Appeal dismissed for failure to pay tax on returned income as required by law.

The Tribunal held that the CIT(A) erred in entertaining the appeal without the assessee paying the tax on the returned income as required by section 249(4)(a) of the Income Tax Act. The appeal could not be admitted without fulfilling this condition, and the case was directed to the Division Bench for further consideration of the appeal and any remaining grounds.

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Issues Involved:
1. Whether the CIT(A)-XI, Ahmedabad erred in law and on facts in entertaining the appeal in violation of provisions of section 249(4) of the Income Tax Act, 1961, given that the assessee had not paid the admitted tax on the returned income.

Detailed Analysis:

1. Interpretation of Section 249(4) of the Income Tax Act, 1961:
The Revenue contended that the CIT(A)-XI, Ahmedabad erred in entertaining the appeal without the assessee paying the admitted tax on the returned income, as mandated by section 249(4)(a) of the Income Tax Act, 1961. The Tribunal noted that section 249(4)(a) clearly stipulates that an appeal cannot be admitted unless the tax due on the returned income is paid. The Tribunal emphasized that this condition is mandatory and not merely procedural, aligning with the Supreme Court’s interpretation in the case of Vijay Prakash D. Mehta Vs. Collector of Customs, where it was held that the right to appeal is statutory and can be circumscribed by conditions specified in the statute.

2. Validity of the Return and Defective Return under Section 139(9):
The assessee argued that the return should be treated as defective under section 139(9) because the tax on the returned income was not paid, and therefore, the return should be considered non-est. The Tribunal rejected this argument, clarifying that the conditions enumerated in section 139(9) did not categorize the non-payment of self-assessment tax as a defect. The Tribunal observed that the return was validly filed, and the Assessing Officer (AO) rightly took cognizance of it.

3. Historical Context and Legislative Intent:
The Tribunal reviewed the historical amendments to section 249(4) and noted that the legislative intent behind the amendment was to ensure that taxes due on the returned income are paid before an appeal is entertained. The Tribunal referred to the Direct Tax Laws (Amendment) Act, 1989, which emphasized that there is no justification for allowing an appeal without the payment of tax on the returned income, aligning with the new assessment procedures effective from 1-4-1989.

4. Real Income and Taxation:
The assessee contended that only real income should be taxed, citing the Supreme Court decisions in Godhra Electricity Co. Ltd. and Excel Industries Ltd. The Tribunal acknowledged this principle but maintained that such arguments on merits could only be entertained if there was a valid appeal before the CIT(A). Since the mandatory condition of paying the tax on the returned income was not fulfilled, the Tribunal held that the appeal could not be entertained.

5. Opportunity for Payment of Taxes:
The assessee requested an opportunity to pay the tax on the returned income now and have the appeal decided on merits. The Tribunal noted that this plea was not raised before the Division Bench that initially heard the appeal. The Tribunal concluded that entertaining this additional plea would exceed the scope of the reference and therefore could not be examined in the present proceedings.

Conclusion:
The Tribunal concurred with the view that the CIT(A) erred in entertaining the appeal without the assessee fulfilling the conditions of section 249(4)(a) of the Income Tax Act. The Tribunal held that the appeal could not be admitted without the payment of taxes on the returned income and directed that the record be placed before the Division Bench for deciding the remaining appeal and other grounds, if any.

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