2025 (5) TMI 1796 - AT - Income Tax

Tax Appeal Reinstated: Cooperative Society Wins Right to Hearing on Advance Tax Liability and Section 80P Deductions

Sahyogh Nagri Sahkari Patsanstha Maryadit Versus ITO, Ward-1, Jalna

Sahyogh Nagri Sahkari Patsanstha Maryadit Versus ITO, Ward-1, Jalna - TMI 1. ISSUES PRESENTED and CONSIDERED- Whether the Ld. CIT(A)/NFAC was justified in dismissing the appeal of the assessee without admitting it for adjudication on the ground of non-payment of advance tax under section 249(4)(b) of the Income Tax ActRs.- Whether the advance tax liability under section 249(4)(b) is mandatory for admission of appeal or if the assessee can claim exemption from such payment and still have the appeal admittedRs.- Whether the dismissal of the appeal without adjudication on merits was appropriate given the facts that the assessment was completed ex-parte and the assessee claimed deductions under sections 80P(2)(a)(i) and 80P(2)(d) which were not allowedRs.- What is the correct procedural approach for the appellate authority when the assessee fails to deposit advance tax but claims no liability or exemptionRs.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Legitimacy of dismissal of appeal without admission on ground of non-payment of advance tax under section 249(4)(b)Relevant legal framework and precedents: Section 249(4)(b) of the Income Tax Act mandates that where the assessee has not paid the advance tax due on the income assessed, the appellate authority may dismiss the appeal unless the assessee deposits the amount of advance tax payable. However, this provision is subject to the condition that the advance tax liability is correctly determined or claimed by the assessee.Precedents relied upon include decisions by the Co-ordinate Bench of the Tribunal in Dilip Hiralal Chaudhari vs. ITO and Vishnusharan Chandravanshi vs. ITO, as well as the Karnataka High Court judgment in Govidappa Setty vs. ITO, which held that the appellate authority should admit the appeal if the assessee claims no advance tax liability and seeks exemption under section 249(4)(b).Court's interpretation and reasoning: The Tribunal observed that the Ld. CIT(A)/NFAC dismissed the appeal solely on the ground of non-payment of advance tax without admitting the appeal for adjudication. The Tribunal emphasized that the obligation to deposit advance tax arises only when the assessee admits or the authority determines such liability. If the assessee claims that no advance tax is payable, the appellate authority must admit the appeal and adjudicate on merits.Application of law to facts: In this case, the assessee did not file any application seeking exemption from payment of advance tax under section 249(4)(b), nor did it admit any advance tax liability. The CIT(A)/NFAC dismissed the appeal summarily without considering the merits, which was found to be contrary to the legal position established by the cited precedents.Treatment of competing arguments: The Revenue argued that non-payment of advance tax justified dismissal under section 249(4)(b). The assessee contended that no advance tax was payable and that the appeal should be admitted for adjudication. The Tribunal sided with the assessee, holding that the advance tax liability must be determined at the behest of the assessee and cannot be presumed.Conclusion: The dismissal of the appeal without admission was improper and contrary to settled law. The appeal must be admitted and decided on merits.Issue 2: Impact of ex-parte assessment and denial of deductions under sections 80P(2)(a)(i) and 80P(2)(d)Relevant legal framework: Sections 80P(2)(a)(i) and 80P(2)(d) provide deductions to cooperative societies on their business income, which reduce taxable income. The assessment was completed ex-parte under section 144 due to the assessee's failure to respond, resulting in denial of these deductions.Court's interpretation and reasoning: The Tribunal noted that the ex-parte assessment led to an inflated taxable income figure of Rs. 1,45,39,000/-, as the deductions legally available to the cooperative society were not allowed. The assessee's contention that the appeal should be admitted to allow these deductions to be considered was found to be reasonable.Application of law to facts: Since the appeal was dismissed without adjudication, the cooperative society was denied the opportunity to claim legitimate deductions, leading to an unjustified tax liability.Treatment of competing arguments: The Revenue did not contest the applicability of these deductions but relied on procedural grounds for dismissal. The Tribunal emphasized that procedural compliance should not override substantive rights to deductions.Conclusion: The appeal must be admitted to allow consideration of the deductions and correct determination of taxable income.Issue 3: Proper procedural approach for appellate authority regarding advance tax and appeal admissionRelevant legal framework and precedents: The procedure under section 249(4)(b) requires the appellate authority to issue a show cause notice to the assessee to deposit advance tax if payable. The assessee may respond by depositing the tax or seeking exemption. The appellate authority must then decide whether to admit or dismiss the appeal.The Tribunal relied on the precedent from the Karnataka High Court and Co-ordinate Benches which held that failure to deposit advance tax does not warrant dismissal if the assessee claims no liability and seeks exemption.Court's interpretation and reasoning: The Tribunal held that the advance tax liability must be determined at the behest of the assessee and that the appellate authority should not dismiss an appeal summarily without hearing the assessee on merits.Application of law to facts: The CIT(A)/NFAC failed to provide the assessee a reasonable opportunity to explain or claim exemption from advance tax payment before dismissing the appeal.Treatment of competing arguments: The Revenue's strict interpretation of section 249(4)(b) was rejected in favor of a more balanced approach protecting the assessee's right to appeal.Conclusion: The appellate authority is directed to admit the appeal, provide reasonable opportunity of hearing, and adjudicate the appeal on merits after considering advance tax liability or exemption claims.3. SIGNIFICANT HOLDINGS- 'The advance tax if any payable as per section 249(4)(b) of the IT Act is to be determined at the behest of the assessee. If there is no advance tax liability according to the assessee, then he need not to deposit the same & Ld. CIT(A)/NFAC is required to admit the appeal of the assessee in such an event.'- The appellate authority cannot dismiss an appeal summarily without admitting it for adjudication merely on the ground of non-payment of advance tax, especially when the assessee claims no such liability or seeks exemption.- An ex-parte assessment resulting in denial of legitimate deductions provided under sections 80P(2)(a)(i) and 80P(2)(d) must be examined on merits through admission of appeal.- The appeal was dismissed improperly without hearing the assessee on merits, and therefore the order of Ld. CIT(A)/NFAC was set aside and the matter remanded with directions to admit the appeal, provide reasonable opportunity of hearing, and decide on merits.