Recovery from Director Couldn’t be Made Without Indicating What Steps Were Taken to Trace Assets of Co. | HC

Case Details: Manjula D. Rita v. Principal Commissioner of Income-tax - [2023] 153 taxmann.com 468 (Bombay)

Judiciary and Counsel Details

• • K.R. Shriram & Firdosh P. Pooniwalla, JJ.
  • Ranit Basu, Ms Maitri Malde & Ms Nikita Ghungarde for the Petitioner.
  • Suresh Kumar for the Respondent.

Facts of the Case

The deceased assessee was a director of a company. An assessment order was passed, making several additions to company income and tax demand. The stay application filed by the company was rejected. Thereafter, an order under section 179 was passed upon the assessee raising tax demand from him.

The assessee filed a revision petition against said order passed under section 179, which was rejected. Assessee writ petition before the Bombay High Court.

High Court Held

The Bombay High Court held that there was no evidence to indicate even any notice was issued to the deceased. The affidavit stated that only letters were issued through speed post, and the same were not returned undelivered. Thus, the Assessing Officer (AO) attempted to find out the whereabouts of the assessee.

There was no evidence annexed to show that even such a letter was prepared or the letter was sent by speed post, or a query was sent to the Post Master to find out the status of the delivery of the said letter. In the circumstances, the Court will have to proceed because no letter or notice was sent to the deceased before the order under section 179 came to be passed.

There is also nothing to indicate what steps were taken to trace the company’s assets. Moreover, the order passed under section 179 does not satisfy any of the ingredients required to be met. Further, the deceased has not even been allowed to establish that the non-recovery cannot be attributable to any of the three factors on his part, i.e., gross neglect, misfeasance or breach of duty. The gross negligence, etc., is to be viewed in the context of non-recovery of tax dues of the company and not with respect to the general functioning of the company.

Once the director, after being given an opportunity, places material on record to establish that non-recovery cannot be attributed to gross negligence, misfeasance or breach of duty, the Tax Recovery Officer must apply his mind and come to definite findings. Therefore, considering the facts of the case, the order passed for commencing proceedings under section 179 upon the assessee was to be quashed and set aside.

List of Cases Reviewed

• • Prakash B. Kamat v. Pr. CIT [2023] 151 taxmann.com 344 (Bom.) (para 9)
  • Maganbhai Hansrajbhai Patel v. Asstt. CIT [2012] 26 taxmann.com 226/211 Taxman 386/[2013] 353 ITR 567 (Guj.) (para 10) followed.

List of Cases Referred to

• • Prakash B. Kamat v. Pr. CIT [2023] 151 taxmann.com 344 (Bom.) (para 9)
  • Maganbhai Hansrajbhai Patel v. Asstt. CIT [2012] 26 taxmann.com 226/211 Taxman 386/[2013] 353 ITR 567 (Guj.) (para 10).