1999 (4) TMI 57 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the order passed by the Assessing Officer u/s 154 on February 26, 1999.
2. Whether the declaration under the Kar Vivad Samadhan Scheme (KVSS) became infructuous due to the order u/s 154.
3. The implications of the KVSS on the tax arrears and pending disputes.

Summary:
1. Validity of the Order u/s 154:
The petitioner, a company, filed its return of income for the assessment year 1996-97. The Assessing Officer made prima facie adjustments u/s 143(1)(a), increasing the tax liability. The petitioner disputed this adjustment and filed an appeal and a rectification application u/s 154. The rectification partially reduced the tax liability. Subsequently, the petitioner filed a revision u/s 264, which was pending.

The court found that the order u/s 154 dated February 26, 1999, was made without giving the petitioner an opportunity to be heard, violating natural justice principles and sub-section (3) of section 154. The court also noted that the order was made with malice in law, intending to infructuate the petitioner's declaration under the KVSS.

2. Declaration Under KVSS:
The petitioner filed a declaration under the KVSS on December 31, 1998. The designated authority dismissed the declaration as infructuous, citing the order u/s 154, which deleted the adjustments made u/s 143(1)(a). The court held that the order u/s 154 was tainted with an ulterior motive and was not exercised for its intended purpose, thus vitiating the order.

3. Implications of KVSS:
The court emphasized that the KVSS aims to settle disputes and recover tax arrears. The scheme operates as long as there are tax arrears to be recovered, even if the tax liability is modified during the interregnum period. The court agreed with the Delhi High Court's view that the scheme should not be defeated by reducing the liability to nil before the determination date and then resurrecting it later.

The court concluded that the declaration under the KVSS should not be rendered infructuous due to the order u/s 154. The designated authority must consider the declaration afresh, and the tax arrears should be determined based on the existing state of affairs at the time of the declaration.

Conclusion:
The court set aside the order u/s 154 dated February 26, 1999, and the designated authority's order rejecting the declaration under the KVSS. The designated authority was directed to reconsider the declaration in accordance with the law.