2025 (10) TMI 196 - AT - Income Tax

Advance tax on disputed capital gains arises only on date of sale; appeal remitted for merits and hearing

ITAT, Hyderabad held that where the assessee disputed an addition by the AO, advance tax on the disputed capital gain did not arise until the date of the ... Dismissal of appeal for Non-payment of advance tax - payment of advance tax liability - HELD THAT:- When the assessee has disputed the addition made by the AO then the question of advance tax payable by the assessee does not arise. Further, in the case in hand, the payment of advance tax liability would arise only from the date of transaction of sale, as it is not a case of regular income throughout the year, but it depends on the transaction of sale of property. Therefore, the liability of advance tax on Long-Term Capital Gain would depend upon the date of transaction. In the case in hand, the sale of property, in question, was in the month of December, 2011 and therefore, the advance tax liability, if any, is required to be considered from the date of sale. Accordingly, in the facts and circumstances of the case, when the assessee has disputed the taxability of the capital gain arising from the transaction, then the appeal of the assessee ought to have been decided on merit, instead of on technical ground of non-payment of advance tax. Hence, in the interest of justice, the impugned order of the CIT(A) is set aside and the matter is remanded to the record of the CIT(A) for adjudication of the appeal of the assessee on merits after giving reasonable opportunity of hearing to the assessee. Appeal filed by the assessee is allowed for statistical purposes. ISSUES PRESENTED AND CONSIDERED 1. Whether the appellate authority may dismiss an appeal in limine under section 249(4)(b) for non-payment of advance tax where the assessee has not filed a return and disputes the taxability of the assessed income. 2. Whether an addition to income on account of long-term capital gain, made by invoking section 50C and based on a District Valuation Officer (DVO) valuation, can be left unadjudicated at the appellate stage when the assessee disputes the valuation and claims no taxable capital gain. ISSUE-WISE DETAILED ANALYSIS Issue 1: Power to dismiss appeal under section 249(4)(b) for non-payment of advance tax where taxability is disputed Legal framework: Section 249(4) prescribes pre-conditions for admission of an appeal before the Commissioner (Appeals) when (a) a return has been filed - requirement to pay tax on returned income before appeal is admitted, and (b) no return has been filed - requirement to pay an amount equivalent to advance tax payable. The provision thus addresses payment of undisputed tax liabilities as a condition for admission. Precedent treatment: The Court treated the statutory scheme as distinguishing between undisputed self-assessed tax and disputed taxability; it did not cite or overrule any authority but applied the statutory text to facts. Interpretation and reasoning: The Tribunal reasoned that where the assessee challenges the very taxability of the assessed income before the appellate authority, the requirement to pay advance tax under section 249(4)(b) cannot be mechanically invoked. The payment condition is directed at undisputed tax liability; if taxability is contested, the advance tax obligation is contingent on the resolution of that dispute. The Tribunal further explained that advance tax on capital gain arising from a discrete transaction arises from the date of that transaction, not as regular income throughout the year, so any advance tax liability would be calculated from the sale date (December 2011 in the case) and is therefore transaction-specific and contingent. Ratio vs. Obiter: Ratio - where an assessee who has not filed a return disputes the taxability of income before the appellate authority, section 249(4)(b) cannot be used to dismiss the appeal in limine for non-payment of advance tax; undisputed tax only is subject to the payment pre-condition. Obiter - ancillary remarks on timing of advance tax liability in relation to sale date are explanatory but support the ratio. Conclusion: The Tribunal concluded that dismissal in limine under section 249(4)(b) was not justified where the assessee disputed the assessed capital gain; the matter must be heard on merits after reasonable opportunity. The impugned admission-stage dismissal was set aside and remand ordered. Issue 2: Requirement to adjudicate merits of section 50C addition where DVO valuation was used and assessee claims no taxable capital gain Legal framework: Section 50C deems the full value of consideration for transfer of land/building to be the value adopted or assessed by the stamp valuation authority or, where applicable, the DVO; such deemed consideration can be used for computing capital gains unless displaced by evidence challenging the valuation. Precedent treatment: The Tribunal relied on the assessment record showing reliance on the DVO valuation and the fact that the assessee disputed the addition; it did not explicitly distinguish or follow specific prior cases but implicitly applied principles that valuations or section 50C determinations require adjudication when contested. Interpretation and reasoning: The Tribunal noted that the Assessing Officer made the addition by invoking section 50C and relied on a DVO report rather than the admitted sale consideration. Given the assessee's contention that the sale was at a lower price due to litigation and that no taxable capital gain arose if the deed consideration were accepted, the Tribunal held that the claim of non-taxability raises substantive questions of fact and law that ought to be decided on merits. Dismissing the appeal on procedural grounds without deciding whether the DVO valuation displaced the sale consideration would deprive the assessee of adjudication on the core issue: whether the deemed valuation under section 50C correctly reflects fair market value or whether the deed consideration should govern. Ratio vs. Obiter: Ratio - where a section 50C addition based on DVO valuation is disputed on fact and law (e.g., sale under compulsion, ongoing litigation affecting price), the appellate authority should adjudicate the contention on merits rather than dismissing for non-payment of advance tax. Obiter - observations about the proper basis for advance tax computation in transaction-specific gains are ancillary to the main holding. Conclusion: The Tribunal remanded the appeal for adjudication on merits by the appellate authority, directing that the appeal be heard after giving reasonable opportunity of hearing to consider whether the DVO valuation under section 50C should be adopted or the sale consideration should be accepted, and whether any taxable capital gain arises. Cross-references and Practical Outcome The Tribunal's conclusions on Issue 1 directly inform Issue 2: because the assessee contested taxability (Issue 2), the pre-admission payment requirement of section 249(4)(b) (Issue 1) could not be invoked to deny appellate adjudication. Accordingly, the impugned order dismissing the appeal in limine was set aside and the matter remanded for merits adjudication. Disposition The appeal was allowed for statistical purposes and remitted to the appellate authority for fresh adjudication on merits after affording reasonable opportunity of hearing to the assessee.