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

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 clarified that while payment of tax is mandatory, the requirement to pay before filing the appeal is directory. The appeals were allowed, and the CIT(A) was directed to adjudicate them on merits, granting the assessee a hearing opportunity.

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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.

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