2021 (7) TMI 171 - HC - Income Tax

Eligibility under the DTVSV Scheme - appeals against the orders passed u/s 143(1)(a)(i) or (ii) as a separate category from the appeals from Clauses (iii) to (vi) of 143(1)(a) - HELD THAT - All the adjustments referred to under sub-clauses (i) to (vi) of clause (a) of Section 143(1) are indication of forming one category and as such are grouped under sub-clause (a) of Section 141(1). Classifying the adjustments in (iii) to (vi) of Clause(a) of Section 143(1) to be eligible under the DTVSV Scheme and excluding the adjustments referred to in (i) and (ii) under the circular No. 21 of 2020 without substantiating the same with any rationale or plausible basis or material therefore, would be arbitrary, unreasonable and discriminatory. The same would be in breach of Article 14 of Constitution of India and be liable to be set aside as such. Such a classification sought to be made would not be fitting into the requirements of intelligible differentia having nexus to the object to be achieved. Despite a query from the Court as to the purpose of this classification, there was no answer forthcoming from the Revenue. There does not appear to be any object to be achieved by such an unreasonable and arbitrary classification leading to discrimination among tax payers whose cases are falling in Clauses (i) or (ii) on one hand and those whose cases fall under Clauses (iii) to (vi) of Section 143(1)(a) of the IT Act. On which basis circular purports to exclude appeals arising from the orders passed u/s 143(1)(a)(i) or (ii). Neither there is reference to any basis for the same in the circular nor there is any provided in the affidavit-in-reply. Having regard to the provisions of the enactments and the rules thereunder, in the absence of any material, we are not in a position to appreciate that there is exclusion of appeals arising from orders passed under section 143(1) (a)(i) or (ii) of the IT Act. It is not the case that there is any particular object sought to be achieved by such exclusion of the appeals arising from the orders passed under section143(1)(a)(i) or (ii). When the circulars are issued exercising powers under sections 10 and 11 of DTVSV Act, directions are supposed to aid and smoothen bringing into operation provisions and execution of the actions based thereon. The directions, circulars would not be issued under such provisions digressing or deviating from the object and purpose under the scheme of the enactment. The situation thus emerges that answer to question No. 71 in the circular No. 21 of 2020 tends overreach the purpose and intendment underlying the provisions of the Act and the Rules and purports to exclude an otherwise eligible assessee on a ground and reason neither contained in nor reflected from the scheme. The circular is manifestly divorced from the object and purpose of DTVSV scheme. The answer to question no.71 purporting to exclude appeals against the orders under section 143(1)(a)(i) or (ii) is unsustainable and unacceptable. In the circumstances, emerging exclusion from the answer to question No. 71 of the circular No. 21 of 2020 dated 04.12.2020 is untenable and deserves to be set aside. We, therefore, set aside Answer to Question No. 71 of Circular No. 21 of 2020 dated 04.12.2020

Summary

Issues Involved:
1. Rejection of Petitioner’s declaration under the Direct Tax Vivad Se Vishwas Act, 2020 (DTVSV Act).
2. Legality of CBDT Circular No. 21/2020, particularly Question No. 71.

Detailed Analysis:

1. Rejection of Petitioner’s Declaration under DTVSV Act:
The petitioner, a registered charitable trust, filed its income tax return for the financial year 2009-10, disclosing 'Nil' income. However, an intimation under section 143(1) of the Income Tax Act, 1961, was received, determining an income of ?69,36,357/- and a total tax liability of ?31,83,240/-. The petitioner filed an appeal with the Commissioner of Income Tax (Appeals) (CIT-A), which was dismissed on the ground of belated filing. Subsequently, the petitioner applied under the DTVSV Act, submitting Form No. 1, but the declaration was rejected based on CBDT Circular No. 21/2020, Question No. 71, which stated that appeals against intimation under section 143(1) are eligible only if adjustments are made under sub-clauses (iii) to (vi) of clause (a) of section 143(1). The petitioner contended that this rejection digressed from the intention and purpose of the DTVSV Act, which does not distinguish between adjustments under different sub-clauses of section 143(1).

2. Legality of CBDT Circular No. 21/2020, Question No. 71:
The court examined the provisions of the DTVSV Act and the relevant sections of the Income Tax Act. It noted that the DTVSV Act aims to resolve disputed tax matters and does not classify appeals based on the sub-clauses of section 143(1). The court found that the circular’s exclusion of appeals under sub-clauses (i) and (ii) of section 143(1) was arbitrary, unreasonable, and discriminatory, lacking any rationale or material basis. The court referenced previous judgments indicating that circulars should not contradict or nullify statutory provisions and should not be adverse to the assessee. The court concluded that the answer to Question No. 71 in the circular overreached the purpose of the DTVSV Act and was divorced from its object and purpose.

Conclusion:
The court set aside the answer to Question No. 71 of Circular No. 21/2020 and allowed the petition, directing the respondents to accept the petitioner’s application under the DTVSV Act. The court emphasized that the circular’s classification was unsustainable and violated Article 14 of the Constitution of India. The petition was allowed in terms of the prayer clauses, and the rule was made absolute with no order as to costs.