2025 (5) TMI 737 - AT - Income Tax

Non admission of appeal before the CIT(A) - non-payment of advance tax in this case where no return of income has been filed - HELD THAT - It is seen from the documentary evidences and the certificates issued by the School Authorities and the local Tehsildar the assessee s income appears to be below the taxable limit and prima- facie relying on the Registered Valuer Certificate the land sold appears to be agricultural land on which the capital gains will not be attracted. Moreover payment of advance tax u/s 208 and its computation u/s 210 shall be by the assessee of own accord and in the instant appeal the assessee has prima-facie presented a case that the advance tax is not payable as per the section 210 of the Act 1961. All the documentary evidences produced before the Tribunal for the first time by the assessee needs to be verified and can only be accepted after proper enquiry. As such we remand the case back to the files of the ld. CIT(A) for admitting the appeal for adjudication on merits of the case on the grounds contained in Form No. 35 Appeal filed by the assessee is allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(a) Whether the first appellate authority (CIT(A)) was justified in dismissing the appeal on the technical ground of non-payment of advance tax under section 249(4)(b) of the Income Tax Act, 1961, when no return of income was filed by the assessee;

(b) Whether the Assessing Officer (AO) erred in completing the assessment ex-parte without considering the details and clarifications filed by the assessee under Form 35 and the replies submitted during the assessment proceedings;

(c) Whether the sale of the immovable property (land) by the assessee attracts capital gains tax, given the claim that the land sold was agricultural land held as co-owner with family members, and whether such agricultural land is exempt from capital gains tax under the relevant provisions;

(d) Whether the Assessing Officer failed to allow the benefit of indexed cost of acquisition while computing capital gains;

(e) Whether the appeal should be admitted for adjudication on merits despite the procedural non-compliance with advance tax payment requirements;

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Validity of dismissal of appeal for non-payment of advance tax under section 249(4)(b)

Relevant Legal Framework and Precedents: Section 249(4)(b) of the Income Tax Act mandates that where no return of income has been filed, the appeal before the CIT(A) shall not be admitted unless the appellant has paid the amount of advance tax payable under section 208. The proviso to this section allows the CIT(A) to waive this requirement if sufficient cause is shown.

Court's Interpretation and Reasoning: The Tribunal noted that the CIT(A) refused to admit the appeal solely on the ground that the assessee had not paid advance tax, as mandated by section 249(4)(b), since no return was filed. The assessee did not file any application for waiver of this requirement as per the proviso to section 249(4)(b).

Application of Law to Facts: The Tribunal observed that the procedural requirement under section 249(4)(b) was not complied with by the assessee. However, the Tribunal also noted that the assessee had submitted a computation of income indicating that the taxable income was below the maximum marginal rate and thus no advance tax was payable under section 210.

Treatment of Competing Arguments: The Revenue relied on the non-payment of advance tax as a valid ground for dismissal, while the assessee argued that no tax was due and hence no advance tax payment was required.

Conclusion: While the Tribunal acknowledged the procedural non-compliance, it held that the assessee's prima facie case that no advance tax was payable warranted admission of the appeal for adjudication on merits. The Tribunal remanded the matter to the CIT(A) for admission of the appeal and hearing on merits, emphasizing the need for proper application of the proviso to section 249(4)(b).

Issue (b): Validity of ex-parte assessment and ignoring details filed under Form 35

Relevant Legal Framework: Under sections 147 and 144 of the Income Tax Act, the Assessing Officer may reopen assessments and complete them ex-parte if the assessee fails to comply with notices or appear. However, the AO is expected to consider any explanations or documents filed before completing the assessment.

Court's Interpretation and Reasoning: The Tribunal found that the AO completed the assessment ex-parte due to total non-compliance by the assessee, who neither filed a return nor responded to notices. The AO determined total income including capital gains and salary income without considering the explanations filed under Form 35 or clarifications submitted on 13.01.2023.

Key Evidence and Findings: The assessee's failure to respond to notices and non-filing of return justified the AO's ex-parte assessment. However, the Tribunal noted that the assessee later produced documentary evidence supporting the agricultural nature of the land and the computation of income showing income below taxable limits.

Application of Law to Facts: The AO's action was legally permissible due to non-compliance. Nonetheless, the Tribunal emphasized that the appellate authority should consider the evidence and explanations filed during appellate proceedings.

Treatment of Competing Arguments: The Revenue justified the ex-parte assessment due to non-compliance, while the assessee highlighted the subsequent filing of clarifications and documentary evidence.

Conclusion: The Tribunal did not disturb the ex-parte assessment but directed the appellate authority to admit the appeal and adjudicate on merits considering the newly filed evidence.

Issue (c): Whether sale of agricultural land attracts capital gains tax

Relevant Legal Framework: Capital gains tax under the Income Tax Act applies to transfer of capital assets. Agricultural land in rural areas is generally exempt from capital gains tax under certain conditions. The definition of agricultural land and its exemption depends on the location and nature of land held.

Court's Interpretation and Reasoning: The assessee claimed that the land sold was agricultural land held as co-owner with family members, supported by certificates from the Tehsildar and Patwari under the Land Revenue Act, and a registered valuer's report certifying the land as agricultural and providing valuation as of 01.04.2001.

Key Evidence and Findings: The Tribunal accepted the prima facie validity of the certificates from local revenue authorities and the registered valuer's report, indicating the land's agricultural character.

Application of Law to Facts: If the land qualifies as agricultural land exempt from capital gains tax, the income computed by the AO on capital gains would be erroneous. The Tribunal noted that this issue requires verification and proper enquiry before final adjudication.

Treatment of Competing Arguments: The Revenue contended that no documentary evidence was filed before the AO or CIT(A) to substantiate the agricultural nature, while the assessee submitted detailed documentary evidence before the Tribunal.

Conclusion: The Tribunal held that the question of whether the land is agricultural and exempt from capital gains tax is a substantive issue requiring adjudication on merits after verification of evidence, and remanded the matter accordingly.

Issue (d): Non-allowance of indexed cost of acquisition in capital gains computation

Relevant Legal Framework: Section 48 of the Income Tax Act provides for computation of capital gains, allowing adjustment of cost of acquisition by applying the Cost Inflation Index (CII) to arrive at indexed cost, thereby reducing taxable capital gains.

Court's Interpretation and Reasoning: The assessee argued that the AO did not allow the benefit of indexation while computing capital gains, which would have eliminated taxable gains.

Key Evidence and Findings: The registered valuer's certificate indicated the market value of the land as on 01.04.2001, which is relevant for computing indexed cost. The Tribunal noted this evidence but did not express any opinion on merits.

Application of Law to Facts: The issue of indexation benefit is a factual and legal question to be examined by the CIT(A) upon admission of the appeal.

Conclusion: The Tribunal remanded the issue for adjudication on merits, directing the CIT(A) to consider the claim of indexation benefit along with other evidence.

Issue (e): Admission of appeal for adjudication on merits despite procedural non-compliance

Relevant Legal Framework: The appellate authority has discretion to admit appeals despite procedural non-compliance if sufficient cause is shown, particularly under the proviso to section 249(4)(b).

Court's Interpretation and Reasoning: The Tribunal emphasized that the assessee had not filed an application for waiver of advance tax payment requirement but had submitted prima facie evidence that no advance tax was payable.

Application of Law to Facts: The Tribunal held that the appeal should not be dismissed on a technical ground without hearing the substantive issues, especially when the assessee's income appears below taxable limits and the land sold appears to be agricultural land exempt from capital gains tax.

Treatment of Competing Arguments: The Revenue urged dismissal for non-compliance, but the Tribunal prioritized substantive justice and directed admission of appeal.

Conclusion: The Tribunal allowed the appeal for statistical purposes and remanded the matter to the CIT(A) for admission and adjudication on merits with opportunity to the assessee to produce evidence and be heard.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"In the instant case, no return of income has been filed in response to notice u/s 148 and no taxes have also been paid and as such in appellate proceedings before the first appellate authority, it was incumbent on the part of the assessee to file an application for waiver as per the proviso to section 249(4)(b) stating sufficient reasons so that the assessee can be exempted from the operation of the provisions of Clause (b), which has not been done in the present case. However, it is seen from the documentary evidences and the certificates issued by the School Authorities and the local Tehsildar, the assessee's income appears to be below the taxable limit and prima-facie relying on the Registered Valuer Certificate, the land sold appears to be agricultural land on which the capital gains will not be attracted."

"All documentary evidences produced before the Tribunal for the first time by the assessee needs to be verified and can only be accepted after proper enquiry. As such we remand the case back to the files of the ld. CIT(A) for admitting the appeal for adjudication on merits of the case on the grounds contained in Form No. 35."

Core principles established include:

- Procedural non-compliance such as non-payment of advance tax under section 249(4)(b) should not lead to dismissal of appeal without considering whether the advance tax is actually payable or whether sufficient cause exists for waiver.

- Ex-parte assessments due to non-compliance by the assessee are valid but appellate authorities must consider substantive evidence and explanations filed during appellate proceedings.

- The classification of land as agricultural or capital asset is a factual determination requiring verification of documentary evidence such as certificates from revenue authorities and valuation reports.

- Benefit of indexation in capital gains computation is a substantive issue to be adjudicated on merits.

- Appeals must be admitted for hearing on merits where prima facie evidence suggests that substantive issues require examination, and the assessee must be given proper opportunity to present evidence and be heard.

Final determinations:

The appeal was allowed for statistical purposes, and the matter remanded to the CIT(A) with directions to admit the appeal, verify documentary evidence, and adjudicate on merits after providing the assessee full opportunity of hearing.