2002 (1) TMI 252 - AT - Income Tax

Summary

Issues Involved:
1. Dismissal of the appeal under section 249(4) of the Income-tax Act due to non-payment of tax on returned income.
2. Compliance with section 249(3) read with section 249(4) and the possibility of condoning the delay in filing the appeal.
3. Consideration of reasonable cause for non-payment of tax due to financial stringency and pending refunds.
4. Adjustment of seized assets and refunds against the tax demand.

Detailed Analysis:

Issue 1: Dismissal of the Appeal under Section 249(4)
The primary issue in this case revolves around the dismissal of the assessee's appeal by the CIT(A) under section 249(4) of the Income-tax Act, 1961, on the grounds that the tax due on the returned income was not deposited at the time of filing the appeal. The CIT(A) dismissed the appeal in limine, meaning it was rejected at the preliminary stage without a detailed examination of the merits.

Issue 2: Compliance with Section 249(3) and Condonation of Delay
The assessee argued that they had complied with the provisions of section 249(3) read with section 249(4) by paying the due tax before the final hearing of the appeal by the CIT(A). The assessee contended that the delay in filing the appeal should be condoned, citing the Supreme Court decision in CIT v. Filmistan Ltd., which allows for the condonation of delay if the tax is paid before the appeal is heard.

Issue 3: Reasonable Cause for Non-Payment of Tax
The assessee claimed that they were prevented by a reasonable cause from making the payment of income tax due on the returned income. The assessee highlighted that substantial refunds were due from the department and that these refunds were not adjusted against the tax demand despite repeated requests. The financial stringency faced by the assessee due to the seizure of substantial assets and withholding of refunds was also emphasized.

Issue 4: Adjustment of Seized Assets and Refunds
The assessee argued that the seized assets and refunds should have been adjusted against the tax demand. The assessee pointed out that a significant amount of money was seized and was lying with the department, which could have been adjusted against the tax due. The assessee cited the decision of the Delhi Bench 'E' of the ITAT in the case of Gopal Chand Khandelwal v. Addl. CIT, where it was held that the tax should be considered paid if the assessee had requested the adjustment of seized cash against the tax liability.

Tribunal's Findings:

On Dismissal of the Appeal:
The Tribunal noted that the CIT(A) dismissed the appeal without considering that the due taxes were paid before the final hearing. The Tribunal emphasized that the assessee had made repeated requests for adjusting the seized assets and refunds against the tax demand, which were ignored by the department.

On Compliance and Condonation:
The Tribunal observed that the assessee had paid the entire due tax before the disposal of the appeal by the CIT(A). The Tribunal relied on the Supreme Court's decision in Filmistan Ltd., which held that an appeal is deemed to have been filed on the date when the tax is paid, and the delay can be condoned if there is sufficient cause.

On Reasonable Cause:
The Tribunal accepted the assessee's contention that there was a reasonable cause for the delay in payment of tax due to financial stringency and the withholding of substantial refunds by the department. The Tribunal noted that the department was holding substantial amounts in the form of seized assets and refunds, which should have been adjusted against the tax demand.

On Adjustment of Seized Assets:
The Tribunal referred to the provisions of section 158BC(d) read with section 132B of the Income-tax Act, which mandate the adjustment of seized assets and refunds against the tax liability. The Tribunal cited the decision of the Madras High Court in K.T. Kunjumon, which held that the department is obligated to adjust the tax liability against the seized assets first before considering other liabilities.

Conclusion:
The Tribunal set aside the order of the CIT(A) and directed the CIT(A) to decide the issues raised by the assessee on merits. The Tribunal condoned the delay in filing the appeal, acknowledging the reasonable cause and the department's inaction in adjusting the seized assets and refunds. The appeal was allowed for statistical purposes, and the matter was remanded back to the CIT(A) for a fresh decision on merits.