HIGH COURT OF JUDICATURE AT HYDERABAD FOR THE STATE OF TELANGANA AND THE STATE OF ANDHRA PRADESH THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON’BLE SRI JUSTICE SANJAY KUMAR WRIT PETITION No. 23819 of 2014 DATE: 15.10.2014 Between:
Koneru Rajendra Prasad … Petitioner And Union of India, rep., by its Secretary, Ministry of Finance, North Block, New Delhi & others.
… Respondents This Court made the following:
THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON’BLE SRI JUSTICE SANJAY KUMAR WRIT PETITION No. 23819 of 2014 ORDER: (Per the Hon’ble the Chief Justice Sri Kalyan Jyoti Sengupta) This writ petition has been filed challenging the show cause notice dated 10.03.2014 and the demand by order dated 01.05.2014 of the respondents and to set aside the same as well as the consequential attachment of the petitioner’s bank accounts and property.
It appears that a show cause notice was issued to the petitioner under Section 179 of the Income Tax Act, 1961 (for short, “the Act”) as to why he should not be treated as an assessee in default being the Director of the company. On receipt of the said notice the petitioner filed reply contending that he was not responsible for the demand made on behalf of the company for which he was described to be a Director, as he resigned as Director prior to the demand in question was made. On receipt of the reply, the respondent official concerned has passed a detailed order relying on various documents and also the statements of the witnesses.
It is an admitted position that no material seeking to rely on to support show cause was supplied nor any indication was given to the petitioner that any person will be brought as witness to testify the contention made against him.
We are of the view that the impugned order has been passed against the principles of natural justice, as the documents relied on while passing the impugned order were never supplied to the petitioner nor he was given a chance to adduce his evidence to establish that he has no responsibility under Section 179 of the Act to pay the tax due or to rebut the evidence of Revenue. There was no fact finding with regard to the pre-conditions mentioned in Section 179 as discussed later on. According to us, the petitioner is held liable for payment of tax and is subjected to recovery of the tax due by the company without following procedure established by law apart from violating principles of natural justice.
Sub-section (1) of Section 179 of the Act says that notwithstanding anything contained in the Companies Act, 1956, where any tax due from a private company in respect of any income of any previous year or from any other company in respect of any income of any previous year during which such other company was a private company, 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 negligent, misfeasance or breach of duty on his part in relation to the affairs of the company.
We have read the impugned order. We do not find any such clear findings with proof that the petitioner was a Director at any time during the relevant previous years or tax due cannot be recovered, nor any attempt was made to discuss to accept or reject the plea taken by the petitioner in his explanation. In absence of these statutory requirement, it cannot be said to be lawful exercise of power. We therefore set aside the impugned order and direct the officer concerned to re-hear the matter after supplying the material, which were or which might be relied on and indicating whether any person would be examined as witness. The petitioner shall also be entitled to adduce his evidence wherever necessary. After compliance of all these formalities, hearing shall be taken and the officer concerned must decide the matter without being influenced or swayed by the earlier decision. The entire exercise shall be completed within a period of three months from the date of communication of this order. In view of setting aside of the impugned order, the writ petitioner shall be free to operate his existing bank accounts and no new bank account shall be opened. All monies, which are receivable or received, shall be deposited only in one account, and it would be open for the respondent department to take steps in accordance with law as an interim measure, if so advised.
The writ petition is accordingly disposed of.
Pending miscellaneous petitions, if any, shall also stand dismissed. No order as to costs.
K.J. SENGUPTA, CJ SANJAY KUMAR, J
Date: 15.10.2014 ES