Sec 179 not followed, recovery cannot be made from the properties of the directors: Gujarat HC

 

 

Devendra Babulal Jain (CA No. 12961 of 2019)

Facts:

1. The AO passed assessment order on account of bogus unsecured loans. Consequently demand notice under section 156 of the Income Tax Act was issued upon the assessee.

2. The assessee filed a stay application against the demand. Rejecting the stay application filed by the Company, the AO passed an order under Section 179 of the Income Tax Act, fastening liability upon the directors (petitioners) to pay the outstanding dues of the Company.

3. Subsequently, a notice of demand was issued, calling upon the petitioners to pay the outstanding dues. After the petitioners failed to comply with the demand notice, the Income Tax Authority passed an order under Rule 48 of the Second Schedule of the Income Tax Act, attaching the personal properties of the directors (petitioners).

4. The petitioner contended that only in cases where the amount of tax due from a private limited company is not recovered due to the gross neglect, misfeasance or breach of duty of the Director, can the jurisdiction under Section 179 be invoked.

Hon Gujarat HC held as below:

1. The Income Tax Authorities had failed to take any action against the assessee Company, except for issuing a recovery notice and attaching the said Company’s bank account.

2. The AO is required to make efforts for recover the Outstanding dues from the assessee Pvt Ltd Company.

3. Since the basic ingredients of Section 179 were not complied with by the revenue authorities, the orders passed under Section 179 and Rule 48 were without jurisdiction.

4. The order of the AO is set aside.