2024 (9) TMI 1133 - HC - Income Tax

Rectification of the Form 3 issued under the Direct Tax Vivad Se Vishwas Act, 2020 VSV Act - a set off/carry forward of losses and unabsorbed depreciation had not been claimed in Schedule D of the application which had been made by the petitioner for settlement under the VSV Act - part of the assessment cannot be viewed or construed to be disputed - HELD THAT - The respondents have not only taken an extremely narrow and pedantic view while refusing to accord relief to the petitioner, their action goes against the fundamental grain of the legislation itself. The VSV Act enables an assessee to seek resolution of disputes pending at various stages of the appellate and review tiers created under the Act on the prescribed date. Those proceedings would undoubtedly be concerned with challenges which an assessee may have instituted to an original order of assessment and would be logically confined to parts which would have been adverse to it. Those appeals and challenges would necessarily be in respect of either adverse findings or decisions made by the AO and which would have constrained the asssessee to adopt remedial measures. This is further fortified by the manner in which the VSV Act defines and introduces the concept of a disputed tax liability and tax arrears. The statute is fundamentally aimed at settling matters and issues on which the assessee and the Revenue may have been litigating on the relevant date as opposed to those on which parties may have been ad idem and which may have never formed part of the ongoing litigation. It was the existing dispute which was sought to be laid to rest under the VSV Act. The statute was never envisaged to be concerned with issues on which there existed no debate or disagreement on the relevant date. Petitioner, thus appears to be correct in her submission that the VSV Act cannot foist a liability upon a declarant which exceeds that which formed the subject matter of contestation on the relevant date. The provisions of the VSV Act cannot be accorded an interpretation which may lead to an applicant being saddled with a liability far greater than what was determined in the course of assessment and which stood impugned in appeal or revision. In our considered opinion, it would be wholly unjust to construe the provisions of the VSV Act as contemplating the settlement amount exceeding the tax liability as computed in assessment or denying the declarant relief which already stood extended. This since the order of assessment to that extent would not even have formed subject matter of disputation. The definition of disputed tax liability and tax arrears clearly lends credence to the submission that the settlement would have to necessarily be confined to that part of the assessment which was adverse to the assessee and which may have formed subject matter of ongoing proceedings. Once the AO itself had accorded the facility of carry forward and set off of unabsorbed depreciation and business losses, the same could not have been denied to the declarant. The failure of the writ petitioner to make the requisite disclosures in Schedule D would neither detract from the relief which had been accorded by the AO nor change the factum of carry forward and set off as forming part of the assessment order. The grant of that facility appears to have been noticed by the Designated Authority and it was perhaps this aspect which convinced it to record that it would be open to the petitioner to seek relief in that respect accordance with law. Designated Authority clearly appears to have lost sight of the fact that unless Form 3 were duly amended and rectified, the spectre of finality which stands statutorily conferred on that determination would have deprived the petitioner of asserting any claim in respect of carry forward and set off. Once it was conceded that those reliefs stood granted in the original order of assessment itself, the Designated Authority would have been justified in rectifying the mistake which was apparent from the record. We, accordingly, allow the writ petition and quash the impugned order.

Summary

Issues Involved:
1. Jurisdiction under Article 226 of the Constitution.
2. Rectification of Form 3 under the Direct Tax Vivad Se Vishwas Act, 2020 (VSV Act).
3. Set off and carry forward of losses and unabsorbed depreciation.
4. Finality and conclusivity of determinations under Section 5 of the VSV Act.
5. Interpretation of the VSV Act as a beneficial/remedial statute.

Issue-wise Detailed Analysis:

1. Jurisdiction under Article 226 of the Constitution:
The writ petitioner approached the Court under Article 226 challenging the order dated 30 September 2021, which negated their request for rectification of Form 3 issued under the VSV Act. The Court's jurisdiction was invoked to address whether there was an apparent mistake warranting rectification.

2. Rectification of Form 3 under the Direct Tax Vivad Se Vishwas Act, 2020 (VSV Act):
The petitioner sought revision of Form 3, which did not include the set off/carry forward of losses and unabsorbed depreciation in Schedule D. The petitioner argued that this omission was due to an inadvertent mistake and oversight. The respondents contended that no particulars were provided in Schedule D, and thus, Form 3 had no patent error that could be rectified. However, the Court noted that Form 3 itself preserved the right to claim set off and carry forward losses as per law, indicating an apparent error that warranted rectification.

3. Set off and carry forward of losses and unabsorbed depreciation:
The petitioner argued that the assessment order had provisioned for the carry forward of unabsorbed depreciation and business loss, which should not have been ignored in Form 3. The Court examined the assessment order and found that it indeed accepted the set off and carry forward of unabsorbed depreciation and business losses. The Court concluded that the failure to include these details in Schedule D was an inadvertent mistake and should not deprive the petitioner of the benefits accorded by the VSV Act.

4. Finality and conclusivity of determinations under Section 5 of the VSV Act:
The respondents argued that the determination of the amount payable by a declarant under Section 5(1) is conclusive and cannot be rectified once Form 3 is issued. The Court, however, noted that the Designated Authority had the power to rectify apparent errors as per the clarifications issued by the CBDT. The Court held that the Designated Authority should have rectified the mistake in Form 3 to reflect the reliefs already granted in the original assessment order.

5. Interpretation of the VSV Act as a beneficial/remedial statute:
The Court emphasized that the VSV Act is a beneficial/remedial statute aimed at resolving tax disputes and providing relief to taxpayers. The Court referred to the legislative intent and the principles of interpretation applicable to such statutes. It concluded that the VSV Act should not be interpreted in a manner that places the petitioner in a worse position than under the original assessment order. The Court held that the petitioner should not be compelled to pay an amount exceeding the liability determined in the original assessment proceedings.

Conclusion:
The Court allowed the writ petition, quashed the impugned order dated 30 September 2021, and directed the Designated Authority to issue a fresh Form 3, considering the observations made. The matter was to be disposed of in accordance with the law, subject to the petitioner complying with the requirements stipulated in Section 5 of the VSV Act.