Appeal Restored to CIT(A) Despite Tax Paid After Filing Section 249(4)(a) Appeal: MP HC

PCIT (Central) Vs Keti Construction Ltd. (Madhya Pradesh High Court)

The Madhya Pradesh High Court considered an appeal filed by the Principal Commissioner of Income Tax (Central) under Section 260A of the Income-tax Act, 1961 against the order dated 19.12.2023 passed by the Income Tax Appellate Tribunal (ITAT), Indore Bench in IT(SS)A No. 5/Ind/2023 for Assessment Year (AY) 2010-11. The Revenue challenged the ITAT’s order remanding the matter to the Commissioner of Income Tax (Appeals) [CIT(A)] for adjudication on merits after holding that non-payment of tax due on the returned income was a defect in the appeal and not one rendering the appeal void.

Material Facts and Procedural Background

The respondent-assessee was engaged in the business of construction of toll roads on a BOT basis. A search and seizure operation under Section 132 of the Act was conducted on 05.05.2011 at its business and residential premises. Pursuant to notices issued under Section 153A, the assessee filed returns for various assessment years, including AY 2010-11, declaring additional income consequent to the search. For AY 2010-11, the income declared under Section 153A was ₹9,28,62,960 as against ₹1,15,98,650 declared in the original return, resulting in additional income of ₹8,12,64,310. During the search, the assessee also disclosed additional income of ₹35 crore.

The Assessing Officer completed the assessment under Sections 153A read with 144 on 29.09.2015 determining total income of ₹80,04,04,450 for AY 2010-11 and raised demands of tax and penalty. The assessee preferred an appeal before the CIT(A), which was dismissed in limine by order dated 24.02.2023 on the ground that the assessee had not paid the tax due on the returned income as required under Section 249(4)(a) up to 15.01.2022.

The assessee appealed before the ITAT. The Tribunal held that non-payment of tax due on the returned income constituted a defect in the appeal rather than rendering the appeal void. Referring to its coordinate Bench decisions, it held that once the assessee made full payment of the tax due on the returned income, the appeals ought to be decided on merits instead of being dismissed in limine. It also noted, in relation to AY 2011-12, that the CIT(A) had referred to a refund determined for AY 2013-14 which had been proposed for adjustment but was not reflected on the CPC portal. Accordingly, the ITAT set aside the orders of the CIT(A) and remanded the appeals for AYs 2009-10 and 2011-12 to the CIT(A) for adjudication on merits after providing an opportunity of hearing, while allowing the appeals for statistical purposes.

Key Legal Issue

The principal issue before the High Court was whether any substantial question of law arose from the ITAT’s interpretation of Section 249(4)(a) of the Income-tax Act, particularly whether an appeal could be entertained where the admitted tax on the returned income was paid after the filing of the appeal.

Relevant Statutory Provisions

Sections 132, 139(1), 144, 153A, 249(4)(a) and 260A of the Income-tax Act, 1961.

Principal Contentions

The Revenue contended that Section 249(4)(a) mandates payment of tax due on the returned income as a precondition for admission of an appeal before the CIT(A). According to the Revenue, the provision does not permit admission of an appeal where such tax is paid after the appeal has been filed. It further argued that the ITAT erred in relying upon decisions holding that subsequent payment constituted sufficient compliance with Section 249(4).

High Court’s Reasoning

The High Court noted that the ITAT had not decided the appeal on merits but had only interpreted Section 249(4)(a) concerning admission of appeals where tax on the returned income had been paid, whether before filing, at the time of filing, or after filing the appeal. The Court observed that the ITAT had remanded the matter to the CIT(A) for adjudication on merits after relying upon the decisions in Vijay Prakash D. Mehta v. Collector of Customs and CIT v. K. Satish Kumar Singh. The High Court held that the ITAT’s approach could not be regarded as erroneous or prejudicial to the interests of the Revenue.

The High Court concluded that no question of law, much less any substantial question of law, arose from the order of the ITAT warranting consideration under Section 260A.

Final Ruling

The High Court held that the appeal did not involve any substantial question of law. It upheld the ITAT’s order remanding the matter to the CIT(A) for adjudication on merits and dismissed the Revenue’s appeal in limine.

Cases Discussed

• Vijay Prakash D. Mehta v. Collector of Customs (1989) 175 ITR 540 (SC)
• CIT v. K. Satish Kumar Singh (2012) 209 Taxman 502 (Karnataka High Court)
• Pawan Kumar Laddha (2010) 190 Taxman 169 (SC)
• Sudarshan Silk and Sarees 300 ITR 205 (SC)

FULL TEXT OF THE JUDGMENT/ORDER OF MADHYA PRADESH HIGH COURT

Heard on the question of admission.

This appeal u/S 260A of the Income Tax Act, 1961(referred to as ‘the Act’ hereinafter) being aggrieved by the order dated 19.12.2023 passed by the Income Tax Appellate Tribunal (ITAT), Indore Bench in IT(SS)A No. 5/Ind/2023 for the assessment year 2010-11(Assessee Appeal).

2. The following substantial questions of law have been proposed in the instant appeal:

“1. Whether on the facts and in the circumstances of the case , the ITAT was justified in law in allowing the appeal of the assessee by restoring it back to the Ld. CIT(A) directing the ld. CIT(A) to admit the appeal of the assessee in contravention of Section 249(4)(a) of the Act based on the orders of ITAT in the case of the assessee for other Ays ignoring that such orders have not been accepted by the Department?

2. Whether on the facts and in the circumstances of the case, the ITAT was justified in law in allowing the appeal of the assessee by restoring it back to the ld. CIT(A) by holding that the assessee has made full payment of tax on the income declared in the Return of Income ignoring the provisions of Section 249(4)(a) of the Act which clearly specify that no appeal ‘shall’ be admitted by the CIT(A) unless at the time of filing of the appeal, the assessee has paid the tax due on the income returned by him?

3. Whether on the facts and in the circumstances of the case, the ITAT was justified in law in allowing the appeal of the assessee by restoring it back to the ld. CIT(A), ignoring the fact that the assessee has not made payment of full amount of tax on the income declared in the Return not only by the date of filing of appeal before CIT(A) but also even now huge amount of due tax remains unpaid?

4. Whether on the facts and in the circumstances of the case, the ITAT was justified in law in allowing the appeal of the assessee by restoring it back to the ld. CIT(A), ignoring the decision of Hon’ble Apex Court in the case of Pawan Kumar Laddha [2010] 190 Taxman 169(SC), wherein the Hon’ble Supreme Court in clear terms has held that precondition of payment of due tax on income returned u/S 249(4)(a) of the Act is a mandatory condition for admitting appeal by CIT(A)?

5. Whether on the facts and in the circumstances of the case, the finding given by ITAT in allowing the appeal of the assessee by restoring it back to the Ld. CIT(A), assuming that entire tax due has been paid by the assessee, suffers from perversity as it failed to allude to relevant facts, misread the evidence and its probative value and the legal position, which itself gives rise to question of law in view of ratio of decision in several cases including in the case of Sudarshan Silk and Sarees 300 ITR 205 (SC)?”

3. In short, the question that arises for consideration in this appeal is, whether this appeal involves any substantial question of law, as is required to be made out under Section 249(4)(a) of the Act of 1961, that being the prerequisite of admission of the appeal.

4. The brief facts of the case are that the respondent was engaged in the business of construction of toll roads on BOT basis. A search and seizure action u/S 132 of the Act was carried out on the business and residential premises of the respondent on 05.05.2011. During the search and seizure, the respondent/assessee company filed the return of income tax u/S 139(1) of the Act in response to notice u/S 153A of the Act. Disclosure of additional income tax and assessed income covered by the search action is as under:

5. Accordingly, the scrutiny assessments u/S 153A r/W Sec 144 of the Act was completed on 29.09.2015 determining total income of Rs. 80,04,04,450/- for the assessment year 2010-11. During the course of search, the disclosure of additional income of Rs. 35 crores was made by the respondent/assessee.

6. The Assessing Officer raised a demand of tax and penalty. Being aggrieved, the respondent filed an appeal before the CIT(Appeal). The said appeal was dismissed vide order dated 24.02.2023 in limine being not maintainable on the ground that the respondent had not paid due tax payable on return income upto 15.01.2022. Being aggrieved, the respondents approached the ITAT, Indore where ITAT has passed the following order:

“7. Thus, it is held that non-payment of tax due on return income would amount a defect in appeal and not a void appeal. Following the orders of the coordinate Benches, we are of the considered view that once the assessee made full payment of tax due on return income, the appeals of the assessee ought to have been decided on merits instead of dismissed the same in limine.

8. For A.Y. 2011-12 the Ld CIT(A) has referred in the impugned order the refund of assessment year 2013-14 of Rs. 1,70,33,975/- was determined by the AO vide orde dated 10.01.2023 and sent proposal to CPC to adjust the refund against the demand of year under consideration. However, the said refund was not found to be reflected on the CPC portal. The Ld. A.R. Of the assessee has fairly submitted that the appeal for A.Y. 2011-12 may be considered by CIT(A) after verification of the said refund from the portal of the CPC. Accordingly in the facts and circumstances of the case and in the interest of justice, we set aside the impugned orders of ld. CIT(A) and the appeals for A.Y. 2009-10 and 2011-12 are remanded to the record of the Ld. CIT (A) for adjudication on merits after giving an appropriate opportunity of hearing to the assessee.

9. In the result, appeal of assessee are allowed for statistical purpose. The ITAT set aside the order of Assessing officer as well as CIT(A) and allowed the appeal filed by the respondent (Assessee).

Being aggrieved, the appellant/revenue is before this Court in the present appeal.”

7. Learned counsel for the appellant contended that the learned ITAT has erred in allowing the appeal filed by the respondent assessee relying on the judgment passed by the Apex Court in the case of Vijay Prakash D. Mehta Vs. Collector of Customs reported in (1989) 175 ITR 540(SC) dealing with the similar provisions under the Customs Act in which it has been held that 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 and another judgment of the Karnataka High Court in the case of CIT Vs. K Satish Kumar Singh reported in 2012 209 Taxman 502(Karn.) wherein a view has been taken that if admitted tax on returned income is paid, then the appeal has to be admitted for adjudication by the CIT(A) to hear and decide the same on merits. The ITAT also relied upon various decisions of different Benches and concluded that non-payment of tax due on return income is only defect, but not void, thus if the tax is paid on the income returned, either before or at the time of or after filing of return, it will be sufficient compliance to provisions of sub-section 4 of Section 249 of the Act.

8. Heard, learned counsel for the appellant and perused the record.

9. In the present appeal, the single ground has been raised by the appellant that in terms of Section 249(4)(a) of the Act, does not provide that appeal may be entertained after depositing the admitted tax. In other words, it is submitted by the appellant/revenue in the appeal that appeal could not be entertained in terms of Section 249(4)(a) of the Act, if the admitted tax was deposited after filing of an appeal.

10. From perusal of the order of ITAT, it is clear that the order has not been passed on merits and it has interpreted Section 249(4)(a) of the Act which deals with the issue of entertaining an appeal in the case where amount is deposited, though it may be prior to filing an appeal or after appeal.

11. Since there is no merit in the appeal, the ITAT has remanded the matter back to the CIT (A) for adjudication on merits based on the law laid down in the case of Vijay Prakash D. Mehta and CIT Vs. K Satish Kumar Singh(supra) and, therefore, the same cannot be said to be erroneous and prejudicial to the interest of revenue.

12. For the aforesaid reasons, we have no hesitation to hold that no question of law, much less any substantial question of law arises from the order of the ITAT requiring consideration by this Court.

13. In view of the aforesaid discussion, we do not find any merit in this appeal, which in our opinion deserve to be and is hereby dismissed in limine.