Bombay High Court quells recovery of Rs.14 lakh from company director

Bombay High Court quells recovery of Rs.14 lakh from company director

The assessing officer had alleged that the petitioner made false claims of not holding an important position in running the day-to-day operations

The Bombay High Court has quashed the recovery of Rs.1404.42 lakh from the director of a company while observing there was no proof of negligence or breach of duty or malfeasance against her.

The bench comprising Justice Abhay Ahuja and Justice Bhiraj Singh Thakur further stated that the assessing officer (AO) could not state any such action against the petitioner, the director of Kaizen Automation Pvt. Ltd. (KAPL).

Under the Income Tax Act, 1961, a show-cause notice was served on the petitioner, Geeta Kammat, alleging that the assessee company could not be located at the listed addresses. Also, the tax debt could not be collected despite the bank accounts being attached due to insufficient funds. Hence, it requested to recover Rs.1404.42 lakh from the petitioner.

The petitioner's company had a project with Brihanmumbai Electricity Supply and Transport (BEST) and Central Railways implemented on the 'BOT' model. It required funds of Rs.50-Rs.60 crore as an initial investment. Thereafter, Khaleej Finance and Investment (KFI), a company registered in Bahrain, agreed to make an investment in the project subject to certain conditions.

While numerous provisions existed on the selection of the directors, the petitioner stated that she and her husband were removed from their positions as managing directors of KAPL in 2009. This happened as a result of disagreements that arose with KFI.

The petitioner stated that she had no authority to sign any cheque independently or take any decision on behalf of the company. KAPL did not provide any operational control or space for the petitioner to perform her duties.

Thus, she could not be held responsible for any egregious negligence, misconduct, or duty breach on her part with regard to the company's activities, as she was not aware that KAPL had any tax obligations until she was dismissed.

However, the AO rejected the petitioner's claim and said she failed to prove not only that she had not actively participated in the management of the business during the fiscal years 2007-2008 and 2008-2009, but also that there was no wilful misconduct on her part.

The petitioner preferred a revision petition under the IT Act, but it was dismissed on the ground that she was a director for the relevant assessment years and hence liable. The revenue department maintained that the petitioner made false claims of not holding any important position in running the day-to-day operations of the company.

However, the bench noted that not a single instance made by the AO was cited as evidence of gross negligence on the part of the director, which might have prevented future tax obligations from being recovered from her.