2021 (5) TMI 47 - HC - Income Tax

Liability under Vivad se Vishwas Act - valid search case or not? - adopting a rate of 125% of disputed tax applicable to search case in accordance with section 3 of the DTVSV Act - HELD THAT - As far as sections 158BC and 158BD are concerned, we note from Section 158BI that Chapter XIV-B which contains sections 153BC and 153BD shall not apply where a search is initiated under Section 132 or books of account, other documents or any assets are requisitioned under Section 132A after the 31st day of May of 2003. The dates of the reports, searches/ surveys, statements of persons with respect to the investigation referred to in the Assessment Order are all post May, 2003. It is not the case of the Revenue that action pursuant to sections 153A or 153C had been initiated in the case of petitioner. These facts are not disputed. Therefore, in our considered view, this criteria no. (ii) necessary for a case to be search case is not satisfied. The statement of Petitioner recorded on 14.12.2017 at the time of assessment under section 131, nowhere suggests any incriminating material or admission of purported manipulation/rigging of scrips of Lifeline Drugs except saying that he had purchased the shares on advice of his brother nor it is elicited that the Petitioner had any knowledge of penny stock company, its financial position or about the activities of the company. In the scenario, the allegation that the assessee in collusion with the parties who had rigged the prices of shares artificially by manipulation and thereby introduced the amount received in the guise of LTCG/STCG is rather conjecturous. Nowhere in the statements recorded, referred to in the assessment order is there any allegation that Petitioner was one of the parties that had booked any artificial gains. There is no allegation that any incriminating material belonging to Petitioner was obtained in the course of the search. The assessment therefore does not appear to be on the basis of search initiated under Section 132, or requisitions made under Section 132A of the Income-tax Act. Having regard to aforesaid, it is difficult to agree with the submissions made on behalf of the counsel for the Revenue that the assessment order is on the basis of search. Since petitioner s case cannot be regarded as a search case, consequently order dated 26th January 2021 in Form No.3, passed by Respondent No.1 being the Designated Authority, would be unsustainable. We accordingly set aside Order dated 26th January 2021 in Form No.3 passed by Respondent no. 1 and direct the Respondent no. 1 to pass a fresh order in Form No.3 determining tax payable by the Petitioner as a non-search case in accordance with the DTVSV Act read with Rule 4 of the DTVSV Rules, as per Circular no. 4/2021 dated 23rd March, 2021 within a period of two weeks from the date of receipt of this order.

Summary

Issues Involved:
1. Whether the petitioner's case should be considered a "search case" under the Direct Tax Vivad Se Vishwas Act, 2020 (DTVSV Act).
2. The applicability and interpretation of Section 3 of the DTVSV Act.
3. The validity of FAQ No. 70 in Circular No. 21/2020 issued by the CBDT.
4. The effect of Circular No. 4/2021 on the interpretation of a "search case."
5. The correctness of the tax determination by the Designated Authority under the DTVSV Act.

Detailed Analysis:

Issue 1: Whether the petitioner's case should be considered a "search case" under the DTVSV Act.
The petitioner argued that the assessment was not based on any search conducted directly on him but was based on information obtained from searches conducted on other entities. The petitioner contended that his case does not fall under the definition of a "search case" as per Section 3(b) of the DTVSV Act, which requires the tax arrears to be determined in any assessment on the basis of a search under Section 132 or Section 132A of the Income-tax Act.

The respondents, however, argued that the assessment order was framed based on information obtained from searches conducted by the Directorate of Income Tax (Investigation) in Kolkata and that the petitioner's case should be considered a "search case" under the DTVSV Act.

Issue 2: The applicability and interpretation of Section 3 of the DTVSV Act.
Section 3 of the DTVSV Act outlines the amount payable by a declarant. Sub-clause (a) applies to cases where the tax arrear is the aggregate amount of disputed tax, interest, and penalty, while sub-clause (b) applies to cases where the tax arrear includes tax, interest, or penalty determined in any assessment on the basis of a search. The petitioner argued that his case falls under sub-clause (a) and not sub-clause (b) since no search was conducted directly on him.

Issue 3: The validity of FAQ No. 70 in Circular No. 21/2020 issued by the CBDT.
FAQ No. 70 clarified that if an assessment order is framed under Section 143(3)/144 based on a search executed in another taxpayer's case, it should be considered a "search case." The petitioner challenged this FAQ, arguing that it is contrary to the provisions of the DTVSV Act and should be ignored.

Issue 4: The effect of Circular No. 4/2021 on the interpretation of a "search case."
Circular No. 4/2021, issued after the petition was filed, clarified that a "search case" means an assessment or reassessment made under Sections 143(3)/144/147/153A/153C/158BC of the Income-tax Act in the case of a person referred to in Section 153A or Section 153C or Section 158BC or Section 158BD on the basis of a search initiated under Section 132, or requisition made under Section 132A of the Income-tax Act. This circular modified FAQ No. 70 to this extent.

Issue 5: The correctness of the tax determination by the Designated Authority under the DTVSV Act.
The Designated Authority had determined the tax payable by the petitioner to be 125% of the disputed tax, treating the case as a "search case." The petitioner argued that this determination was based on an incorrect interpretation of the DTVSV Act and the relevant circulars.

Judgment:
The court concluded that the petitioner's case should not be considered a "search case" under the DTVSV Act. The assessment order was not based on a search conducted directly on the petitioner, and the petitioner was not a person referred to in Sections 153A or 153C of the Income-tax Act. The court found that the Designated Authority's determination of the tax payable by the petitioner as 125% of the disputed tax was unsustainable.

The court set aside the Order dated 26th January 2021 in Form No.3 passed by the Designated Authority and directed the Designated Authority to pass a fresh order in Form No.3, determining the tax payable by the petitioner as a non-search case in accordance with the DTVSV Act and Circular No. 4/2021 within two weeks from the date of receipt of the order. The petition was allowed, and no order as to costs was made.