Tax default by the company and power to recover ot from the Director

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Tax default by the company and power to recover ot from the Director 

Through the director and company are independent person, still section 179 provides that the recovery action can be initiated against the director.

Here is an interesting case on the power of the income tax authorities in such cases as under:

Rajendra R. Singh (WP No. 3590 of 2019)

Facts:

  1. The AO passed an order under Section 179 of the Income Tax Act, 1961, holding that the petitioner, the director of the assessee company- M/s. Crest Paper Mills Ltd., was liable to pay the tax dues which were otherwise payable by the said Company.
  1. Section 179 of the Income Tax Act provides that if the tax dues of a private company, in respect of any income of any previous year, 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.
  1. The petitioner challenged the order passed by the AO in a revision petition filed under Section 264 of the Income Tax Act before the DCIT, which was dismissed. Thereafter, the petitioner filed a writ petition before the Bombay High Court for quashing the order passed by the AO.

Hon Bombay HC held as below:

  1. To justify that the tax dues cannot be recovered from the company U/S 179, the AO has to enumerate the steps taken towards recovery of tax dues from the company, which may include attachment of the accounts and the movable and immovable assets of the company.
  1. The AO had mechanically and casually resorted to the provisions of Sec 179 and so the order passed is hereby quashed.

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