2014 (1) TMI 762 - HC - Income Tax

Applicability of section 249(4)(a) - Held that - As per section 249(4) - Where an Assessee has filed a return of income then the tax which is admittedly payable by the Assessee should be paid prior to the hearing of any appeal filed by the Assessee - The rationale seems very logical for the reason that no Assessee can be heard in an appeal where the tax which is admittedly payable by the Assessee is outstanding. It is to enforce payment of tax on admitted income - Where an Assessee files the return of income then at least the tax which is payable in terms of the return income should be paid by the Assessee - But where the Assessee either has paid the tax on the returned income or sought adjustment of the amount admittedly lying with the revenue towards the tax payable on the returned income the Assessee cannot be denied a hearing. The amount of Rs.4, 60, 000/- belonging to the Assessee which was seized by the Revenue authorities was admittedly available with the appellant was far in excess of the amount of tax payable in terms of the returned income and was even in excess of the demand created under Section 143(1)(a) - The Assessee could not have been denied a hearing merely on the ground of nonpayment of tax due on the returned income - Decided against Revenue.

Summary

Issues:
Interpretation of Section 249(4)(a) of the Income Tax Act, 1961 regarding payment of tax due on the income returned by the assessee before filing an appeal.

Analysis:
The appeal before the High Court arose from an order passed by the Income Tax Appellate Tribunal (ITAT) setting aside the order of the Commissioner Income Tax (Appeals) dismissing the appeal of the assessee for not paying the tax due on the income returned before filing the appeal. The Tribunal found that the assessee had not committed any default under Section 249(4)(a) of the Act and directed the matter to be reconsidered on merits by the CIT (Appeals).

The facts of the case revolved around the assessment year 1996-97, where a search and seizure operation resulted in the recovery of cash from the assessee. The assessee filed a return of income declaring an amount and claimed that the seized cash should be treated as paid towards the tax due. However, the Assessing Officer did not credit this amount in the intimation issued under Section 143(1)(a). Subsequently, the assessee requested adjustment of the seized amount against the demand created but no action was taken by the authorities.

The ITAT held that the assessee's request for adjustment was valid as the cash seized was available with the department and the assessee had no liquid funds due to attachment of bank accounts. The tribunal found the assessee's intentions genuine and held that no default was committed under Section 249(4)(a), leading to the restoration of the appeal to the CIT (Appeals).

The High Court analyzed Section 249(4)(a) which mandates the payment of tax due on the returned income before filing an appeal. Referring to precedent, the court emphasized that if the tax is paid before the appeal is taken up for hearing, it satisfies the requirements of the provision. In this case, the court found that the assessee had paid the tax due on the returned income through the seized amount, and the failure of the authorities to act on the adjustment request was unjustified.

The court concluded that the assessee had complied with the requirements of Section 249(4)(a) as the tax due on the returned income was effectively paid through the seized amount. The appeal by the Revenue was dismissed, affirming the decision of the ITAT and emphasizing the logical rationale behind the provision to ensure payment of tax on admitted income before appeal hearings.

In summary, the High Court upheld the decision of the ITAT, ruling in favor of the assessee and against the Revenue, highlighting the importance of complying with tax payment requirements before pursuing appeals under the Income Tax Act.