Appeal filed without paying tax due on returned income is defective but not void : Mumbai ITAT
Bhumiraj Constructions Vs. ACIT (2011) 135 TTJ 0357
- In the instant case, aggrieved by the additions made in the order of assessment, the appellant assessee had filed an appeal before the CIT(Appeals).
- CIT(Appeals) noticed that the assessee had not paid taxes on the returned income and therefore he was of the view that in terms of the provisions of section 249(4)(a) of the Income Tax Act, 1961 ( the Act ), the appeal was not maintainable and accordingly he dismissed the appeal in limine unadmitted.
- Aggrieved by the aforesaid order of CIT(Appeals), the assessee was before the Tribunal.
- Before the Tribunal, the assessee filed challans evidencing the payment of taxes on the income declared in the return of income.
- The assessee submitted that since the taxes due on the returned income were paid, the appeal should be admitted for adjudication. On the other hand, the Revenue submitted that the payment of taxes first needed to be verified.
- The Tribunal observed that the Coordinate Tribunal had an occasion to deal with a case where an appeal by the assessee was dismissed for non-payment of tax due on the income declared in the return of income. The Tribunal firstly observed that there is a 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-fulfillment of the requirement, then usually it is a directory provision. 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.
- The Tribunal thereafter observed that 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 Tribunal had opined that the prerequisite 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 upto 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.
- The Tribunal had examined the objective behind section 249(4) and observed that the same 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.
- The Tribunal ultimately held that if tax due on income returned is paid even after disposal of the appeal by the CIT(A), if such payment is made the defect in the appeal due to noncompliance of a directory requirement of paying such tax before the filing of the appeal, stood removed. Ex consequenti the appeal should have been revived by the first appellate authority.
- Accordingly, the Tribunal set aside the order of CIT(Appeals) and directed him to decide the appeal on merits, subject to verification of payment of taxes due on the returned income.
- M.L. Srinivasa Setty & Sons vs. State of Karnataka (1991) 99 CTR (Kar) 77 : (1992) 193 ITR 548 (Kar)
- CIT vs. Trehan Enterprises (2001) 168 CTR (J&K) 274 : (2001) 248 ITR 333 (J&K)