The s.179 order against me recites that the company had no assets and that all the directors were guilty of gross neglect. The show-cause notice said none of that. Is the order good?
No. The Assessing Officer must lay the foundation for s.179 in the show-cause notice itself, and must put the primary facts he relies on to the director before he acts on them. An order whose conclusions rest on material at the officer's command that was never shared with the director is set aside.
Decided by the High Court (Akil Kureshi J and B.N. Karia J) on 2018-08-27, reported as R/Special Civil Application No. 5354 of 2018 with R/Special Civil Application No. 5355 of 2018 (High Court of Gujarat at Ahmedabad). No law-report citation appeared in the text read.. It bears on section 179 of the Income Tax Act 1961, in Demand, Recovery & Stay matters.
This is the commonest defect in a live s.179 notice and it is visible on the face of the papers. The notice is usually two lines saying the company has not paid and asking why the director should not be made liable; the order that follows is four pages of findings about closure of business, absence of attachable assets and 'deliberate and known acts of gross neglect'. The Gujarat High Court's point is that the burden being cast on the director in the negative does not relieve the officer of the anterior duty to disclose what he is relying on. Note the limit of the relief: the order was set aside on this ground alone and the officer was expressly left free to start again on proper notice, so this wins the round, not the fight.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The petitioner was an ex-director of Brajvashi Caterers Private Limited. For assessment year 2010-11 the Assessing Officer completed an assessment on the company on 15 December 2017 raising a demand of about Rs 17.06 lakh. The company did not pay. The officer issued a notice under s.179 on 7 February 2018 and passed an order on 28 February 2018 requiring the ex-director to pay the company's dues. Much of the order was devoted to whether s.179 can be invoked against the director of a public company; as against this petitioner all it said was that she was a director during the relevant period and that the company's dues could not be recovered from the company. The order concluded that the primary reason for failure to collect was total closure of business operations and non-existence of office premises, that no provision had been made by the company or any of its directors for government dues 'which were bound to arise on account of deliberate and known acts of gross neglect, misfeasance and breach of duty by all directors of the company', and that recovery was impossible for want of identifiable assets, nil bank balances and no attachable debtors. A companion petition arose in the same background.
The impugned order was set aside on the single ground that the show-cause notice laid no sufficient foundation for invoking s.179 and did not even allege that non-recovery was attributable to gross neglect, misfeasance or breach of duty on the petitioner's part, so that the officer's final conclusions rested on material never shared with her (paras 8 and 9). The Court expressly preserved the Assessing Officer's liberty to initiate a fresh exercise for the same purpose if the material at his command permits it (para 9).
Section 179 lets the Revenue recover a private company's unpaid tax from its directors unless 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; the requirement is cast in the negative and the burden of establishing the relevant facts lies on the person who was a director. Nevertheless it is the onus of the Assessing Officer to draw the primary facts to the notice of the assessee on the basis of which he proposes to invoke the power. The section is a statutory lifting of the corporate veil and operates only if the requirements of sub-section (1) are satisfied (para 7, applying the Division Bench in Pravinbhai M. Kheni). The fundamental requirement is that the tax dues cannot be recovered from the company, and on this the Court set out the passages from Bhagwandas J. Patel - that before recovery can be initiated against a director it is necessary for the Revenue to establish that recovery cannot be made against the company, 'and then and then alone it can reach the directors' - and from Indubhai T. Vasa (HUF), to the same effect. Turning to the facts, the show-cause notice contained no such foundation and no allegation of gross neglect at all, so the conclusions in the order were built on undisclosed material (para 8).
Reverting back to the facts of the case, we notice that in show-cause notice the Assessing Officer has not laid down sufficient foundation for invoking section 179 of the Act leave alone broadly pointing out he has not even alleged that non-recovery was on account of gross negligent, misfeasance or breach of duty on part of the petitioner in relation to the affairs of the company.
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Handle my notice → Ask a CA on WhatsAppNo. The Assessing Officer must lay the foundation for s.179 in the show-cause notice itself, and must put the primary facts he relies on to the director before he acts on them. An order whose conclusions rest on material at the officer's command that was never shared with the director is set aside. This was decided by the High Court (Akil Kureshi J and B.N. Karia J) and bears on section 179 of the Income Tax Act 1961. It is reported as R/Special Civil Application No. 5354 of 2018 with R/Special Civil Application No. 5355 of 2018 (High Court of Gujarat at Ahmedabad). No law-report citation appeared in the text read.. This is the commonest defect in a live s.179 notice and it is visible on the face of the papers. The notice is usually two lines saying the company has not paid and asking why the director should not be made liable; the order that follows is four pages of findings about closure of business, absence of attachable assets and 'deliberate and known acts of gross neglect'. The Gujarat High Court's point is that the burden being cast on the director in the negative does not relieve the officer of the anterior duty to disclose what he is relying on. Note the limit of the relief: the order was set aside on this ground alone and the officer was expressly left free to start again on proper notice, so this wins the round, not the fight. If it applies to you, the first step is this: Put the show-cause notice and the s.179 order side by side and list every fact and allegation that appears in the order but not in the notice.
The petitioner was an ex-director of Brajvashi Caterers Private Limited. For assessment year 2010-11 the Assessing Officer completed an assessment on the company on 15 December 2017 raising a demand of about Rs 17.06 lakh. The company did not pay. The officer issued a notice under s.179 on 7 February 2018 and passed an order on 28 February 2018 requiring the ex-director to pay the company's dues. Much of the order was devoted to whether s.179 can be invoked against the director of a public company; as against this petitioner all it said was that she was a director during the relevant period and that the company's dues could not be recovered from the company. The order concluded that the primary reason for failure to collect was total closure of business operations and non-existence of office premises, that no provision had been made by the company or any of its directors for government dues 'which were bound to arise on account of deliberate and known acts of gross neglect, misfeasance and breach of duty by all directors of the company', and that recovery was impossible for want of identifiable assets, nil bank balances and no attachable debtors. A companion petition arose in the same background. The matter was decided on 2018-08-27 by the High Court (Akil Kureshi J and B.N. Karia J). On those facts the High Court held as follows. The impugned order was set aside on the single ground that the show-cause notice laid no sufficient foundation for invoking s.179 and did not even allege that non-recovery was attributable to gross neglect, misfeasance or breach of duty on the petitioner's part, so that the officer's final conclusions rested on material never shared with her (paras 8 and 9). The Court expressly preserved the Assessing Officer's liberty to initiate a fresh exercise for the same purpose if the material at his command permits it (para 9).
Section 179 lets the Revenue recover a private company's unpaid tax from its directors unless 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; the requirement is cast in the negative and the burden of establishing the relevant facts lies on the person who was a director. Nevertheless it is the onus of the Assessing Officer to draw the primary facts to the notice of the assessee on the basis of which he proposes to invoke the power. The section is a statutory lifting of the corporate veil and operates only if the requirements of sub-section (1) are satisfied (para 7, applying the Division Bench in Pravinbhai M. Kheni). The fundamental requirement is that the tax dues cannot be recovered from the company, and on this the Court set out the passages from Bhagwandas J. Patel - that before recovery can be initiated against a director it is necessary for the Revenue to establish that recovery cannot be made against the company, 'and then and then alone it can reach the directors' - and from Indubhai T. Vasa (HUF), to the same effect. Turning to the facts, the show-cause notice contained no such foundation and no allegation of gross neglect at all, so the conclusions in the order were built on undisclosed material (para 8). In the words reproduced by the source cited on this page: "Reverting back to the facts of the case, we notice that in show-cause notice the Assessing Officer has not laid down sufficient foundation for invoking section 179 of the Act leave alone broadly pointing out he has not even alleged that non-recovery was on account of gross negligent, misfeasance or breach of duty on part of the petitioner in relation to the affairs of the company." The decision followed or applied Pravinbhai M. Kheni v. Assistant Commissioner of Income Tax, 353 ITR 585 (Guj.) - quoted and applied; Bhagwandas J. Patel v. Deputy Commissioner of Income Tax (Guj.) - quoted through Pravinbhai M. Kheni; Indubhai T. Vasa (HUF) v. Income-tax Officer, (2006) 282 ITR 120 (Guj.) - quoted through Pravinbhai M. Kheni.
It was decided by the High Court on 2018-08-27 and is reported as R/Special Civil Application No. 5354 of 2018 with R/Special Civil Application No. 5355 of 2018 (High Court of Gujarat at Ahmedabad). No law-report citation appeared in the text read.. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 179, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The impugned order was set aside on the single ground that the show-cause notice laid no sufficient foundation for invoking s.179 and did not even allege that non-recovery was attributable to gross neglect, misfeasance or breach of duty on the petitioner's part, so that the officer's final conclusions rested on material never shared with her (paras 8 and 9). The Court expressly preserved the Assessing Officer's liberty to initiate a fresh exercise for the same purpose if the material at his command permits it (para 9). It arises in Demand, Recovery & Stay matters, on section 179 of the Income Tax Act 1961, and was decided by Akil Kureshi J and B.N. Karia J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Ask in writing for the material the officer says was 'at his command' - the recovery file, the field inspection report, the bank attachment results - and record the refusal or non-reply. Take the point that the notice does not even allege gross neglect, misfeasance or breach of duty on your part; that omission alone was fatal here. Separately require the officer to show what steps were actually taken against the company, because 'cannot be recovered' is a distinct condition precedent (Bhagwandas J. Patel and Indubhai T. Vasa, both quoted in this judgment). Expect a fresh notice: prepare now the evidence of what you did in relation to the company's affairs, because the second round will be decided on the merits.
Still good law. Only two citator hits, and both are the same judgment indexed twice: Devendra Babulal Jain v ITO, Ward 1(1)(4) (Gujarat High Court, 16 December 2022). There the Bench applied Jeswani in its own reasoning, quashing the section 179 order because the show-cause notice laid no foundation for the charge. Nothing overruling, doubting or distinguishing it was found, and no Supreme Court decision appears in the citator. The point remains a narrow but reliable one for a director resisting a section 179 recovery: if the notice does not allege gross neglect, misfeasance or breach of duty, the order cannot stand. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The indiankanoon ?type=print rendering of this judgment was fetched four times and renumbered the paragraphs differently between passes: one pass presented the 'At the outset' paragraph as 5 and the disposal as 7. A direct question to the source confirmed the judgment has nine numbered paragraphs, that paragraphs 8 and 9 both exist, and that the disposal is paragraph 9; a targeted fetch of paragraphs 7 and 8 alone returned the 'At the outset' paragraph as 7 and 'Reverting back to the facts' as 8. The numbering used here is that one. Paragraphs 1 to 3 and the arguments were seen; the Revenue's affidavit-in-reply, if any, is not described in the text read. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The impugned order was set aside on the single ground that the show-cause notice laid no sufficient foundation for invoking s.179 and did not even allege that non-recovery was attributable to gross neglect, misfeasance or breach of duty on the petitioner's part, so that the officer's final conclusions rested on material never shared with her (paras 8 and 9). The Court expressly preserved the Assessing Officer's liberty to initiate a fresh exercise for the same purpose if the material at his command permits it (para 9).
TaxSphere, “Sadhna Ramchandra Jeswani v ITO”, https://taxnotice.vittsphere.com/caselaw/case/sadhna-ramchandra-jeswani-179-foundation-must-be-in-the-notice/ (validity last checked 2026-09-07)
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Under s.179 the burden is on me to disprove gross neglect. Does the Tax Recovery Officer have to deal with what I say?
Can the department recover a private company's tax from you personally as a director?
The officer has raised a demand on me personally as a director of a private company that has closed, and the figure includes interest and penalty as well as tax. Does section 179 reach interest and penalty?
My years are before June 2013. Can the department still say the Explanation to s.179 makes me liable for the company's interest and penalty?
