2023 (11) TMI 1382 - AT - Income Tax

Appeal allowed for statistical purposes after refusal to admit under section 249(4) despite no tax liability

ITAT Surat allowed assessee's appeal for statistical purposes against CIT(A)'s refusal to admit appeal under section 249(4). The case involved cash ... CIT (A) not admitting the appeal u/s 249(4) when no tax was payable as advance tax - addition being cash deposits made during the period other than demonetization period in the bank accounts of the assessee as unexplained u/s. 69A. Assessee vehemently urged that assessee is purely an agriculturist and have no other income except agriculture income during the year under consideration, and in response to deficiency letter, the assessee duly explained the fact that assessee has no other source of income except agriculture income and not liable to file return of income and hence assessee no occasion for mentioning tax on the return of income not paid/particular of payment not mentioned on appeal form. HELD THAT:- Defence of assessee right from the beginning is that the agriculturist and being no source of income, so he is not liable to pay tax. As find that Division Bench of ITAT, Pune in the case of Hotel Sai Siddi (P.) Ltd.[2011 (7) TMI 540 - ITAT PUNE] held that when the assessee has incurred loss while filing return of income and was not liable to pay tax of an amount equal to amount of advance tax as required under section 249(4)(b), the assessee’s appeal was liable to be admitted. Considering assessee has claiming that he has no taxable income, we deem it appropriate to restore the case to the file of ld. CIT (A) to admit the appeal of assessee and passed the order on merit in accordance with law. The assessee is also directed to comply with the notices issued by NFAC/ ld. CIT (A) and not to seek adjournment without any valid reasons. Appeal filed by the assessee is allowed for statistical purposes 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal are:(a) Whether the appeal filed by the assessee before the Commissioner of Income Tax (Appeals) [CIT(A)] was liable to be admitted under Section 249(4) of the Income Tax Act, despite non-payment of advance tax or tax on returned income, given that the assessee claimed no taxable income except agricultural income.(b) Whether the Assessing Officer (AO) was justified in making additions under Section 69A of the Income Tax Act on account of unexplained cash deposits and other credits in the assessee's bank accounts during the demonetization period and otherwise.(c) Whether the AO erred in applying the special tax rate under Section 115BBE instead of the normal tax rate on the additions made.(d) Whether the CIT(A) erred in dismissing the appeal in limine without adjudicating on the merits.2. ISSUE-WISE DETAILED ANALYSISIssue (a): Admission of Appeal under Section 249(4) despite Non-Payment of TaxLegal Framework and Precedents: Section 249(4) of the Income Tax Act mandates that an appeal before the CIT(A) shall not be admitted unless the appellant has paid the amount of advance tax payable or tax on returned income. However, the applicability of this provision is contingent upon the existence of taxable income and tax liability. The Tribunal referred to the decision of the Division Bench of the ITAT Pune in Hotel Sai Siddi (P.) Ltd. vs. DCIT, which held that where the assessee has no tax liability (e.g., due to loss), the appeal cannot be rejected merely on the ground of non-payment of advance tax.Court's Interpretation and Reasoning: The Tribunal observed that the assessee is a pure agriculturist with no income other than agricultural income, which is exempt from tax under the Income Tax Act. The assessee had not filed a return of income for the relevant year, contending that there was no taxable income. The CIT(A) dismissed the appeal in limine on the ground that the assessee had not paid advance tax or tax on returned income. The Tribunal found this approach to be erroneous as it failed to consider the assessee's claim of no taxable income and the consequent non-applicability of the advance tax payment requirement.Key Evidence and Findings: The assessee submitted replies to deficiency letters explaining the absence of taxable income and therefore no liability to pay advance tax or file return of income. The Form No. 35 filed with the appeal also indicated 'No' against the columns relating to payment of tax on returned income or advance tax. The AO and CIT(A) did not consider these submissions properly.Application of Law to Facts: Given that agricultural income is exempt and the assessee claimed no other income, the Tribunal held that the condition precedent for rejecting the appeal under Section 249(4) was not satisfied. The ratio in Hotel Sai Siddi (P.) Ltd. was applied to support this conclusion.Treatment of Competing Arguments: The Revenue argued that the assessee had not paid the tax as per the assessment order and thus the appeal was not maintainable. The Tribunal rejected this argument on the basis that the assessment was made under Section 144 without the assessee's cooperation and that the assessee's claim of no taxable income must be adjudicated on merits rather than dismissed at the threshold.Conclusion: The Tribunal concluded that the appeal ought to have been admitted by the CIT(A) and directed restoration of the appeal for adjudication on merits after granting the assessee an opportunity of hearing.Issue (b): Legitimacy of Additions under Section 69A on Cash Deposits and Other CreditsLegal Framework: Section 69A of the Income Tax Act deals with unexplained cash credits. If the assessee fails to satisfactorily explain the source of cash deposits or credits, the AO may treat such amounts as income and make additions accordingly.Court's Interpretation and Reasoning: The AO made additions aggregating Rs. 22,74,929/- on account of cash deposits during the demonetization period and other credits, treating them as unexplained under Section 69A. This was based on information obtained from the bank under Section 133(6). The assessee maintained that these deposits were from agricultural income or other legitimate sources and that no taxable income arose.Key Evidence and Findings: The AO relied on bank statements and information from the bank branch manager. The assessee's explanations were not accepted at the assessment stage. However, the Tribunal did not pass final orders on the merits of these additions but focused on the procedural aspect of admitting the appeal.Application of Law to Facts: Since the appeal was dismissed in limine, the merits of the additions were not considered by the CIT(A). The Tribunal's order to restore the appeal implicitly requires that these issues be examined afresh by the CIT(A) with proper opportunity to the assessee.Treatment of Competing Arguments: The Revenue emphasized the correctness of the additions based on unexplained deposits. The assessee disputed the additions and claimed exemption. The Tribunal did not resolve this conflict but remanded the matter for merit adjudication.Conclusion: The additions under Section 69A remain subject to adjudication by the CIT(A) on merits after admission of the appeal.Issue (c): Applicability of Special Tax Rate under Section 115BBELegal Framework: Section 115BBE imposes a special tax rate of 77.25% on certain unexplained income, including unexplained cash credits added under Section 69A, if the assessee fails to explain the source satisfactorily.Court's Interpretation and Reasoning: The AO applied Section 115BBE on the additions made under Section 69A. The assessee challenged this, contending that normal tax rates should apply, especially if the additions are not justified.Key Evidence and Findings: The Tribunal did not decide this issue in the present order, as the appeal was dismissed in limine and no merit adjudication occurred. The issue is to be considered afresh on remand.Application of Law to Facts: The question of applicability of Section 115BBE is contingent on the validity of the additions. Since the additions themselves are to be re-examined, the tax rate issue is also deferred.Treatment of Competing Arguments: Revenue supported the application of Section 115BBE; assessee opposed. The Tribunal refrained from adjudicating.Conclusion: The issue remains open for consideration by the CIT(A) upon admission of the appeal.Issue (d): Dismissal of Appeal in Limine Without Merit AdjudicationLegal Framework: Principles of natural justice and statutory provisions require that appeals be adjudicated on merits unless barred by law.Court's Interpretation and Reasoning: The Tribunal found that the CIT(A) erred in dismissing the appeal merely on the ground of non-payment of advance tax without considering the assessee's claim of no taxable income and exemption on agricultural income.Key Evidence and Findings: The assessee's replies to deficiency letters, Form No. 35, and consistent claim of agricultural income only were not properly considered by the CIT(A).Application of Law to Facts: The Tribunal applied the precedent from Hotel Sai Siddi (P.) Ltd. to hold that dismissal in limine was improper.Treatment of Competing Arguments: Revenue argued procedural non-compliance justified dismissal; Tribunal emphasized substantive rights and proper opportunity.Conclusion: The appeal was restored for fresh adjudication on merits.3. SIGNIFICANT HOLDINGSThe Tribunal held that:'When the assessee has incurred loss or has no taxable income and is not liable to pay any amount of advance tax as required under section 249(4)(b), the appeal filed by the assessee cannot be rejected merely on the ground of non-payment of advance tax.''The dismissal of appeal in limine by the CIT(A) without adjudicating the merits, especially when the assessee claims exemption on agricultural income, is erroneous and contrary to the principles of natural justice.''The matter is restored to the file of the CIT(A) to admit the appeal and decide the same on merits after granting opportunity of hearing to the assessee.'Core principles established include the requirement of substantive adjudication of appeals where the assessee claims no taxable income and the limitations on rejecting appeals under Section 249(4) where no tax liability exists.Final determinations:- The appeal before the CIT(A) was wrongly dismissed in limine and must be admitted.- The additions under Section 69A and the applicability of Section 115BBE remain open for fresh consideration.- The CIT(A)/National Faceless Appeal Centre shall grant the assessee an opportunity of hearing and proceed in accordance with law.