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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI GEORGE GEORGE K. & Ms. PADMAVATHY S
Date of hearing : 16.02.2023 Date of Pronouncement : 20.02.2023 O R D E R
Per Padmavathy S., Accountant Member
This appeal is against the order of the Commissioner Income Tax (Appeals) – 11, Bangalore dated 04.11.2022 for the assessment year 2014-15.
The assessee is an individual and filed the return of income for AY 2014-15 on 31.03.2015. There was search in the case of assessee’s husband u/s.132 on 11.12.2015. Based on the material seized during the course of search, the AO invoked the provisions of section 153C and issued a notice dated 27.10.2017 to the assessee under the said section asking the assessee to file the return of income within 10 days of service of notice. The assessee in response filed a return on 24.11.2017 declaring total income of Rs.11,82,60,329. The AO noticed that the assessee has not paid the tax of Rs.5,03,22,060 on the income as per return filed in response to notice u/s.153C. The AO treated the return as defective u/s.139(9) and issued notice to the assessee to rectify the defect. Since the assessee did not rectify the defect, the AO proceeded to treat the return filed on 24.11.2017 in response to notice u/s.153C as non-est. Accordingly the assessee proceeded to complete the assessment u/s.144 by making the following additions – (i) Short term capital gains – Rs.18,66,06,240 (ii) Long term capital gains – Rs.1,18,90,000 (iii) Unexplained deposits – Rs.1,16,28,191 (iv) Unexplained credit – Rs.4,37,21,950 (v) Cash deposit – Rs.76,000 3. The assessee filed an appeal before the CIT(A) against this order of the AO however the same was dismissed by the CIT(A). The assessee contested the order of CIT(A) before the Tribunal. The coordinate bench of the Tribunal set aside the matter back to the file of the CIT(A) vide order dated 22.07.2021 in with a direction to give an opportunity of being heard to the assessee on the issue of admitted tax. In the set aside proceedings the assessee submitted that there is no undisputed liability to pay tax since the return filed has been treated as non-est by the AO. Therefore the assessee submitted that provisions of section 294(4) of the Act are not attracted to assessee’s case. The assessee further submitted that the tax has not been paid since the assessee was not in a good financial position.
4. The CIT(A) did not accept the submissions of the assessee and dismissed appeal as not admitted. The CIT(A) accordingly did not consider the grounds raised with respect to merits. The relevant extract from CIT(A)’s order is reproduced below –
4.2 A perusal of the above provisions shows that Section 249(4)(b) of the Act is attracted to the case of the appellant. The income of the appellant has been assessed by the AO at Rs 25,39,22,381/-. This includes an income of Rs 11,82,60,329/- as admitted by the appellant in her revised return of income, which was treated as non-est by the AO. In addition, the AO had made additions of Rs 13,56,62,052/-. In the appeal under consideration the appellant has contested these additions of Rs 13,56,62,052/- only and the remaining assessed income of Rs 11,82,60,329/- has not been contested by her. So for admission of appeal the advance tax payable on this income of Rs 11,82,60,329/- was required to be paid by the appellant. However, admittedly the appellant has not done so. 4.3 The Apex Court in the case of Vijay Prakash D. Mehta v. Collector of Customs [19891 175 ITR 540 (SC) while dealing with the similar provisions under the Customs Act has held that the right of appeal is neither an absolute right nor an ingredient of natural justice, the principles of which must be followed in all judicial and quasi-judicial adjudications. The right of appeal is a statutory right and it can be circumscribed by the conditions in the grant. It is not the law that adjudication by itself, following the rules of natural justice, would be violative of any right, constitutional or statutory without any right of appeal, as such. If the statute gives a right to appeal upon certain conditions, it is upon fulfillment of those conditions that the right becomes vested in, and exercisable by, the appellant. If discretion is vested, then there is an obligation to act judicially and properly.
The purpose of such restriction is to act in terrorem to make the people comply with the provisions of law. Therefore, the object of stipulating conditions such as demand of admitted tax is a condition precedent for entertaining the appeals and admitting the appeals is to see that the appellant obeys the law, Though the right of appeal is conferred under a statute, the said right is subjected to the restrictions imposed under the very same statute. There cannot be any absolute right de hors the provisions of the statute. 4.4 Keeping in mind, the object with which these provisions are introduced, once the assessee realises his obligations under the statute, the purpose with which these provisions in terrorem are introduced under the Act, obeys the statutory obligations, pays the tax, then he cannot be denied the right of appeal which the statute has provided to him. In the case under consideration, in response to notice under Section 153C of the Act, the appellant had filed her return of income on 24.11.2017, declaring an income of Rs 11,82,60,329/-, thereby acknowledging her obligation to pay tax on the declared income. So even if the return of income was treated as non-est by the AO, her obligation to pay the tax did not diminish. In fact, in the appeal under consideration, as discussed supra, she has not contested the assessed income to the extent she had herself admitted in the return of income. So the case of the appellant falls within purview of Section 249(1)(b) of the Act. The appellant has also not shown any good and sufficient reason to claim exemption from the operation of the provision of this clause. In the case of D. Komalakshi v. Deputy Commissioner of Income-tax, Central Circle-1(3) [20071 162 TAXMAN 16 (KAR.), the jurisdictional High Court held that the compliance of the provisions of Section 249 of the Act are mandatory. Same ratio was laid down in the case of Smt. M R Prabavathy v ACIT 262 ITR 501. This was also observed so by the Hon'ble Supreme Court in the case of CIT v Pawan Kumar Laddha 324 ITR 324 that the compliance of the provisions of Section 249(4)(a) is mandatory. In fact, in the case of Pesco Beam Environmental Solutions (P.) Ltd. v. Deputy Commissioner of Income Tax, Corporate Circle-5(2) [20201119 taxmann.com 123 (Madras) the High Court even held that the statute does not give any discretion to appellate authority to entertain an appeal or to extend time for paying self-assessment tax, except in respect of cases falling under section 249(4)(b) in terms of proviso under said section. As discussed supra, the case of the appellant does not fall within the scope of the proviso also. 4.5 As regards argument of the appellant that she had filed return of income on 31.03.2015, with an income of Rs. 88,26,790/-, and that tax on the same was duly paid; the same is not relevant. This is for the reason that the return relevant here is the return in response to notice under Section 153C of the Act and not a normal return filed prior to the search proceedings. So this return of income is immaterial for the present proceedings. 4.6 Considering above the appeal is not admitted and as such the same is not maintainable. The grounds of appeal are thus not being adjudicated on merits.”
5. Aggrieved by the above order of the CIT(A), the assessee is in appeal before the Tribunal for the second time. The assessee raised the following grounds:-
1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence probabilities, facts and circumstances of the appellant's case.
2. The learned CIT[A] is not justified in dismissing the appeal restored by the Hon'ble ITAT holding that the same is not maintainable having regard to the provisions of section 249[4][b] of the Act, the facts and in the circumstances of the appellant's case. 2.1 The learned CIT[A] is not justified in dismissing the appeal in-limine on the ground that the tax on the income returned in the return filed in response to notice u/s.153C of the act, was not paid and therefore, the appeal is not maintainable u/s.249[4][b] of the Act, under the facts and in the circumstances of the appellant's case overlooking the fact that there was no obligation to pay any advance tax in order to attract the disqualification u/s.249[4][b] of the Act under the facts and in the circumstances of the appellant's case.
2.2 The learned CIT[A] ought not to have appreciated that the provisions of section 249[4][b] of the Act were totally inapplicable to the case of the appellant in as much as the appellant had challenged the entire income determined in the assessment order of Rs. 25,39,22,381/- vide Ground No. 4 raised before the learned CIT[A] and thus, there was no admission of any income as per the non-est return of income filed in response to notice issued u/s. 153C of the Act and therefore, the appeal filed ought to have been admitted and decided on merits. 2.3 The learned CIT[A] erred in holding that the appellant had only challenged the additions made to the income returned as per the non-est return of income of Rs. 13,56,62,052/- which is clearly erroneous considering the extent of disputed additions mentioned in Form 35 as well as the Grounds raised before the learned CIT[A] and hence, the rejection of the appeal on the ground that admitted taxes were not paid is misconceived. 2.4 The learned CIT[A] failed to appreciate that the return filed by the appellant in response to notice u/s.153C of the Act, itself was bad in law as there was no incriminating material found during the course of search warranting issuance of notice u/s.153C of the Act by the learned A.O. under the facts and in the circumstances of the appellants case.
3. Without prejudice to the above, the invocation of jurisdiction u/s.153C of the Act, is bad in law although the documents discovered during the course of search and seized pertain to the appellant for computation of total income, the appellant had disclosed the income any there was not any incriminating materials pointing out any undisclosed income and consequently, the assumption of jurisdiction u/s.153C of the Act, is bad in law for the assessment year under appeal having regard to the ratio of the decision of the Hon'ble jurisdictional High Court in the case of IBC KNOWLEDGE PARK P. LTD., reported in 385 ITR 346 [Kar].
Without prejudice to the above, the learned CIT[A] is not justified in upholding the completion of the assessment u/s.144 of the Act under the facts and in the circumstances of the appellant's case, in as much as, the appellant's husband was appearing before the learned A.O. only to submit and emphasis again and again that the A.O. did not have jurisdiction to make any assessment and consistent with such pleading perhaps he did not give the required details to the learned A.O. lest should not say that the participation cured the fatal defect.
Without prejudice to the above, the learned CIT[A] is not justified in not disposing of the following additions under the facts and in the circumstances of the appellant's case : [1] Short term capital gains on sale of flat Rs.18,66,06,240/- [2] Long term capital gains on sale of flats Rs. 1,18,90,000/- [3] Unexplained credit in the bank accounts Rs. 1,16,28,191/- [4] Unconfirmed credits in the bank accounts Rs. 4,37,21,950/- [5] Unexplained cash deposits Rs. 76,000/-
Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies herself liable to be charged to interest u/s. 234-A, 234-B and 234-C of the Act, which under the facts and in the circumstances of the appellant's case and the levy deserves to be cancelled.
For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.” 6. The ld AR reiterated the submissions made before the CIT(A). The ld AR submitted that the AO in para 8 of his order has held that the return filed in response to notice u/s.153C as non-est and therefore no tax liability exists for the income returned in the said income. Further the ld AR drew our attention to the Form 35 filed before the CIT(A) wherein the entire addition of Rs.25,39,22,381 has been disputed (Refer clause 6(d) in form 35). Therefore the ld AR submitted that the CIT(A) is not correct in stating that the assessee is contesting only the addition made by the AO to the tune of Rs.13,56,62,052 and not the income returned in response to notice treated as non-est by AO for an amounts Rs.11,82,60,329. The ld AR further submitted that the provisions of section 249(4) cannot be applied in assessee’s case here since the assessee has paid the tax due on the original return filed and that the tax liability arising out of the AO’s order is fully disputed. The ld AR accordingly submitted that the appeal filed before the CIT(A) should not have been rejected under the provisions of section 249(4). Without prejudice the ld AR submitted that the CIT(A) has rejected the appeal under clause (b) of section 249(4) whereas the said clause is applicable only in cases in which return of income is not filed by the assessee whereas the assessee has filed the return of income. The ld AR relied on the following decisions in this regard – (i) Sri K Nagesh vs ACIT (ITA No.683/2009 dated 20.04.2005) (ii) T Govindappa Setty vs ITO (1998) 231 ITR 892 (Kar) (iii) M/s.Garden City Resorts Pvt., Ltd vs DCIT (ITA No.218/Bang/2013 dated 05.08.2016) 7. The ld DR relied on the order of the CIT(A). The ld DR submitted that the assessee declared the income of Rs.11,82,60,329 in the return filed in response to notice u/s.153C thereby the assessee has admitted the tax liability on the same. The ld DR also submitted that the appeal of the assessee cannot be admitted under clause (a) of section 249(4) even though the CIT(A) has dismissed the appeal under clause (b) of the said section. The ld DR relied on the decision of the coordinate bench in the case of B S Manjunath vs DCIT (ITA No.454 to 456/Bang/2016).
We heard the parties and perused the material on record. We will first look at the provisions of subsection (4) of section 249 which reads as follows – (4) No appeal under this Chapter shall be admitted unless at the time of filing of the appeal,— (a) where a return has been filed by the assessee, the assessee has paid the tax due on the income returned by him; or (b) where no return has been filed by the assessee, the assessee has paid an amount equal to the amount of advance tax which was payable by him: Provided that, in a case falling under clause (b) and on an application made by the appellant in this behalf, the Commissioner (Appeals) may, for any good and sufficient reason to be recorded in writing, exempt him from the operation of the provisions of that clause.
From the above it is clear that the appeal before the CIT(A) shall not be admitted where the tax on the returned income is paid or in case where no return is filed the advance tax has not been paid. In assessee’s case we notice that the CIT(A) has rejected the appeal by stating that the assessee’s case fall within the purview of section 249(4)(b) and the assessee has not complied with the requirement under the proviso to the said section. This in our considered view is not correct since the assessee has already filed the return of income and therefore even if the appeal is not admitted on the ground of non- payment of tax the same cannot be done in assessee’s case u/s. 249(4)(b). Now coming to the issue of whether the assessee has paid the tax due on the income returned, the contention of the assessee is that the taxes are duly paid on the original income returned and there is no tax liability is due as per the return filed in response to notice u/s.153C since the same has been considered as non-est by the AO. The assessee is also drawing strength for this contention from the fact that the entire amount assessed is disputed in the appeal before the CIT(A) and therefore there is no undisputed liability that is due. The revenue’s contention is that the in the return filed in response to notice u/s.153C, the assessee herself has returned income to the tune of Rs.11,82,60,329 thereby admitting the tax liability on the same and therefore provisions of section 249(4) is attracted.
We notice that the coordinate bench of the Tribunal in the case M/s.Garden City Resorts Pvt., Ltd (supra) has considered a similar issue where the assessee has filed the original return which was initially to be treated as return filed in response to notice u/s.153C and tax on the returned income was duly paid. The assessee had later filed a revised return u/s.153C and did not pay the tax on the revised income. The CIT(A) came to reject the appeal u/s.249(4). The Tribunal in the said case held that – “”4. Having carefully examined the relevant provisions of the Act, we are of the view that while filing an appeal before the CIT(Appeals), the assessee is required to pay the tax on the admitted return of income. But in the instant case, on the admitted return of income, the assessee has already paid the taxes. The assessee has not paid the taxes on the revised return which was not treated to be valid by the AO and was non est in law. Since the revised return was treated to be non est in law, there was no question of making payment of tax on the income declared therein. Therefore, we are of the view that the assessee has already paid the tax on the admitted income declared in the original return filed which was acted upon by the AO for framing the assessment u/s. 153C of the Act. In the light of these facts, we are of the view that the CIT(Appeals) was wrong in dismissing the appeal of the assessee. Therefore, we set aside his order and restore the matter to his file with a direction to readjudicate the appeal on merits by passing a reasoned order.”
We further notice that the Hon’ble Karnataka High Court in the case of T Govindappa Setty (supra) has considered what is contemplated as a condition for non-admission of appeal u/s.249(4) and held that – “The object of clause (a) of sub-section (4) of section 249 is not to entertain the appeal where the assessee fails to pay the undisputed tax liability. Section 249(4) has to be construed in the backdrop of the right to appeal provided to an assessee under section 249 of the Act. Under these circumstances, while interpreting section 249(4) of the Act, the court will have to keep in mind the object of section 249(4) and also the right to prefer an appeal guaranteed to an assessee. In that view of the matter, sub- section (4) has to be liberally construed to serve the object of the right provided to an assessee, and not with a view to deprive the right provided to an assessee to prefer an appeal. When the very liability is disputed, the right guaranteed to the assessee to prefer an appeal cannot be deprived by taking the view that the assessee has failed to pay the tax due on the income shown in the return filed.”
The facts in assessee’s case are similar where the assessee has filed the original return in which the tax on the income returned is duly paid. On perusal of Form 35 filed we notice that the assessee has disputed the entire amount including what is declared in the return filed in response to notice u/s.153C which is considered as non-est by the AO and the additions made by the AO. We also see merit in the submissions of the ld AR that it is the disputed taxes that is not paid and the undisputed tax on the admitted income as per the original return have been duly paid. Therefore in our considered view the ratio laid down by the Hon’ble High Court and the coordinate bench of the Tribunal is applicable to assessee’s case. Accordingly we set aside the order of the CIT(A) and restore the matter to the CIT(A) with a direction to readjudicate the appeal on merits. Needless to say that the assessee be given a reasonable opportunity of being heard. It is ordered accordingly.
In the result, the assessee’s appeal is allowed for statistical purposes.
Pronounced in the open court on this 20th day of February, 2023.