2022 (2) TMI 943 - HC - Income Tax

Benefit of Vivad se Vishwas Schem e - declaration of the petitioner was rejected on the ground that the CBDT circular dated 04.12.2020 does not cover his case - assessee is not eligible to avail benefit under VSVS as there was no appeal pending as on 31.01.2020 - Condonation of delay - HELD THAT - What hurts the petitioner is the portion of the clarification contained in the CBDT circular which provides that the application for condonation of delay must have been filed before the date of issuance of circular. The petitioner fulfills all other conditions namely the time for filing appeal has expired during the period from 1st April 2019 to 31st Jan 2020, that he had filed an application for condonation of delay which was pending. He had also filed an appeal before the date of filing of the declaration. We are informed that there is no stage of formal admission of the appeal or condonation application before the tribunal and therefore the reference to this term of admission of appeal in the circular is superfluous. In this context the question arises whether the specification of the filing of the application for condonation before the date of circular is sacrosanct as to destroy the right of assessee to apply for settlement if even though all other conditions are specified. This question has been examined by several High Courts. See case of the Telangana High Court in case of Boddu Ramesh v. Designated Authority 2021 (6) TMI 1054 - TELANGANA HIGH COURT and MAHESHBHAI SHANTILAL PATEL 2021 (9) TMI 1237 - GUJARAT HIGH COURT Independently also we are of the view that the stand taken by the department is not sustainable. To begin with the act was framed for resolution of the disputed taxes and the matters connected therewith and thereto. The resolution of disputed taxes is thus prime purpose of enactment of the act. We would therefore adopt an interpretation which would further this intention instead of restricting its scope. More importantly what the CBDT had done under its circular dated 04.12.2020 was to issue a clarification. A clarification by its very nature is declaratory. If for applicability of such clarification a cut off date is introduced it would run counter to the very concept of a clarification. If the CBDT circular is not read-down as to remove the rigors of the cut off date by holding that the same is not sacrosanct the same may suffer from vice of arbitrariness. We are informed that the scheme for settlement was extended from time to time and finally the last extension ended on 31.03.2021. The interpretation that we have adopted therefore does not make a right of a person to seek settlement open ended. It has a terminal point of 31.03.2021 in any case. In the result the petitions are allowed. Impugned orders dated 22.03.2021 are set aside. The declarations of the petitioners shall be accepted. The same would be thereafter dealt with as provided under the Act.

Summary

Issues Involved:
1. Penalty under Section 271B of the Income Tax Act, 1961.
2. Eligibility for Vivad se Vishwas Scheme (VSVS), 2020.
3. Interpretation of the CBDT circular dated 04.12.2020.

Detailed Analysis:

1. Penalty under Section 271B of the Income Tax Act, 1961:
The petitioner, engaged in the business of manufacturing and trading of textile articles and share and derivative trading, filed a return of income for the assessment year 2014-15. The revenue authorities noted that the petitioner’s speculative and non-speculative transactions were not separately calculated, and the turnover exceeded the threshold for compulsory audit under Section 44AB of the Act. Consequently, the petitioner was penalized under Section 271B for not filing the audit report, resulting in a penalty of ?1,50,000/-. The petitioner’s appeal against this penalty was dismissed by the CIT (Appeals) and subsequently, an appeal was filed before the Income Tax Appellate Tribunal (ITAT), which condoned the delay.

2. Eligibility for Vivad se Vishwas Scheme (VSVS), 2020:
The petitioner sought to benefit from the VSVS, 2020, designed for settling pending direct tax disputes. The petitioner filed a declaration under the scheme, which was rejected on the grounds that no appeal was pending as of the specified date (31.01.2020) and the appeal before the ITAT was filed after the issuance of the CBDT circular dated 04.12.2020. The rejection cited the absence of a pending appeal as per the scheme’s requirements.

3. Interpretation of the CBDT Circular dated 04.12.2020:
The central issue revolved around the interpretation of the CBDT circular, particularly the clarification issued in response to question No.59. The circular stated that if the time limit for filing an appeal expired between 1st April 2019 and 31st January 2020, and an application for condonation of delay was filed before the issuance of the circular, and the appeal was admitted before the declaration filing date, such an appeal would be deemed pending as of 31st January 2020. The petitioner met all conditions except for filing the condonation application before the circular’s issuance.

Judicial Interpretation and Conclusion:
The High Court examined whether the requirement of filing the condonation application before the circular’s issuance was essential. The court referred to judgments from the Telangana and Gujarat High Courts, which held that such a restrictive interpretation would contradict the scheme's purpose. The Telangana High Court in Boddu Ramesh v. Designated Authority emphasized that the pendency of an appeal with a condonation application should be considered, irrespective of the circular’s issuance date. Similarly, the Gujarat High Court in Maheshbhai Shantilal Patel v. PCIT ruled that once the delay is condoned, the appeal should be deemed pending from the original filing date.

The High Court concurred with these interpretations, stating that the scheme aimed to resolve disputed taxes and should be interpreted to further this intention. The court held that the CBDT circular’s cut-off date for filing the condonation application was not sacrosanct and should be read down to avoid arbitrariness. Consequently, the petitioner’s declarations under the VSVS were to be accepted, and the designated authority was instructed not to dismiss the declarations based on the incorrect mention of the appellate forum.

Final Judgment:
The petitions were allowed, and the impugned orders dated 22.03.2021 were set aside. The declarations filed by the petitioner under the VSVS were to be accepted and processed as per the Act, with necessary corrections if required.