ORDER : Harsha Devani, J. Heard Mr. J.P. Shah, learned counsel for the petitioners and Mr. Sudhir Mehta, learned senior standing counsel for the respondent. 2. Rule. Mr. Sudhir Mehta, learned senior standing counsel, waives service of notice of rule on behalf of the respondent. 3. Having regard to the fact that the controversy involved in the present case lies in a very narrow compass, with the consent of the learned counsel for the respective parties, the matter was taken up for final hearing. 4. This petition under Article 226 of the Constitution of India is directed against the order dated 6.2.2014 passed by the Income Tax Officer, Ward- 1(3), Surat under section 179(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") whereby the petitioners herein have been held to be jointly and severally liable for payment of an amount of Rs.10,46,088/-. 5. The facts giving rise to the present petition are that the petitioners herein are the Directors of a private limited company by the name of 'Miraa Processors Pvt. Ltd.' (hereinafter referred to as "the Company"). The company submitted a nil return of total income for the assessment year 2003-04. Subsequently, the matter was taken up for scrutiny under section 143(3) of the Act and by an assessment order dated 30.12.2005 the total income of the Company came to be determined at Rs.32,74,428/- by making the following additions; (I) Brought forward capital loss Rs. 11,69,554/- (II) Sundry creditors under section 41(1)(a) Rs. 18,72,597/- (iii) Bad debt Rs. 2,32,277/- 6. Against the above assessment order, the Company preferred an appeal before the Commissioner of Income-tax (Appeals) [hereinafter referred to as CIT (Appeals), who deleted the amount of Rs.18,72,597/- added towards outstanding sundry creditors and claim of bad debt of Rs.2,32,277/- totalling to Rs.21,04,874/-. Against the order of Commissioner (Appeals), both, the Company as well as the Department, went in appeal before the Tribunal. The Tribunal dismissed the appeal of the Company in respect of brought forward capital loss of Rs.11,69,554/- and also dismissed the Department's appeal qua deletion of Rs.18,72,597/- in respect of outstanding sundry creditors, but restored the issue of bad debt to the Assessing Officer. By an order dated 24.12.2010, the Assessing Officer allowed the claim of bad debt. As a result thereof, the disallowance of set-off of carried forward capital of Rs.11,69,554/- remained intact and became the total income. By an order dated 24.12.2010, the Assessing Officer allowed the claim of bad debt. As a result thereof, the disallowance of set-off of carried forward capital of Rs.11,69,554/- remained intact and became the total income. Thereafter, by an order dated 28.3.2008, the Income Tax Officer imposed penalty of Rs.4,29,811/- under section 271(1) (c) of the Act. 7. Subsequently, the respondent-Income Tax Officer issued a notice dated 22.1.2014 under section 179 of the Act, calling upon the petitioners to show-cause as to why they should not be held jointly and severally liable for the payment of Rs.10,46,088/-. In response to the show-cause notice, the petitioners' Chartered Accountant gave a reply dated 28.1.2014, inter alia, stating that the demand had arisen because of disallowance of brought forward short term capital loss of Rs.11,69,554/- from the sale of depreciable assets chargeable under the provisions of section 50 of the Act on the ground that the return for assessment year 2001-02 was filed late on 3.1.2002 against the due date of 31.10.2001 under section 139(1) of the Act. The delay was on account of the fact that the company had stopped its manufacturing activity from 30.11.1999 and the staff was retrenched. Nonetheless, the return was voluntarily filed under the provisions of section 139(4) of the Act. It was further stated that in view of the loss sustained by the Company, they had lost their investments in the form of share capital and the unsecured loans given to the Company. Therefore, by no stretch of imagination, can the rejection of the claim for carried forward loss can be attributed to the gross neglect, misfeasance or breach of duty on the part of the directors. However, in order to bring an end to the matter and to buy peace, the each of the directors also offered to contribute his share of the "tax due" demand of Rs.4,29,811/- if the rest of the demand is given up by the department. 8. By the impugned order dated 6.2.2014, the Assessing Officer rejected the objections raised by the petitioners against passing the order under section 179 of the Act and held them jointly and severally liable for payment of the amount of Rs.10,46,088/-. Hence, this petition. 9. Mr. 8. By the impugned order dated 6.2.2014, the Assessing Officer rejected the objections raised by the petitioners against passing the order under section 179 of the Act and held them jointly and severally liable for payment of the amount of Rs.10,46,088/-. Hence, this petition. 9. Mr. J.P. Shah, learned counsel for the petitioners, submitted that the condition precedent for exercise of powers under section 179 of the Act against the directors of a company is that the tax cannot be recovered from such company. Referring to the notice under section 179 of the Act, it was submitted that there is not even an allegation therein to the effect that the tax could not be recovered from the Company. 9.1 Referring to the impugned order, it was submitted that the Assessing Officer has not addressed the issue from the perspective as laid down by this court in the case of Maganbhai Hansrajbhai Patel v. Assistant Commissioner of Income-Tax and another, (2013 ) 353 ITR 567 (Guj.), inasmuch as, there is no finding to the effect that there was any gross negligence, misfeasance or breach of duty on the part of the directors resulting into non-recovery of the tax dues of the private limited company where they were directors. On the contrary, the Assessing Officer has focused on the point as to whether the tax demand has arisen because of the inaction on the part of the directors. Referring to the reply to the notice under section 179 of the Act, it was pointed out that in view of the loss sustained by the Company, the petitioners had lost their investments in the form of share capital and unsecured loans given to the Company. It was submitted that, the Assessing Officer, in the order under section 179(1) of the Act has not even referred to the same nor has he given any reasons for rejecting the submissions put forth by the petitioners. It was, accordingly, urged that the impugned order is not in consonance with the provisions of section 179 of the Act and, hence, is not sustainable. 10. Opposing the petition, Mr. It was, accordingly, urged that the impugned order is not in consonance with the provisions of section 179 of the Act and, hence, is not sustainable. 10. Opposing the petition, Mr. Sudhir Mehta, learned senior standing counsel for the respondent, invited the attention of the court to section 179 of the Act to submit that the same imposes a liability upon the directors to prove that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on their part in relation to the affairs of the Company. It was submitted that the petitioners herein, as directors of the Company, at no point of time, have been able to satisfactorily prove that there was no lack of negligence, misfeasance or breach of duty on their part. Referring to the impugned order, it was submitted that the petitioners, as directors, were responsible for filing the return of income within the prescribed time limit and that the demand in question had arisen due to inaction on the part of the directors. It was submitted that the Assessing Officer has, therefore, rightly concluded that the argument put forth by the directors is nothing but an afterthought, inasmuch as, the Company, being a virtual entity, it was the petitioners, as directors of the Company, who were responsible for the affairs of the Company. It was submitted that the Assessing Officer, having duly considered all the relevant aspects of the case, there is no warrant for interference by this court. 11. The facts are not in dispute. In respect of a demand of Rs.6,16,277/- and penalty of Rs.4,29,811/-, show-cause notice under section 179 of the Act came to be issued to the petitioners on 22.1.2014. The show-cause notice only called upon the petitioners to show-cause as to why they may not be held jointly and severally liable for payment of the outstanding demand in the case of the company. In response to the said notice, the petitioners gave a reply through their Chartered Accountant stating that the non-recovery of the amount in question cannot be attributed to any gross neglect, misfeasance or breach of duty on the part of any of the directors in relation to the affairs of the Company in view of the facts stated therein. In response to the said notice, the petitioners gave a reply through their Chartered Accountant stating that the non-recovery of the amount in question cannot be attributed to any gross neglect, misfeasance or breach of duty on the part of any of the directors in relation to the affairs of the Company in view of the facts stated therein. The grounds put forth by the petitioners were that the demand had arisen on account of refusal of the claim by the Assessing Officer to give set off of the brought forward short term capital loss of Rs.11,69,554/- due to delay in filing the return of income under section 139(1) of the Act within the prescribed time limit. That the delay in filing the return was on account of the fact that the company had stopped its manufacturing activities from 30.11.1999 and the staff had been retrenched. Nonetheless, the return under section 139(4) of the Act had been filed voluntarily. It was further stated that the petitioners, in view of the loss sustained by the Company, have lost their investments in the form of share capital and unsecured loans given to the Company. The respondent-Income Tax Officer, in the impugned order, has observed that in spite of all efforts, demand could not be recovered from the Company since it has closed down its activities since 1999. As regards the explanation given by the petitioners that there was no gross negligence, misfeasance or breach of duty on their part, the respondent has referred to the explanation given by the petitioners to the effect that the return of income for assessment year 2001-02 could not be filed before the due date for the reason that the Company has stopped its manufacturing activities from 30.11.1999 and the staff was retrenched. The respondent, however, was of the view that the argument put forth by the directors was nothing but an afterthought and that the Company, being a virtual entity, its directors are responsible for not filing of return. According to the respondent, the Company not being a physical entity, only the directors could file its return of income with signing the verification part. That the responsibility of filing of ROI lies with the directors only, so the demand in question was raised due to inaction on the part of the directors. According to the respondent, the Company not being a physical entity, only the directors could file its return of income with signing the verification part. That the responsibility of filing of ROI lies with the directors only, so the demand in question was raised due to inaction on the part of the directors. In view of the above findings recorded by him, the respondent has rejected the objections raised by the petitioners and held them jointly and severally liable for payment of the outstanding amount together with penalty. 12. Before adverting to the merits of the case, it may be germane to refer to the decision of this court in the case of Maganbhai Hansrajbhai Patel v. Assistant Commissioner of Income-Tax (supra) wherein this court has, inter alia, held that sub-section (1) of section 179 provides for joint and several liability of the directors of a private company wherein the tax due from such company in respect of any income of any previous year cannot be recovered. The first requirement, therefore, to attract such liability of the director of a private limited company is that the tax cannot be recovered from the company itself. Such requirement is held to be a prerequisite and a necessary condition to be fulfilled before action under section 179 of the Act can be taken. The court placed reliance upon its earlier decision in the case of Bhagwandas J. Patel v. Deputy CIT, (1999) 238 ITR 127 (Guj.) wherein the court had, in the context of section 179 of the Act, held that before recovery in respect of dues from a private company can be initiated against the directors, to make them jointly and severally liable for such dues, it is necessary for the revenue to establish that such recovery cannot be made against the company and then alone it can reach the directors who were responsible for the conduct of business during the previous year in relation to which liability exists. On the question as to whether in the facts of the said case, the respondent Assessing Officer was justified in ordering recovery against the petitioners therein, the court recorded that the authority completely failed to appreciate in proper perspective the requirement of section 179(1) of the Act. On the question as to whether in the facts of the said case, the respondent Assessing Officer was justified in ordering recovery against the petitioners therein, the court recorded that the authority completely failed to appreciate in proper perspective the requirement of section 179(1) of the Act. The court observed that once it is shown that there is a private company whose tax dues have remained outstanding and the same cannot be recovered, any person who was a director of such a company at the relevant time would be liable to pay such dues. However, such liability can be avoided if it proves that the non-recovery cannot be attributed to the three factors mentioned in the said order. Thus, the responsibility to establish such facts is on the director. However, once the director places before the authority his reasons why it should be held that non-recovery cannot be attributed to any of the above three factors, the authority would have to examine such grounds and come to a conclusion in this respect. The court observed that the lack of gross-negligence, misfeasance or breach of duty on the part of the directors is to be viewed in the context of non-recovery of the tax dues of the company. In other words, as long as the director establishes that the non-recovery of the tax cannot be attributed to his gross neglect, etc. his liability under section 179(1) of the Act would not arise. Here again the legislature advisedly used the word gross neglect and not a mere neglect on his part. The court observed that the entire focus and discussion of the Assistant Commissioner in the order impugned therein was with respect to the said petitioner's neglect in functioning of the company, when the company was functional. Nothing came to be stated by him regarding the gross-negligence on the part of the petitioner due to which the tax dues from the company could not be recovered. The court held that in the absence of any such consideration, the Assistant Commissioner could not have been ordered recovery of dues of the company from the director. 13. Nothing came to be stated by him regarding the gross-negligence on the part of the petitioner due to which the tax dues from the company could not be recovered. The court held that in the absence of any such consideration, the Assistant Commissioner could not have been ordered recovery of dues of the company from the director. 13. Examining the facts of the present case in the light of the principles propounded in the above decision, a perusal of the notice under section 179 of the Act reveals that the same is totally silent as regards the satisfaction of the condition precedent for taking action under section 179 of the Act, namely, that the tax dues cannot be recovered from the Company. In the notice under section 179 of the Act also there is no reference to any steps having been taken for recovery of the outstanding amount from the company. Even in the impugned order, except for a statement to the effect that in spite of all efforts, demand could not be recovered from the Company since it has closed down its activities since 1999, nothing has been stated as regards the steps that had been taken for recovery of the outstanding amount from the Company. The affidavit-in-reply filed by the respondent is also totally silent in this regard. Therefore, the necessary prerequisite for resorting to the provisions of section 179 of the Act itself against the directors is not satisfied in the present case. 14. On the merits of the impugned order, as noted here-in-above, the sole ground on which the respondent has not accepted the explanation given by the petitioners to the effect that there was no gross-negligence, misfeasance or breach of duty on their part is that, the petitioners, as directors, were responsible for the non-filing of return of income and that the demand in question had been raised due to the inaction on the part of the directors. Clearly, therefore, the entire focus and discussion of the respondent in the impugned order is in respect of the petitioners' neglect in the functioning of the company when the company was functional. On a plain reading of the impugned order, it is apparent that nothing has been stated therein regarding any gross-negligence, misfeasance or breach of duty on the part of the petitioners due to which the tax dues of the Company could not be recovered. On a plain reading of the impugned order, it is apparent that nothing has been stated therein regarding any gross-negligence, misfeasance or breach of duty on the part of the petitioners due to which the tax dues of the Company could not be recovered. The respondent, has, therefore, passed the impugned order under section 179(1) of the Act against the directors in respect of alleged neglect on their part in the functioning of the Company due to which the demand in question has arisen and not on account of any gross neglect, misfeasance or breach of duty on their part in the non-recovery of the dues of the Company. Thus, the very basis on which the respondent has proceeded, suffers from non-application of mind to the requirements for exercise of powers under section 179(1) of the Act. In the absence of any finding that non recovery of the tax due from the company can be attributed to any gross-negligence, misfeasance or breach of duty on the part of the petitioners, no order could have been made under section 179(1) of the Act for recovering the same from the directors. The upshot of the above discussion is that the impugned order being inconsistent with the provisions of section 179(1) of the Act, cannot be sustained. 15. For the foregoing reasons, the petition succeeds and is, accordingly, allowed. The impugned order dated 6th February, 2014 passed by the Income-Tax Officer, Ward-1(3), Surat, under section 179 of the Act is hereby quashed and set aside. Rule is made absolute accordingly with no order as to costs.