The main legal point established is the importance of providing a fair hearing and making known the evidence being relied upon before passing orders under Section 179 of the Income Tax Act, 1961.

M.S. Sanklecha, J.

1. Rule; By consent Rule returnable forthwith. The Respondents waives service. At the instance and request of the advocates for both sides, the petition is taken up for final hearing.

2. The Petitioner now 77 years old, challenges:

(a) an order dated 6 January, 2010 of the Income Tax Officer, holding that the petitioner is liable under Section 179 of the Income Tax Act, 1961(hereinafter referred to as the “said Act” ) to pay the tax dues of a private limited company, in which he was a Director ; and

(b) an Order dated 30th March, 2011 passed in Revision under Section 264 of the said Act by the Commissioner of Income Tax upholding the said order dated 6th January 2010, Both the orders have been challenged on merits as well as on account of a breach of the principles of natural justice.

3. The facts leading to this petition are as under:-

(a) The petitioner was till his verification on 29th April, 1994 a non-executive Director on the Board of Directors of M/s. Metroni Drugs Pvt. Ltd. (hereinafter referred to as “said company”). He contends that he was not involved with the day to day management of the company and was never informed of any tax demands or that the tax dues of the said company were outstanding.

(b) On 27 September, 2006, the Income Tax officer by notice called upon the petitioner to show cause as to why, an amount of Rs.2.19 crores being the tax dues of the said company for the Assessment years 1986-87 to 1993-94 should not be recovered from him under Section 179 of the said Act. The petitioner responded to the above notice pointing out that he was a non-executive Director of the said company and had resigned as far back as April 1994. Further as he was not looking after the day to day management of the said company he could not be liable for any neglect, malfeasance or breach of duty and therefore the notice should be withdrawn.

(c) By an order dated 25th January, 2007, the Income Tax Officer confirmed the show cause notice dated 27th September 2006 and held the petitioner liable to pay the tax arrears of Rs.2.19 crores owed by the said company. Against this order the petitioner filed a Revision Application under Section 264 of the said Act, with the Commissioner of Income Tax. On 5th November, 2007, the Commissioner of Income Tax aside the order and remanded the matter for fresh adjudication by the Income Tax Officer with the following directions:

“Under the circumstances, the A. O. was bound to give a specific finding regarding non-recovery of demand and the extent to which it cannot be recovered from the company. In the absence of any such categorical finding by the A. O., order passed u/s. 179 holding the petitioner as liable to pay demand in the case of the company cannot be sustained and therefore the said order u/s. 179 of the Income Tax Act is hereby cancelled. However, the A. O. shall be at liberty to pass a fresh order u/s. 179 against the petitioner after making all efforts to recover the demand pertaining to the company from the company itself and recording a finding indicating the extent of the demand which cannot be recovered from the company before passing such order u/s. 179, if deemed necessary. The petitioner shall be allowed adequate opportunity of being heard, before passing any such fresh order u/s. 179 of the Income Tax Act.”

(d) The Income Tax Officer issued a fresh show cause notice on 20th July, 2009 to the petitioner. The notice did not set out any particulars with regard to the efforts made and the extent of non recovery of the tax dues from the properties of the said company.

(e) By his reply dated 27th July, 2009, the petitioner reiterated what he had stated in response to the earlier show cause while pointing out from the Balance Sheet of the said company for the year ending 31st March, 1995, that it owned immovable properties in the form of plots of land with factory building thereon, residential flats and office premises in the name of M/s. Deven's Phar