2004 (12) TMI 620 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Section 249(4) of the Income-tax Act to appeals against penalties under Section 221.
2. Interpretation of statutory provisions regarding the requirement of paying admitted tax liability before filing an appeal.
3. Distinction between assessment proceedings and penalty proceedings under Section 221.

Issue-wise Detailed Analysis:

1. Applicability of Section 249(4) of the Income-tax Act to Appeals Against Penalties Under Section 221:

The core issue in this case is whether the provisions of Section 249(4) of the Income-tax Act, which mandate the payment of admitted tax liability before filing an appeal, extend to appeals against penalties imposed under Section 221 for being an assessee in default for non-payment of self-assessment tax.

The Tribunal examined the factual matrix where the assessee had filed its income-tax return showing a self-assessed tax liability of Rs. 13,68,183 but did not pay this liability at the time of filing. The Assessing Officer subsequently imposed a penalty under Section 221 for non-payment of this admitted tax liability. The Commissioner (Appeals) declined to admit the appeal on the ground that the assessee had not paid the tax due on the income returned, as required under Section 249(4).

2. Interpretation of Statutory Provisions Regarding the Requirement of Paying Admitted Tax Liability Before Filing an Appeal:

The Tribunal considered the interpretation of Section 249(4), which states that no appeal shall be admitted unless the assessee has paid the tax due on the income returned. The Tribunal referred to the Hon'ble Supreme Court's judgment in K.P. Varghese v. ITO, emphasizing that statutory interpretation should not be mechanical but should aim to discover the Legislature's intent and the purpose behind the statute.

The Tribunal also cited the Supreme Court's judgment in CIT v. S. Teja Singh, which highlighted that statutory provisions should be interpreted to make them effective rather than redundant. The Tribunal noted that the penalty proceedings under Section 221 are distinct from assessment proceedings and pertain to a different genus altogether.

3. Distinction Between Assessment Proceedings and Penalty Proceedings Under Section 221:

The Tribunal observed that the normal assessment proceedings continue irrespective of the payment of self-assessment tax, whereas penalty proceedings under Section 221 are initiated for non-payment of such tax. The rationale for requiring the payment of admitted tax liability before admitting an appeal against an assessment order is to ensure that undisputed liabilities are settled before disputing others. However, this rationale does not apply to penalty proceedings under Section 221, which are distinct and separate from assessment proceedings.

The Tribunal reasoned that requiring the payment of self-assessment tax as a precondition for admitting an appeal against a penalty for non-payment of such tax would be absurd and counterproductive. It would deprive the assessee of the right to appeal, especially in cases where the assessee has genuine financial constraints.

Conclusion:

The Tribunal concluded that the provisions of Section 249(4) are relevant only in the context of appeals related to the assessment of income, such as appeals against assessment orders and penalties connected with the assessment of income. Therefore, these provisions do not apply to appeals against penalties under Section 221 for being an assessee in default.

The Tribunal directed the Commissioner (Appeals) to admit the appeal and dispose of it on merits, providing a fair opportunity of hearing to the assessee. As a result, the appeal was allowed for statistical purposes, and the matter was restored to the file of the Commissioner (Appeals) for adjudication on merits.