2006 (4) TMI 114 - HC - Income Tax

During the pendency of appeal before ITAT, in respect of Unexplained Investment, Kar Vivad Samadhan Scheme was introduced assessee made declaration to designated authority & after payment of tax as per the KVSS assessee received a due Certificate from the designated authority - once the valid declaration has been made & as long as the declaration continues to be valid, the Department s appeal shall not survive - appeals pending before the Tribunal are dismissed as having become infructuous

Issues Involved:
1. Maintainability of the Department's appeals despite acceptance of a declaration under the KVS Scheme.
2. Requirement of a separate declaration under the KVS Scheme for appeals filed by the Department.
3. Consistency of the ITAT with its earlier decisions favoring the assessee.

Detailed Analysis:

1. Maintainability of Department's Appeals:
The primary issue was whether the Income-tax Appellate Tribunal (ITAT) was justified in holding that the Department's appeals would survive despite the issuance and acceptance of a declaration by the assessee under the Kar Vivad Samadhan Scheme (KVS Scheme). The appellant-assessee argued that the scheme's purpose, as reflected in the Finance Minister's speech and the provisions of the Finance (No. 2) Act, 1998, was to bring an end to all pending matters against the assessee upon acceptance of the declaration and issuance of the certificate. The court noted that section 90(4) of the Finance (No. 2) Act, 1998, stipulates that appeals or references filed by the parties shall be deemed withdrawn upon the issuance of the certificate. However, the proviso to section 92, which saves the Department's appeal, was found discriminatory and struck down by the Delhi High Court in All India Federation of Tax Practitioners v. Union of India [1999] 236 ITR 1. The court concluded that the Department's appeal would not survive once a valid declaration was made and the certificate issued.

2. Requirement of Separate Declaration for Department's Appeals:
The second issue was whether a separate declaration under the KVS Scheme was required for appeals filed by the Department. The ITAT held that in the absence of such a declaration, the Department's appeal would have to be heard on its merits. The court examined the relevant provisions of the Finance (No. 2) Act, 1998, including sections 87, 88, 89, and 90. It was noted that the scheme provided for the settlement of tax arrears and specified that upon acceptance of the declaration and issuance of the certificate, all pending matters should be deemed withdrawn. The court referred to the Delhi High Court's decision, which invalidated the proviso to section 92, thus supporting the view that the Department's appeal should also be rendered infructuous without the need for a separate declaration.

3. Consistency with Earlier ITAT Decisions:
The third issue was whether the ITAT acted contrary to the law by refusing to follow its earlier decisions that favored the assessee under similar facts. The court observed that the ITAT's deviation from its previous rulings was unjustified. The earlier decisions had taken a view in favor of the assessee, recognizing the finality of the declaration and certificate under the KVS Scheme. The court emphasized the need for consistency in judicial decisions to maintain fairness and predictability in the legal process.

Conclusion:
The court concluded that the Department's appeals were rendered infructuous by the acceptance of the declaration under the KVS Scheme and the issuance of the certificate. The questions formulated were answered in favor of the appellant-assessee, and the appeals pending before the Tribunal were dismissed. The court highlighted that the Department could seek cancellation or amendment of the certificate if any material particulars were found to be false, but as long as the declaration remained valid, the Department's appeal would not survive. The appeals were consequently allowed, and there was no order as to costs.

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