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Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • Pradeep Kapasi
Judges
  • VIJAY PAL RAOR.S. SYAL
Acts
  • provisions of sub-section (4) of section 249.
  • provisions of section 249(4)(a),
  • provisions of section 249(4),
  • section 80-IB(10).
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • Pradeep Kapasi
Judges
  • VIJAY PAL RAOR.S. SYAL
Acts
  • provisions of sub-section (4) of section 249.
  • provisions of section 249(4)(a),
  • provisions of section 249(4),
  • section 80-IB(10).
See more information ...
Smart Summary

Structured Summary of the Tribunal Order

Factual and Procedural Background

The assessee filed its return for assessment year 2006-07 declaring total income of Rs. 1,30,87,087 and claimed a deduction of Rs. 8.76 crores under section 80-IB(10). The Assessing Officer disallowed the deduction under section 80-IB(10) and determined total income at Rs. 10.07 crores. The assessee presented its first appeal before the Commissioner of Income-tax (Appeals) ("CIT(A)") on 22-1-2009.

The CIT(A) observed that the assessee had not paid self-assessment tax of Rs. 43,83,830 (the tax payable on the income returned). The CIT(A) granted ten days' time to the assessee to pay this amount. The assessee explained that it had recognized profit on accrual basis though receipts were not realized and stated it lacked liquidity to pay the tax; accordingly it expressed inability to deposit the tax within that time. The CIT(A) passed an order under section 249(4) dismissing the appeal as not maintainable (unadmitted). The assessee appealed to the Tribunal against that dismissal.

After the dismissal by the CIT(A), the assessee paid the tax outstanding on the returned income in instalments and placed evidence of payment on record. In the present appeal, the assessee seeks restoration of the appeal to the file of the CIT(A) for disposal on merits on the ground that the outstanding tax on the returned income was subsequently paid.

Legal Issues Presented

  1. Whether an appeal under Chapter (before the CIT(A)) filed without payment of the tax due on the income returned (i.e., non-compliance with section 249(4)(a)) is void or merely defective and can be validated by payment of the due tax made after filing of the appeal but before or even after initial non-admission by the CIT(A).
  2. Whether the proviso to section 249(4) (which permits exemption only in respect of clause (b) where no return has been filed) empowers the CIT(A) to grant exemption or relief in cases where a return has been filed (clause (a)).

Arguments of the Parties

Appellant's (Assessee's) Arguments

  • The assessee had filed the return declaring income but could not pay the self-assessment tax of Rs. 43,83,830 at the time due to lack of liquidity and financial crunch.
  • The assessee subsequently paid the tax in instalments and produced evidence of such payment; therefore the defect (non-payment at the time of filing) stood cured and the appeal should be admitted and restored for decision on merits.
  • The assessee relied on the Mumbai Bench decision in Anant R. Thakore v. Asstt. CIT [2006] 5 SOT 298, which held that the CIT(A) was not justified in dismissing the appeal under section 249(4)(a) where an application for downward rectification of self-assessment tax was pending.

Respondent's (Revenue's) Arguments

  • The Revenue relied on a Mumbai Bench order in Bharatkumar Sekhsaria v. Dy. CIT [2002] 82 ITD 512 which upheld the action of the CIT(A) in not admitting the appeal for non-payment of tax at the time of filing.
  • The Revenue also relied on the Karnataka High Court judgment in D. Komalakshi v. The Dy. Commissioner Of Income Tax [2007] 162 Taxman 16 (as cited by the Departmental Representative), though the Tribunal noted that the Komalakshi decision ultimately supported reviving an appeal where the defect had been cured.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
M.L. Srinivasa Shetty & Sons v. State of Karnataka [1992] 193 ITR 548 Distinction between mandatory and directory statutory provisions: test being whether penal consequences follow non-compliance. The Tribunal relied on this authority to explain that absence of penal consequences indicates a directory requirement; used to support the view that the timing requirement in s.249(4) is directory.
State of Uttar Pradesh v. Babu Ram Upadhya AIR 1961 AC 751 Authority relied upon in the Karnataka High Court's discussion of mandatory vs. directory tests. Cited (via M.L. Srinivasa Shetty) as part of the legal foundation for the mandatory/directory distinction adopted by the Tribunal.
Commissioner Of Income-Tax v. Trehan Enterprises [2001] 248 ITR 333 / [2000] 108 Taxman 189 (J&K) Non-filing of an audit report (where required) is directory: if filed subsequently during proceedings, the deduction cannot be denied and CIT(A) must allow deduction or remit to AO. Used to illustrate that non-compliance of a directory requirement does not render the claim invalid; supports the argument that curing a defect validates the claim/appeal.
Anant R. Thakore v. Asstt. CIT [2006] 5 SOT 298 Held that CIT(A) was not justified in dismissing an appeal under s.249(4)(a) where an application for downward rectification of self-assessment tax was pending. Relied on by the assessee; the Tribunal noted this decision but did not rest its decision solely on it.
Bharatkumar Sekhsaria v. Dy. CIT [2002] 82 ITD 512 Upheld the CIT(A)'s action in not admitting the appeal for non-payment of tax at the time of filing. Relied on by the Revenue; the Tribunal treated it as a contrary Bencher decision but preferred reasoning from higher court authority and its own analysis.
D. Komalakshi v. The Dy. Commissioner Of Income Tax [2007] 162 Taxman 16 (Karnataka High Court) Held that a defect under s.249(4) could be cured by subsequent adjustment/payment and the appeal could be revived; directed CIT(A) to decide the appeal on merits. The Tribunal observed that this Karnataka High Court judgment supports the assessee's position and advances the case for revival of the appeal upon cure of the defect; used as a supportive authority for restoration.

Court's Reasoning and Analysis

(A concise, step-by-step account of the Tribunal's analysis as expressed in the opinion.)

  1. The Tribunal first recorded undisputed facts: the assessee filed a return declaring income of Rs. 1.30 crores, upon which self-assessment/advance tax of Rs. 43.83 lakhs was payable but was not paid at the time of filing the return or when the appeal was presented to the CIT(A); the CIT(A) gave ten days to pay and, on non-compliance, dismissed the appeal as not maintainable under section 249(4).
  2. The Tribunal examined the text of section 249(4), noting its two clauses:
    • Clause (a) requires payment of tax due where a return has been filed;
    • Clause (b) requires payment of an amount equal to advance tax where no return has been filed; the proviso empowers the CIT(A) to exempt a person falling under clause (b) for good and sufficient reasons recorded in writing.
  3. The Tribunal emphasized that the proviso applies only to clause (b) (no-return situations) and does not empower the CIT(A) to grant exemption from payment in cases covered by clause (a) (where a return has been filed). Thus the CIT(A) cannot exempt payment of tax in clause (a) situations; the requirement must be examined at the time of admission of the appeal.
  4. Turning to the nature of the requirement, the Tribunal reviewed the mandatory vs. directory distinction, relying on the Karnataka High Court in M.L. Srinivasa Shetty (and the Supreme Court decision relied upon therein) to state the test: if non-compliance attracts penal consequences, a provision is mandatory; absent such consequences, the provision is likely directory.
  5. The Tribunal observed precedents (including Trehan Enterprises) holding that certain statutory/formal requirements (e.g., filing an audit report) are directory and that curing the defect during proceedings validates the claim. By analogy, the Tribunal considered the timing requirement in s.249(4) vis-à-vis filing tax before admission of appeal: the requirement to pay tax is mandatory in substance, but the stipulation that it must be paid before filing the appeal is directory.
  6. From this analysis the Tribunal concluded:
    • An appeal filed without payment of tax on the income returned is defective but not void; the defect can be cured by payment of the tax, and upon cure the appeal becomes valid.
    • The crucial pre-requisite for admission by the CIT(A) is that the tax be paid before admission of the appeal; however, if the tax is paid after filing but before admission, the appeal can be admitted.
    • Extending this logic, the Tribunal answered affirmatively the specific question whether payment made after the non-admission (i.e., after the CIT(A) dismissed the appeal for non-payment) can still rescue the appeal: the Tribunal held that subsequent payment after dismissal cures the defect and the appeal should be revived (i.e., restored for merits consideration).
  7. The Tribunal noted the objective behind s.249(4) — to ensure payment of tax on returned income before admission of appeal — and reasoned that if the defect is removed later (by payment), justice requires that a financially constrained assessee who later pays not be shut out from adjudication on merits.
  8. The Tribunal reviewed the rival authorities cited by the parties, expressed that the Karnataka High Court decision in D. Komalakshi actually advances the assessee's case (by directing revival where the defect was cured), and preferred the higher court authority and the directory-analysis approach over divergent bench decisions.
  9. Applying these principles to the facts — the assessee paid the tax after the CIT(A)'s disposal and produced evidence — the Tribunal found the defect cured and held that the appeal should have been revived. Consequently, it set aside the impugned order and restored the matter to the CIT(A) for disposal on merits.

Holding and Implications

Primary Holding: The Tribunal allowed the appeal and set aside the order of the CIT(A), restoring the matter to the file of the CIT(A) for disposal on merits.

Formal Disposition: Appeal allowed — matter restored to the CIT(A) for adjudication on merits.

Implications:

  • Direct effect on parties: The impugned order of the CIT(A) dismissing the appeal as not maintainable under section 249(4) is set aside and the appeal is restored to the CIT(A) for decision on merits in accordance with law.
  • Legal consequence as articulated by the Tribunal: The requirement in section 249(4)(a) that tax be paid prior to admission of appeal is a directory timing requirement; an appeal filed without such payment is defective but can be validated by subsequent payment of the tax. Once the defect is cured, the appeal is to be treated as valid from the date it was originally filed and not from the date of cure.
  • Broader precedent-setting: The Tribunal applied existing precedents and reasoning (mandatory vs. directory distinction) to the facts — it did not purport to displace or overrule higher court authority but articulated and applied the principle that curing the payment defect permits revival of the appeal. No statement in the opinion asserts creation of a novel legal principle beyond its application of established authorities.

End of summary based exclusively on the provided Tribunal order.

Show full summary ...

    Bhumiraj Constructions v. Additional Commissioner of Income-tax, Range 15(1)

    ORDER

    Per R.S. Syal, Accountant Member. - Appeal by the assessee arises out of the order passed by the Commissioner of Income-tax (Appeals) on 21-4-2009 dismissing the appeal as not maintainable in relation to the assessment year 2006-07.

    2. Briefly stated the facts of the case are that the assessee filed its return declaring total income of Rs. 1,30,87,087 claiming deduction of Rs. 8.76 crores under section 80-IB(10). The Assessing Officer made disallowance of deduction under section 80-1B(10) for the reasons stated in the assessment order and determined the total income at Rs. 10.07 crores. The assessee presented the first appeal before the learned CIT(A) on 22-1-2009. It was noted by the ld. first appellate authority that there was failure of payment of self-assessment tax amounting to Rs. 43,83,830 on the income returned by the assessee. Ten days' time was given to the assessee for the payment of self-assessment tax. The assessee stated that it had recognized profit of Rs. 1.30 crore on accrual basis in spite of the fact that the entire receipts including profit were not realized. It was further argued that there was no liquidity whatsoever to pay the self-assessment tax on the accrued but not realized income. Accordingly the assessee expressed inability to deposit the tax on the returned income. The learned CIT(A) passed the order under section 249(4) dismissing the appeal as not maintainable, against which the assessee has come up in appeal before us.

    3. We have heard the rival submissions and perused the relevant material on record in the light of the precedents cited before us. There is no dispute on the fact that the assessee filed its return declaring total income of Rs. 1.30 crores on which the tax payable, by way of advance tax/self-assessment tax, was to the tune of Rs. 43.83 lakhs, which was admittedly not paid by the assessee along with the return of income. Pursuant to the assessment order making disallowance under section 80-IB(10) for a sum of Rs. 8.76 crores, the assessee preferred appeal before the learned CIT(A) again without the payment of tax due on the income returned. Such appeal was not admitted and dismissed as not maintainable. After the dismissal of the appeal by the learned CIT(A) the assessee made good the deficiency and deposited the tax due on the returned income in instalments, the evidence in respect of which has been placed on record. Now in the instant appeal the assessee is praying for the restoration of the appeal to the file of the CIT(A) for its disposal on merits on the ground that the amount of tax which was outstanding on the returned income, stood paid subsequently.

    4. At this stage, it will be fruitful to have a look at the provisions of section 249(4), under which section the impugned order has been passed. It runs as under:-

    "249(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."

    5. On going through the prescription of proviso to sub-section (4) it transpires that the CIT(A) has been empowered to grant exemption from the payment of tax equal to the amount of advance tax which was payable by the assessee in a situation where no return is filed by the assessee. It implies that where the assessee did not file any return for the relevant year and still the assessment was made, the assessee can file first appeal even without the payment of tax provided he satisfies the CIT(A) for the reasons of non-payment of tax. The power of the first appellate authority as per the directive of proviso is not to accept the delayed payment of such tax, but to exempt the payment of tax altogether. The operation of proviso is restricted only to clause (b) and is not applicable to clause (a) which deals with a situation in which return was filed by the assessee. Thus in such a situation where the return was originally filed by the assessee, the CIT(A) has no power to grant exemption from the making of payment of tax due on the income returned. The requirement of payment of tax in a case covered under clause (a) is to be examined at the time of admission of first appeal.

    6. At this juncture, it will be apposite to note the distinction between a mandatory and directory provision. If the non-compliance with the requirement of law exposes the assessee to the penal provision, then it is mandatory, but if no penal consequences follow on non-fulfilment of the requirement, then usually it is a directory provision. The Hon'ble Karnataka High Court in M.L. Srinivasa Shetty & Sons v. State of Karnataka [1992] 193 ITR 548 had the occasion to consider the distinction between a mandatory and directory provision. It held : 'In other words, one of the crucial tests to determine whether a particular statutory requirement is mandatory or directory is that the court has to see whether any penal consequences will follow by the non-compliance with a particular statutory requirement. If no penal consequences are indicated, then it would be safe to infer that the statutory requirement was directory and not obligatory or compulsory.' In reaching this conclusion the Hon'ble High Court relied on the judgment of the Hon'ble Apex Court in State of Uttar Pradesh v. Babu Ram Upadhya AIR 1961 AC 751.

    7. It is trite law that omission to comply with a mandatory requirement renders the action void, whereas omission to do the directory requirement makes it only defective or irregular. On the removal of such defect, the irregularity stands removed and the status of validity is attached. There is no dearth of judgments holding the requirement of filing the report of the auditors in connection with the grant of deductions under Chapter VI-A as only directory and not mandatory. In such cases it has been held that even if the audit report was not filed along with the return of income as per the necessity of the relevant section, still the deduction could not be denied if such report was subsequently filed during the course of assessment proceedings. In a case where the assessee failed to submit audit report in support of claim for deduction under sections 80HH and 80J during the course of assessment proceedings, the Hon'ble High Court in Commissioner Of Income-Tax v. Trehan Enterprises [2001] 248 ITR 333 /[2000] 108 Taxman 189 (J&K) held that when such report was filed before the ld. CIT(A), it was necessary for him either to allow deduction or send the matter to the file of Assessing Officer for a fresh decision in the light of such report. It, therefore, transpires that non-compliance of directory requirement does not make the action as invalid. As soon as such requirement is fulfilled, the deficiency stands removed and the action is validated. It can also be seen from the mandate of section 139(9), dealing with the defective return, which provides that on the removal of defect, the return becomes valid. In the like manner if the appeal filed by the assessee is only defective, it assumes validity on the removal of such defect or irregularity.

    8. In the present case, the ld. CIT(A) granted a time of ten days to the assessee for depositing the tax due. It was only on the failure of the assessee to do so that the appeal was dismissed as unadmitted. If the assessee had made good the deficiency within the period often days, then the appeal would have been admitted and taken for disposal on merits. It shows that the appeal filed without paying tax due on returned income is only defective but not void. Thus if tax is paid on the income returned, either before or at the time of or after the filing of return, it will be sufficient compliance with the provisions of sub-section (4) of section 249. The pre-requisite is that the payment of such tax, in the category of cases in which tax is paid after the filing of return, should be before the admission of first appeal. In case such tax is not paid up to the filing of appeal before the CIT(A), the same shall not be admitted. In other words if the appeal is to be admitted by the first appellate authority, it is sine qua non that the assessee must have made the payment of tax on the income returned. If no payment of tax on the income returned is made at all and the appeal is filed, that cannot be admitted. If however the appeal is filed without the payment of such tax but subsequently the required amount of tax is paid, the appeal shall be admitted on payment of tax and taken up for hearing. Now the moot point for determination is that if the due tax is paid by the assessee after the filing of first appeal but before it is taken up for consideration, it is admitted and taken up for disposal, then can the payment of due tax after the non-admission of appeal by the authority can come to the rescue of the assessee and save the appeal from non-consideration ? In our considered opinion the answer to this question needs to be given in affirmative.

    9. The objective behind section 249(4) is to ensure the payment of tax on income returned before the admission of appeal. If such payment after the filing of appeal but before it is taken up for disposal validates the defective appeal, then there is no reason as to why the doors of justice be closed on a poor assessee who, could manage to make the payment of tax at a later date, The stipulation as to the payment of such tax ante the filing of first appeal is only directory and not mandatory. Whereas the payment of such tax is mandatory but the requirement of paying such-tax before filing appeal is only directory. When the defect in the appeal, being the non-payment of such tax, is removed, the earlier defective appeal becomes valid. Once we call an appeal as valid, it is implicit that it is not time-barred. It implies that all the consequences which follow on the removal of defect are that the validity is attached to the appeal from the date when it was originally filed and not when the defect is removed.

    10. The ld. AR submitted that the assessee was facing the financial crunch which led to the non-payment of tax on the returned income at the time required by the ld. CIT(A). It was claimed that on making the payment of tax, the appeal ought to have been admitted by the ld. CIT(A). He relied on the order passed by the Mumbai Bench of the Tribunal in the case of Anant R. Thakore v. Asstt. CIT [2006] 5 SOT 298 in which it has been held that the CIT(A) was not justified in dismissing the appeal under section 249(4)(a) where the assessee's application for downward rectification of self-assessment tax was still pending. Per contra the learned Departmental Representative relied on another order passed by the Mumbai Bench of the Tribunal in the case of Bharatkumar Sekhsaria v. Dy. CIT [2002] 82 ITD 512 in which the action of the CIT(A) in not admitting the appeal was held to be justified. He further relied on the judgment of the Karnataka High Court in the case of D. Komalakshi v. The Dy. Commissioner Of Income Tax* [2007] 162 Taxman 16.

    11. In the case of D. Komalakshi (supra), the assessee AOP had three members who had filed returns individually. The assessments were finalized after making some adjustments. After the assessment in the individual capacity, the AOP was also assessed to tax on the same income. However tax paid in individual capacity was not adjusted. Aggrieved thereby, the assessee preferred appeal against the order of the Assessing Officer. For non-compliance of provisions of section 249(4)(a), the learned CIT(A) did not entertain the appeal. The assessee filed one more appeal before the learned CIT(A) after making the payment of tax which was dismissed on the ground of delay and the order so passed was upheld by the Tribunal. When the matter came up before the Hon'ble High Court, it was held that the defect of compliance under section 249(4) was made up by the subsequent action of adjusting the tax and the case for the revival of appeal was made out. Although the fresh appeal filed was not held to be maintainable, the Hon'ble High Court held that the same could be treated as an application for revival of appeal earlier filed. From this judgment, relied on by the learned Departmental Representative, it can be seen that the contention of the assessee was accepted and the CIT(A) was directed to decide the appeal on merits in accordance with law. Here it is relevant to mention that this judgment has been rendered in relation to block period comprising of 1995-96 to 28-9-2001 i.e., after 1-4-1989, being the date of amendment carried out in the proviso to section 249(4). So this judgment advances the case of the assessee instead of the Revenue. Insofar as the reliance of the rival parties on the divergent orders passed by the Mumbai Benches are concerned, we do not propose to deal with such decisions in view of our discussion in the earlier paras and the availability of a clear judgment of the Hon'ble Karnataka High Court available on the point, relied on by the learned Departmental Representative on this issue.

    12. Adverting to the facts of the instant case we find that the assessee paid the tax due on income returned albeit after the disposal of appeal by the ld. CIT(A). On such payment, the defect in the appeal due to non-compliance of a directory requirement of paying such tax before the filing of the appeal, stood removed. Ex consequenti this appeal should have been revived by the ld. first appellate authority. Under such circumstances we set aside the impugned order and restore the matter to the file of the learned CIT(A) for disposal of the appeal on merits.

    13. In the result, the appeal is allowed in the above terms.

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    Comments

    Bhumiraj Constructions v. Additional Commissioner of Income-tax, Range 15(1)
    (Apr 12, 2010)