C O M M ON O R D E R

These Writ Petitions have been filed by three Directors in a Private Limited Company, by name Rai Ispat Pvt. Ltd. (hereinafter referred to and in short ‘company’) challenging orders passed in terms of Section 179 of the Income Tax Act, 1961 (in short ‘Act’).

2. A brief history of the matter is set out below, as relevant to decide this writ petition:

(i) The Company is stated to be part of a group of companies, trading in steel and engaging in the acquisition of shares of other companies for the purposes of holding as investment.

(ii) A search under Section 132 was carried out on 26.09.2012 in the premises of a group company, SBQ Steels Ltd. consequent upon which the assessments of the company were reopened under Section 147 of the Act.

(iii) Additions were made in the hands of the company, two substantive additions being a) a sum of Rs.3.60 Crores that were received as share application from one Chandan Credits Ltd. on the ground that the aforesaid company was a paper concern and treating the share application as unexplained credit and b)a sum of Rs.4.62 crores (approx.) being investment in shares of SBQ steels as unexplained investment under Section 69 of the Act.

(iv) The assessments have come to be confirmed confirming the aforesaid additions, adverse to the petitioners. The Assessing Authority, despite attempts, appears to have been unable to recover the demands from the company, and it is at that stage that the impugned orders had come to be passed under Section 179. 3. The provisions of Section 179 provide for the liability of the Directors of a Private Limited Company and states that every person who was a Director of a Private Limited Company during the relevant previous year, shall be jointly and severally liable for the payment of tax where the Department is unable to recover the tax due from that company unless he (the Director) 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. It is the petitioner’s case that the impugned order is entirely non-speaking, with respect to the ingredients of Section 179 itself.

4. That apart, the company is presently stated to be undergoing Corporate Insolvency Resolution Process before the National Company Law Tribunal (NCLT) and the Income Tax Department ought to have raised/made its claim before the NCLT without pursuing the demand as against the Directors. The petitioners, in this regard, rely on the decision of the Gujarat High Court in the case of Ram Prakash Singeshwar Rungta V. Income-tax Officer (59 taxmann.com

174).

5. Learned Standing Counsel appearing for the Department would point out that sufficient measures were taken to recover the amounts from the company at the first instance, and it is only upon failure of those measures that the attention of the Department turned to the Directors to recover the amount in terms of Section 179. He denies the allegation that the conditions precedent under Section 179 have not been satisfied, by drawing attention to the narration in the counter relating to the attempts made by the Department for recovery of tax due from the company itself.

6. Having heard learned counsel, my decision is as follows:

The admitted facts in this case are that there are tax dues from the company.

The counter filed by the Department sets out the following attempts made by the Department to recover the tax dues in relation to the respective assessment years.

(i) Demands were unpaid within the statutory period of 30 days from service of notice under Section 156 of the Act.

(ii) Notices under Section 221(1) dated 30.04.2019 was issued and duly served.

(iii) The demands remained unpaid even after dismissal of first appeals on

26.03.2019.

(iv) Communications were sent to the company calling for remittances of the dues that also saw no compliance.

(v) Bank attachments of the company’s accounts were effected under Section 226(3) on 05.12.2017, but did not