In a recent ruling, Gujarat High Court (HC) quashed the order of the Income Tax Officer (ITO) on recovery of the outstanding dues of the assessee – company from the Directors under section 179 of the Income Tax Act, 1961.
The bench of Justice N.V. Anjaria and Justice Bhargav D. Karia observed that the petitioner cannot be considered negligent and the respondent cannot, as a result, assert jurisdiction under section 179 of the Income Tax Act because they have not been able to deposit 20% of the demand raised in the assessment order to get a stay from the appeal authority.
The petitioners of the present appeal are the directors of the assessee-company M/s. Nakoda Syn-tex Private Limited.
The ITO conducted an assessment for the A.Y. 2014–2015 and issued an order adding Rs. 7,00,00,000 on account of bogus unsecured loans. Consequently demand notice under section 156 of the Income Tax Act was issued upon the said company raising a demand of Rs.3,06,63,860.
A show cause notice pursuant to Section 179 of the Income Tax Act was also sent by the ITO. In certain situations where the tax cannot be recovered from the company itself, the section contains measures that allow the authorities to reclaim tax owed from a private company from its directors.
Jaimin Dave for the petitioners submitted that the impugned order passed under section 179 of the Income Tax Act and consequential orders are without jurisdiction as the basic condition for invoking section 179 are not satisfied in the facts of the case.
Nikunt Raval, counsel for the respondent, argued that the private limited company, of which the petitioners are Directors, is obligated to pay the demand of more than Rs. 3 crores since 2016, and the said company did not make any payment of the outstanding demand within the due time despite being given recovery notice by the Recovery Officer.
After hearing the arguments from both the sides, the bench found 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 a private limited company.
The HC observed that on perusal of the Section 179 of the Income Tax Act, the Assessing Officer (AO) 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.
Additionally, it was emphasised that the AO had neglected to recognize that the petitioners had provided their explanation and had contested the order of assessment before the appellate authority, arguing that the petitioners had not acted sloppily and that there had been no mis behaviour or breach of trust on their part.
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