P.  2 SCC 689; &
♦ CIT v. N. Ch. R. Row & Co.  144 ITR 557 (Cal.).”
6. After due consideration of the submissions/contentions of the assessees and also extensively quoting the provisions of s. 246A of the Act, the learned CIT(A) had observed thus:
“5.1 Thus, the characteristic of being aggrieved is qualified by the words ‘any of the following orders’. The list of order does not enlist an order passed u/s 179 of I.T. Act. Therefore, the appeals do not deserve to be admitted at all….”
7. Aggrieved, the assessees have come up with the present appeals. During the course of hearing, the learned Counsel appeared for the assessees reiterated more or less what has been represented before the first appellate authority. It was argued that the learned CIT(A) had grossly erred in dismissing the appeals as ‘not maintainable’. To drive home his point, the learned Counsel had placed strong reliance on the rulings of the judiciary cited supra.
8. On the other hand, the learned DR contended that the learned CIT (A) was justified in his finding which requires no intervention of this Bench.
9. We have duly considered the rival arguments, diligently perused the relevant case records as well as the case laws on which the assessees have placed their reliance. It is an un-deniable fact that the assessment in the case of KBL was concluded u/s 143(3) r.w.s. 147 of the Act, raising a sizeable demand of Rs. 12.82 crores. Subsequently, a copy of the letter dt. 31.3.2008 was issued individually on the erstwhile directors of KBL, namely, the present assessees, appraising them, among others, non disposal of appeal preferred by KBL before the CIT(A) by order of 30.4.08, no further request for say of demand will be considered unless 50% of the demand is paid by 15.5.08. This cannot be a solitary ground for the assessees to presume that they are entitled to challenge the order passed in the case of KBL.
9.1 On a perusal of the impugned assessment order of the AO, we find that a demand of Rs. 12.82 crores had been raised in the case of KBL. Subsequently, a letter dt.31.3.2008 was issued by the AO to the Principal Officer, M/s Britania Industries Ltd., Bangalore, informing them that the balance demand in the case of KBL was stayed till 30.4.2008 or disposal of appeal by the CIT(A) whichever was earlier etc., a copy of which was also endorsed to all the erstwhile directors of KBL. Perhaps, this had prompted the assessees to challenge the assessment order in the case of KBL. However, KBL on its own had challenged the assessment order before the CIT(A) which was, according to the AO, in its final stage for disposal when such a communication sent to M/s Britania Industries Limited referred supra.
9.2 For appreciation of facts, we reproduce the provisions of s. 179 as under:
“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.”
9.3 Thus, the provisions of section make abundantly explicit that ‘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….’ However, in the present appeals, no such specific order u/s 179 of the Act has been passed by the Assessing Officer against the present assessees, making them liable for the payment of such tax etc., A mere letter of the AO dated 31.3.2008 informing the Principal Officer of Britannia Industries Limited that ‘no further request for stay of demand will be considered unless 50% of the demand is paid by 15.5.08’ in the case of KBL for the AY 2001-02 and a copy of which endorsed to the present assessees, in our considered view, cannot be attributed by any stretch of imagination that the assessees have been made liable to pay tax due on behalf of KBL. Moreover, no order u/s 179 of the Act has been produced to justify their claim that they have been aggrieved of by the said order.
9.4 In view of the above, we are of the considered view that the apprehension of the assessees that they have been made liable to pay a portion of tax u/s 179 of the Act, is unwarranted and misconceived. As per the provisions of the Income-tax Act, no person can be made liable to pay any tax for himself or on behalf of any other entity for which he has been associated unless a specific order is passed in the matter. In the present case, no such order u/s 179 of the Act has been passed.
9.5 Moreover, as on today, the demand that is raised against the Company M/s Kwality Biscuits Ltd. is not enforceable since the third Member of the Tribunal in ITA No. 1223/Bang/2009 had decided the matter in favour of the company and held that the capital gains is not exigible on the facts of the case. Therefore, since no demand is subsisting against the company as on date, there is no cause of action that is existing for the erstwhile Directors of the Company to challenge the orders of assessment of M/s Kwality Biscuits Ltd.
9.6 Taking into account all the above relevant facts into consideration, we are of the firm view that the present appeals preferred by the assessees, as rightly pointed out by the learned CIT(A), are not entertainable which have been, as highlighted supra, preferred based only on presumption, hypothecation, but, not against any specific order(s) of the authorities below.
9.7 Before parting with the issue(s), we would like to reiterate that with due regards we have perused the case laws relied on by the assessee and to affirm that they are not directly applicable to the facts of the issue on hand and that they are clearly distinguishable.
10. In the result, the appeals preferred in ITA Nos. 119/10, 120/10 and 121/10 by the assessees are dismissed as ‘not maintainable’.