2015 (7) TMI 288 - AT - Income Tax

Payment of tax before filing appeal not mandatory: Tribunal directs CIT(A) to review appeals, grants assessee hearing

Shankarlal P. Mali, Prop. Of Sundhamaa Enterprises and others Versus Asst. Commissioner of Income -Tax, (OSD I) Central Range 7

The Tribunal held that the CIT(A) wrongly dismissed the appeals for non-payment of taxes due on returned income before filing the appeal. The Tribunal ... Dismissal of appeal as un-admitted - payment of tax before filing of the appeal - CIT(A) noticed that the taxes due on the income returned u/s 153A of the Act were not paid by the assessee on the date of filing of the appeal and as a consequence, he invoked the provisions of section 249(4) of the Act and dismissed the appeal - assessee pointed out that though the taxes due on the income returned were not paid by the assessee prior to the date of filing of appeal with the CIT(A) i.e. 27.01.2009 but the same were duly paid much before the CIT(A) passed the impugned order - Held that:- the Mumbai Bench of the Tribunal in the case of Bhumiraj Construction (2010 (4) TMI 754 - ITAT MUMBAI ) has in extenso considered the objective behind the insertion of section 249(4) of the Act, as it stood for the assessment year under consideration, and held that whereas the payment of tax due on the income returned is a mandatory condition but the requirement of paying such tax before filing of the appeal is essentially directory in nature. According to the Tribunal, where such defect in appeal, being non-payment of tax prior to filing of appeal, has been removed then the earlier filed defective appeal becomes a valid appeal. Notably, the Tribunal has also referred to the Judgment of Hon’ble Karnataka High Court in the case of D. Komalakshi V. DCIT [2006 (11) TMI 155 - KARNATAKA High Court ] in holding that on removal of defect, the earlier defective appeal becomes valid. Applying the similar parity of reasoning to the facts of the instant case, we find that herein the assessee made good the defect of nonpayment of tax due on the income returned before the CIT(A) passed the impugned order. Therefore, in our view, the CIT(A) ought not to have dismissed the appeal as un-admitted by invoking the provisions of section 249(4) of the Act, and instead the removal of defect by the assessee should have been recognized and the appeal filed by the assessee should have been determined on its merits. Therefore, in the facts and circumstances of the case, we hereby set aside the order of CIT(A) and restore the appeal back to his file for adjudication afresh on merits. - Decided in favour of assessee. Issues Involved:1. Application of Section 249(4) of the Income Tax Act.2. Payment of taxes due on returned income before filing an appeal.3. Interpretation of mandatory versus directory provisions in tax law.Detailed Analysis:1. Application of Section 249(4) of the Income Tax Act:The common grievance in the appeals is that the CIT(A) unjustly dismissed the appeals in limine by wrongly applying the provisions of section 249(4) of the Act. The assessee's appeal was directed against the order of the Commissioner of Income Tax (Appeals) dated 31.12.2012, which arose from an order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961, pertaining to the assessment year 2007-08. The CIT(A) noticed that the taxes due on the income returned u/s 153A of the Act were not paid by the assessee on the date of filing the appeal and consequently invoked the provisions of section 249(4) of the Act, dismissing the appeal as un-admitted.2. Payment of Taxes Due on Returned Income Before Filing an Appeal:The assessee argued that although the taxes due on the income returned were not paid before filing the appeal with the CIT(A), they were duly paid before the CIT(A) passed the impugned order. The dates of payment were enumerated, showing payments starting from 28.12.2009 to 25.11.2010 in eight installments totaling Rs. 8,25,000/-. The assessee had paid a total tax of Rs. 9,85,000/- by 25.11.2010, which was more than the tax due on the returned income. The assessee relied on the decision of the Mumbai Bench of the Tribunal in the case of Bhumiraj Construction Vs. Addl. CIT [135 TTJ 357] (Mum.), which held that the stipulation as to the deposit of such tax before filing the appeal is only directory and not mandatory. The Tribunal in Bhumiraj Construction stated that where such tax has been paid even subsequent to the filing of the appeal, it mitigates the rigors of section 249(4) of the Act, and the appeal is liable to be admitted and adjudicated on merits by the CIT(A).3. Interpretation of Mandatory Versus Directory Provisions in Tax Law:The CIT(A) interpreted the condition prescribed in section 249(4) of the Act regarding payment of tax due on the returned income prior to the filing of the appeal as a mandatory condition and dismissed the appeal in limine. However, the Tribunal in Bhumiraj Construction held that while the payment of tax due on the income returned is mandatory, the requirement of paying such tax before filing the appeal is essentially directory in nature. The Tribunal noted that the objective behind section 249(4) is to ensure the payment of tax on income returned before the admission of the appeal. If such payment is made after filing the appeal but before it is taken up for disposal, it validates the defective appeal. The Tribunal referred to the Judgment of Hon'ble Karnataka High Court in the case of D. Komalakshi V. DCIT [192 ITR 99] (Karnataka), which held that on removal of the defect, the earlier defective appeal becomes valid.Conclusion:The Tribunal concluded that the CIT(A) should not have dismissed the appeal as un-admitted by invoking the provisions of section 249(4) of the Act. Instead, the removal of the defect by the assessee should have been recognized, and the appeal should have been determined on its merits. The Tribunal set aside the order of the CIT(A) and restored the appeal back to his file for adjudication afresh on merits, allowing a reasonable opportunity of hearing to the assessee. This decision applies mutatis mutandis to all other captioned appeals.Order:The appeals of the assessees are allowed, and the order was pronounced in the open court on the 30th day of June 2015.