2023 (2) TMI 809 - HC - Income Tax

Declaration under the Direct Tax Vivad Se Vishwas Act, 2020 - Taxation of LTCG @ 30% or 20% - correct tax liability determined earlier while issuing Form 3 - CIT-A revising the petitioner s declaration by issuing a revised Form 3 seeking additional demand - Rectification of mistake u/s 154 - Rectification application was allowed holding that there was an error in treating the income as taxable business income instead of taxable long term capital gains - HELD THAT - The order having been passed on the application for rectification under section 154 assuming that the same was erroneous, as alleged, cannot simply be brushed aside. It would have been open to the authorities to take remedial measures to question the legality and correctness of the order. In so far as the claim under the Act of 2021 is concerned, a clarification issued by the Central Board of Direct Taxes clearly envisages that if there is a reduction or increase in the income and tax liability of the assessee as a result of rectification, the disputed tax in such cases would be calculated after giving effect to the rectification order passed, if any. Reference in this regard can be made to the clarification issued by the Central Board of Direct Taxes ( CBDT ) vide circular No.9 of 2020 dated 22 April 2020 and in particular Question No.25 thereof, it becomes clear that the respondents ought to have taken into consideration the aforementioned Circular, as also considered the rectification order passed, which the respondents clearly missed to do in the present case. In our opinion, issuance of revised Form 3 is clearly not sustainable. Be that as it may, we allow this petition. The orders impugned dated 20th September 2021 and 29th October 2021 are set aside. The respondents are directed to act in furtherance of the petitioner s declaration by way of Form-3.

Summary

Issues:
Challenging orders revising petitioner's declaration for assessment year 2014-15, Rectification application allowed, Revised Form 3 issued, Dispute over tax liability, Issuance of revised Form 3 challenged.

Analysis:
The petitioner challenged orders revising the declaration for the assessment year 2014-15, passed by the Principal Commissioner of Income Tax-3, Pune. Initially, the petitioner declared a total income of Rs.64,47,850/- for the year, and after scrutiny, an additional amount of Rs.98,75,513/- was added to the income. A rectification application was filed by the petitioner seeking correction of the tax computation, which was allowed, resulting in a reduced tax and interest payable amount. Subsequently, the petitioner applied under the Direct Tax Vivad Se Vishwas Act, 2020, and Forms 1 and 2 were accepted, leading to the issuance of Form 3 reflecting a balance amount payable by the petitioner. The petitioner claimed to have deposited the balance amount and submitted the necessary forms to the authorities.

The dispute arose when the respondents issued a revised Form 3, treating a portion of the income as taxable at 30%, contrary to the rectification order that deemed it taxable as long-term capital gain at 20%. The petitioner objected to this revision, which was rejected by the respondents, justifying the revised Form 3 based on the assessment proceedings and denial of the claim for exemption of Long Term Capital Gain. The respondents relied on the definition of 'Disputed Tax' under the Act, arguing that the revised Form 3 reflected the correct tax liability based on the Act of 2020 provisions.

The petitioner contended that the rectification application was filed post the rectification order, and the liability was correctly determined earlier, while the respondents argued that the rectification order was erroneous and the income should be taxed as unaccounted income under section 115BBE of the Act. The Court considered the rectification order passed under section 154 of the Income Tax Act, which rectified the mistake in the tax computation, and emphasized that the authorities should have taken into account the rectification order and relevant circulars issued by the CBDT.

The Court found the issuance of the revised Form 3 unsustainable, setting aside the impugned orders and directing the respondents to act in accordance with the petitioner's original declaration by Form-3 for the relevant assessment year 2014-15, as per the Act of 2020 clarification.