Jurisdiction to commence proceedings against director for recovery of tax dues of delinquent company

Jaison S. Panakkal Vs Pr. CIT (Bombay High Court)

Jurisdiction to commence proceedings against the Director of a delinquent company for a recovery of the tax dues of the delinquent company, would require the notice to the Directors/ former Directors, itself, indicating what steps had been taken to recover the dues from the delinquent company and the failure thereof. It is only when the above exercise has been done and is indicated in the show cause notice that the Assessing Officer and can claim to have satisfied the condition precedent for commencing proceedings under Section 179(1) of the Act. Impugned order was quashed and set aside.

FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT

This Petition under Article 226 of the Constitution of India, challenges the order dated 15^th February, 2018 passed by under Section 179(1) of the Income Tax Act, 1961 (the Act), by Respondent No.2­ Assessing Officer. By the impugned order dated 15^th February, 2018, the Petitioner is directed to pay the tax dues of Rs.38.34 Crores of M/s. Damasy Retail Jewellery Pvt. Ltd., in respect of Assessment Year 2008-09 to 2010-11. Petitioner is a former Director of M/s. Damasy Retail Jewellery Pvt. Ltd., having been a director during the period 29^th December, 2007 to 11^th November, 2009.

2 It is the case of the Petitioner that the impugned order dated 15^th February, 2018 was not preceded by service of any show cause notice upon him. Consequently, Petitioner had no opportunity to put­forth his case before passing of the impugned order. Thus, in breach of natural justice.

3 Respondents have filed affidavit in reply dated 26^th April,

2018 of Mr. Neeraj Kumar Srivastava, Income Tax Officer, wherein it is contended that the show cause notice dated 26^th July, 2017 was attempted to be served by Registered Post. However, same was received back with the postal remark “not known”. Copy of the show cause notice dated 26^th July, 2017 is annexed to the affidavit in reply as Exh. C.

4 On the basis of the above show cause notice, it is contended by Mr. Shah, learned Counsel for the Petitioner that the show cause notice dated 26^th July, 2017 does not make any mentioning of the Revenue’s attempt to recover the tax dues of M/s. Damasy Retail Jewellery Pvt. Ltd. from it and the result thereof. In this circumstances, it is submitted that the impugned proceedings, are completely, without jurisdiction.

5 It is an agreed position between the Counsel that a similar issue viz: jurisdiction of the Assessing Officer to commence proceedings under Section 179 (1) of the Act, arose before us in Madhavi Kerkar v/s. Assistant Commissioner of Income Tax (Writ Petition No.567 of 2016) rendered on 5^th January, 2018 and Mehul Jadavji Shah v/s. Deputy Commissioner of Income Tax (Writ Petition No. 291 of 2018) rendered on 5^th April, 2018. In both the above cases, we have held that the jurisdiction to commence proceedings against the Director of a delinquent company for a recovery of the tax dues of the delinquent company, would require the notice to the Directors/ former Directors, itself, indicating what steps had been taken to recover the dues from the delinquent company and the failure thereof. It is only when the above exercise has been done and is indicated in the show cause notice that the Assessing Officer and can claim to have satisfied the condition precedent for commencing proceedings under Section 179(1) of the Act.

6 Mr. Sharma, learned Counsel for the Respondent very fairly states that the issue stands concluded against the Revenue in the present facts, by the decision of this Court in Madhavi Kerkar (supra) and Mehul J. Shah (supra).

7 In the above view, the impugned order dated 15^th February, 2018 is quashed and set aside.

8 However, it is made clear that quashing of the impugned order would not prohibit the Revenue from taking such steps as they are entitled, to recover the tax dues of M/s. Damasy Retail Jewellery Pvt. Ltd., from the Petitioner. This, of­course, subject to Revenue satisfying the jurisdictional requirement and complying with the principles of natural justice.

9 Needless to state, once the impugned order dated 15^th February, 2018 is set aside, the consequent recovery proceedings are also quashed and set aside,

10 Writ Petition disposed of in the above terms. No order as to costs.