Loading judgment…
Facts
The assessee, an AOP involved in promoting Khadi Udyog, did not file a return of income. The assessment was reopened under Section 148, and additions were made under Section 69A based on cash deposits. The CIT(A) dismissed the appeal for non-payment of admitted tax, invoking Section 249(4)(b) of the Act.
Held
The Tribunal held that the assessee was involved in a charitable activity and not solely for profit, and that the conditions of Section 249(4)(b) regarding admitted tax payment were not applicable. The Tribunal noted that the assessment was completed ex-parte and decided to examine the matter afresh.
Key Issues
Whether the CIT(A) was justified in dismissing the appeal solely on the ground of non-payment of admitted tax, given the assessee's charitable objectives and the ex-parte nature of the assessment.
Sections Cited
148, 69A, 144, 249(4)(b), 250, 147
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
ORDER
PER BEENA PILLAI, JUDICIAL MEMBER The present appeal arises out of order dated 02/02/2024, passed by NFAC, Delhi for Assessment Year 2018-19 is on the following grounds of appeal:-
Page 2 of Tax effect relating to each Ground of Grounds of Appeal appeal (see note below) The impugned Order u/s. 250 of the Act dated: 02-02-2024 passed by the Ld. CIT(A), National Faceless 1. 1,27,39,161/- Appeal Centre, Delhi is opposed to law, facts and circumstances of the case. The Ld. CIT(A) has erred in passing the appellate order on the alleged ground of non fulfilment of 2. necessary conditions for admission 1,27,39,161/- of appeal u/s 249(4)(b) without appreciating the facts and circumstances of the case. The Ld. CIT(A) has erred in holding that the appeal filed by the assessee not eligible for admission on the alleged ground that the assessee has failed to pay the advance tax 3. without appreciating the facts and 1,27,39,161/- circumstances of the case that the the assessee was not liable to pay the advance tax on income arbitrarily completed amounting to Rs. 92,86,080/-. The Ld. CIT(A) has erred in holding that the assessee was liable to pay advance tax on income which was included in the total income computed at Rs.92,86,080/-.
4. Without appreciating the facts and 1,27,39,161/- circumstances of the case that the question of payment of advance tax did not arise since the assessee has not derived any taxable income on which advance tax was payable. The Ld. CIT(A) has erred in holding that the assessee has not filed an application as per proviso to Section 249(4) seeking exemption from 5. operation of section 249(4)(b) without 1,27,39,161/- appreciating the fact that the question of filing the application for exemption did not arise as there was no liability of advance tax Page 3 of payable. The Appellant craves leave to add, 6. alter, amend and delete any of the - grounds at the time of hearing. Total tax effect (see note below)
Brief facts of the case are as follows: 2.1 The assessee is an AOP. For the year under consideration, the assessee did not file return of income. As per the information received by the department, the assessee had cash deposits in the bank accounts. Based on this information, the assessment was reopened under section 148 of the act. The case was transferred under the faceless assessment scheme 2019 and show cause notices were issued on various dates. However, there was no response to the show cause notice issued. Subsequently, the assessee filed response on 23.03.2021 and furnished financial statements. The assessee submitted that, it is into khadi bhandars, and are into retail sales and that the cash deposits pertains to the sales effectuated.
2.2 The Ld.AO also issued 133(6) notice to the banks where the cash deposits were made. On the basis of the details furnished by the bank, the Ld.AO made addition in hands of the assessee u/s.69A at Rs. 65,89,596/-. The Ld.AO thus passed the assessment order u/s.1487 r.w. sec. 144 of the act, by making following additions: a) Additions u/s. 69A as per para -6 above – Rs. 65,89,596/- b) Net profit reported in the P&L – Rs. 71,756/- c) Addition as per para – 7 above – Rs. 26,24,725/- Page 4 of 2.3 Aggrieved by the order of the Ld.AO the assessee filed appeal before the Ld.CIT(A). The CIT(A) dismissed the appeal of the assessee by invoking the provisions of section 249(4) of the Act. The relevant finding of the CIT(A) reads as follows: “3. Decision: As per the provisions of the section 249(4)(b) of the Act, the appeal shall not be admitted, unless the appellant has paid an amount equal to the amount of advance tax which was payable by him if no return of income has been filed. In the present case, the appellant did not file return of income. The AO arrived at the total income of Rs. 92,86,080/- and computed the tax payable at Rs. 1,27,39,161/- which included the advance tax payable by the appellant. On or before filing the present appeal, the appellant has failed to make the required payment of the amount equal to the amount of advance tax which was payable by him. Further, the appellant neither provided any satisfactory clarification/ explanation in response to the deficiency letter issued by this office nor did he offer any reason, leave alone any good and sufficient reasons, for seeking exemption from the operation of the sec. 249(4)(b) even though sufficient opportunities were provided to him. On careful consideration of the above facts and circumstances, as the appellant has failed to fulfill the necessary conditions for admission of appeal before CIT(A) as per sec. 249(4)(b), the present appeal is liable to be held as not eligible for admission and hence, the appeal is not admitted.” 2.4 Aggrieved by the order of the Ld.CIT(A) the assessee filed appeal before this Tribunal.
The Ld.AR submitted as under: “2. The Objects of the Assessee AOP mainly are as under 2.1. To provide a stable economic standard to the illiterate rural folk by providing day to day labour Page 5 of Khadi Industry which is engaged in manufacture and to promote Khadi Udyog. 2.2 To impart basic education to the children of the Rural Labourers. 2.3 To alleviate the poverty of the Rural Folk who are mainly unemployed and uneducated. 2.4 To provide Medical Facilities to the Rural Folk. 3. The Assessee AOP is engaged solely for the promotion of the Khadi Industry which is one of the objects of the Khadi and Village Industries Commission (KVIC) and Khadi and Village Industries Board (KVIB) sponsored and co- ordinated by the Central and State Governments. The Government has provided several schemes to the KVIC and KVIB which have prescribed the specified Guidelines starting from purchase of Cocoons, converting the cocoons into raw silk, subjected to twisting and dyeing and weaving the fabrics for the purpose of trading of the Manufactured Fabrics. The Assessee AOP is not entitled to deviate from the schemes formulated by the KVIC and KVIB. The sole object of the Assessee AOP and other similar institutions constituted by KVIC and KVIB are to promote the Khadi Udyog by mainly providing employment to the rural folk and also to promote the Khadi Fabrics.
The Assessee AOP was constituted for the purpose of providing employment to the Rural Folk and also to promote the Khadi Udyog as intended by the Central Government and State Governments and therefore the Assessee AOP has not been engaged only for deriving the income. The KVIB and KVIC are the supervisory authorities who conduct periodical inspections as to the genuineness of the activities and also to Page 6 of KVIB and KVIC through online process and the said incentives are in the nature of providing subsidy to encourage and stabilize the Khadi Udyog.
The Assessee is not having the privilege and freedom to determine the sale price of the fabrics as the KVIC is the authority to determine the trading price of the fabric and therefore the Assessee AOP and other similar institutions are subjected to restrictive Trade Practice without any free hand. Therefore the Assessee AOP mainly survives on the periodical subsidy granted by the KVIC and KVIB based upon the target prescribed KVIC. In other words and in the normal course the assessee would likely to incur losses.
6. The Assessee AOP is not having its well founded capital base but mainly running on the borrowed loans from the Financial Institutions (Banks) against which the interest would be charged periodically at the appropriate rates as applicable. The Assessee is liable to pay such interest at the subsidized rate of 4 percent and the balance if any would be subsidized by KVIC and the same is also amounts to providing subsidy to the Assessee AOP as per the formulated schemes periodically. The Assessee AOP has heavily borrowed funds from Canara Bank, Narasapura Branch in the form of OD Account out of which the day to day activities are being carried on. The above submissions made are to impress and emphasize the fact that the Assessee AOP has not been carrying on the activities solely for the purpose of making profit, but to provide the employment to the rural illiterate folk for which the central and state Governments have drawn the schemes and monitored by the committees constituted in the name of KVIC and KVIB.
The Assessee AOP was under the impression that it was not liable for Income Tax and therefore the returns of income were not filed.”
4. As regards the CIT(A) dismissing the appeal, the Ld.AR submitted that assessee earned Nil income during the year and is exempt, therefore, there was no requirement of any tax to be paid as there was no “admitted tax”, hence, section 249 of the Act cannot be invoked to dismiss the appeal of the assessee on technical ground. Ld.AR in support placed reliance on the order of coordinate bench of this Tribunal in the case of Annapoorneshwari Investment Vs. DCIT in vide order dated 26.04.2019 for assessment year 2006-07 and decision of Hon’ble Delhi Tribunal in case of Vikas Hooda vs. ITO in ITA No. 3720/Del/2023 for A.Y. 2018-19 vide order dated 15.03.2024.
5. Ld. DR supported the orders of the AO and the CIT(A).
We have heard the rival submissions and perused the material on record. Considering the assessee’s background, the its objectives as well as the procedure under faceless regime coupled with the fact that notice issued during the course of assessment proceedings were addressed by filing relevant evidences in support of the claim, we are of the view that the ex-parte order passed on the assessee under section 147 r.w.s. 144 of the Act is to be condoned.
7. However, before the CIT(A), assessee had made detailed submissions. The CIT(A) dismissed the appeal of the assessee by invoking section 249(4)(b) of the Act. Assessee submitted that it is not liable for as it is involved in promoting Khadi Udyog and is involved in generating employment to the rural folks by imparting education. It was also submitted that the assessee is sponsored by the state Government by extending various schemes for the purpose of Khadi manufacturing and trading. Therefore, there is no requirement to pay admitted tax. In view of the above, section 249(4) of the Act cannot be invoked to dismiss the appeal of the assessee. We draw support for the decisions relied by the Ld.AR wherein, it has been held that in terms of section 249(4)(a) of the Act, stipulation as to payment of tax ante filing of first appeal is only directory and not mandatory, where appeal is filed without payment of tax but subsequently required amount of tax is paid, appeal shall be admitted on making payment of tax and taken up for hearing on merits.
In the present case, as mentioned earlier, we find assessee had not declared any admitted tax. On the facts of the instant case, assessee claimed the cash deposited is out of sale. Since assessment has been completed under section 147 r.w.s. 144 of the Act, we are of the view that the matter needs to be examined afresh by the AO. Accordingly, the issues raised in this appeal are restored to the files of the Ld.AO. The assessee is directed to co- operate with the Revenue and shall not seek unnecessary adjournment in the matter. Needless to say that proper Page 9 of opportunity of being heard is to granted to the assessee in accordance with law. Accordingly the grounds raised by the assessee stands partly allowed for statistical purposes. In the result, appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open court on 31st May, 2024.