Advance tax under sections 208, 209 not on disputed income; section 249(4)(b) dismissal set aside, remand ordered

ITAT held that CIT(A) erred in invoking section 249(4)(b) and dismissing the assessee's appeals in limine on the ground of non-payment of advance tax computed on assessed income. It was reiterated that advance tax liability under sections 208 and 209 arises only on admitted or undisputed income, not on disputed additions made in assessment, and there was no admitted tax liability in this case as assessments were completed ex parte under section 144 and all additions were challenged. The order of CIT(A) was set aside and the matter remanded to AO for de novo adjudication, subject to the assessee depositing Rs.70,000 within one month. Appeals allowed for statistical purposes.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether dismissal of the appeals in limine by invoking section 249(4)(b) of the Income-tax Act, 1961, on the ground of non-payment of advance tax computed on the assessed income, was legally sustainable.

1.2 Whether the delay of 869 days in filing the appeals before the first appellate authority was liable to be condoned on the facts and circumstances of the case.

1.3 Consequentially, the appropriate course of action regarding adjudication of additions made in ex parte assessments completed under section 144 read with section 153C.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Applicability of section 249(4)(b) and basis for determining "advance tax payable"

Legal framework

2.1 The appellate authority reproduced section 249(4), noting that: (a) where a return has been filed, tax due on the income returned must be paid; (b) where no return has been filed, the assessee must pay "an amount equal to the amount of advance tax which was payable by him" before an appeal can be admitted.

2.2 The Tribunal considered sections 208 and 209, which govern conditions of liability to pay advance tax and computation of advance tax, including that: (i) liability arises where advance tax payable is Rs. 10,000 or more; (ii) computation by the assessee is based on estimated current income; and (iii) computation by the Assessing Officer is based on the latest previous year's income assessed or subsequent year's income returned, whichever is higher.

2.3 The Tribunal relied on prior coordinate bench decisions, particularly the Ahmedabad Bench decision holding that advance tax liability arises on admitted/undisputed income and not on additions disputed in assessment.

Interpretation and reasoning

2.4 The appellate authority had held that clause (a) of section 249(4) was inapplicable as no return had been filed, and under clause (b) the assessee was required to pay advance tax "as per the assessment order" before admission of appeal, treating the assessed income (including disputed additions) as the basis for advance tax.

2.5 The Tribunal, following the Ahmedabad Bench decision, held that advance tax liability arises only on admitted and undisputed income, not on additions to income which are under dispute in appeal.

2.6 On a reading of sections 208-211, the Tribunal noted that advance tax is computed either on the assessee's own estimate of current income or on the basis of latest assessed/returned total income of earlier years, and there is "no case at all" for advance tax being computed with reference to assessed income for the very year in dispute, i.e., on additions made in the impugned assessment.

2.7 In the present case, the assessee had not filed any return for the relevant years and was a non-filer in past years; the assessments were completed ex parte under section 144 and the assessee contested the entire additions before the appellate authority. Hence, there was no admitted tax liability and no advance tax payable as per sections 208 and 209 on the disputed assessed income.

Conclusions

2.8 The Tribunal held that the appellate authority was incorrect in law in dismissing the appeals in limine under section 249(4)(b) by computing "advance tax payable" with reference to the assessed income including disputed additions.

2.9 It was concluded that non-payment of advance tax on such disputed assessed income could not render the appeals non-maintainable, and the dismissal in limine on this ground was unjustified.

Issue 2 - Condonation of delay in filing appeals before the first appellate authority

Interpretation and reasoning

2.10 The delay in filing the appeals was 869 days. The assessee's condonation petition (extracted in the appellate order) stated that: he is only 10th-standard educated, runs a grocery shop and small finance business, was subject to requisition of cash under section 132A, and had received notices under the Benami Transactions (Prohibition) Act, 1988, which caused fear and led him to go into hiding.

2.11 It was stated that due to fear, lack of understanding of legal and tax matters, and absence from the scene, he remained unaware of notices issued and ex parte assessments passed under section 153C read with section 144, and therefore did not participate in those proceedings.

2.12 The assessee became aware of the original assessment orders only upon receipt of a show-cause notice under section 263, whereafter he responded to the section 263 proceedings, the Principal Commissioner passed an order under section 263, and the assessee filed appeals before the Tribunal. After the Tribunal quashed the section 263 orders, the assessee then filed appeals before the first appellate authority against the original assessments, resulting in the 869-day delay.

2.13 The Tribunal considered these facts, including the assessee's limited education, non-participation in ex parte assessments, and the sequence of events triggered by the section 263 notice, as constituting sufficient cause for delay.

Conclusions

2.14 The Tribunal held that, on the peculiar facts, the delay in filing appeals before the first appellate authority ought to be condoned.

2.15 Condonation was granted subject to the condition that the assessee pays Rs. 10,000 per appeal (total Rs. 70,000 for seven appeals) to the Tamil Nadu State Legal Services Authority at the High Court of Madras.

Issue 3 - Consequential directions regarding assessment and remand

Interpretation and reasoning

2.16 The Departmental Representative submitted that, if the delay were condoned, the matter should be restored to the Assessing Officer, contending that the original ex parte assessments merely estimated 8% of total cash deposits without cogent reasons and that the entire cash credits ought to be examined for possible assessment under section 69A.

2.17 Considering that the orders under section 144 were ex parte, that the additions were made on estimation, and that the first appellate authority had not examined the merits due to dismissal in limine, the Tribunal found it appropriate that the assessment issues be reconsidered afresh by the Assessing Officer.

Conclusions

2.18 The Tribunal set aside the orders dismissing the appeals in limine, condoned the delay on the stated monetary condition, and remitted the entire matter to the Assessing Officer for de novo examination of all issues.

2.19 The assessee was directed to pay Rs. 70,000 to the Tamil Nadu State Legal Services Authority within one month from receipt of the Tribunal's order and to produce proof of such payment before the Assessing Officer.

2.20 The Assessing Officer was directed to examine all issues afresh in accordance with law and to afford reasonable opportunity of hearing to the assessee. The appeals were treated as allowed for statistical purposes.

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