RECTIFICATION AFTER SETTLEMENT UNDER DIRECT TAX VIVAD SE VISHWAS ACT, 2020 – VALID?

[Mr. M. GOVINDARAJAN]

In SATISH KUMAR DHINGRA VERSUS ASSISTANT/DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 61 (1) , NEW DELHI & ANR. - 2024 (8) TMI 1245 - DELHI HIGH COURT, the petitioner filed his income tax return for the assessment year 2015 – 16 on 15.09.2015.  The petitioner declared his income as Rs. 50,31,150/-. The said return was processed by the Department.  However, this return was selected for scrutiny on 22.12.2017.  On the finalization, the Revenue added a sum of Rs.54,50,438/- to the income of the petitioner.  Thus, the total income of the petitioner was Rs.1,04,81,590/- for the said assessment year.

The petitioner filed an appeal before the Commissioner of Income Tax (Appeals).  On 11.03.2019 the Commissioner of Income Tax (Appeals) dismissed the appeal upholding the order of lower authority. Against this order the petitioner filed an appeal before the Income Tax Appellate Tribunal.

When the appeal is pending before the Income Tax Appellate Tribunal, the petitioner opted for Direct Tax Vivad Se Vishwas Act, 2020 (‘Act’ for short) for settlement.  He filed Form No. 1 and Form No. 2 before the Authorities on 17.11.2020.  The Designated Authority determined the tax amount payable on 18.12.2020 and Form 3 was issued to the petitioner.  The petitioner paid the entire tax on 26.03.2021.  

The petitioner was served with a notice by the Department on 08.03.2022 under Section 154 of the Income Tax Act.  The Authorities found that the short tax and interest was charged in the computation sheet inadvertently which resulted into charging of short gross tax liability.  Therefore, the petitioner was directed to file his reply on or before 14.03.2022.  The petitioner submitted his objection to the notice.  The Authorities found that the reply of the petitioner was not tenable.  The Assessing Officer was directed to compute the tax @ correct tax rate and issue demand notice to the petitioner for the payment of balance tax after giving credit to the tax already paid.

The writ petitioner impugns the rectification notice dated 08 March 2022 as well as the order passed thereon dated 30.03.2022 and additionally seeks a writ of prohibition restraining the respondents from taking any further steps pursuant to the impugned orders and the notices of demand.  The petitioner submitted the following before the High Court-

• Ordinarily the order of 22 December 2017 could have been rectified only up to 31 March 2022.

• The  order under Section 154 which, even though dated 30 March 2022, seems to indicate that it was signed and communicated only on 22.04.2022.

The High Court considered the submissions of the petitioner.  The High Court observed that even if the High Court was  to assume that the power comprised in Section 154 of the Income Tax Act was available to be exercised or wielded notwithstanding the conclusion of proceedings under the Act and the issuance of Form 5, the same would clearly not be sustainable bearing in mind the statutory period of limitation which would apply.  In the opinion of the High Court, the order under Section 154 is liable to be struck down on a more fundamental plane. Then the High Court analyzed the provisions of the Act

According to the Act an applicant desirous of settlement is required to file declaration before the Designated Authority in such form and in such manner as may be prescribed.  Upon the filing the declaration, any appeal pending before the Income Tax Appellate Tribunal or Commissioner (Appeals), in respect of the disputed income or disputed interest or disputed penalty or disputed fee and tax arrears shall be deemed to have been withdrawn from the date on which certificate under Section 5 (1) of the Act.  The assessee shall submit the proof for withdrawal of the appeal, writ petition etc. along with the proof of the payment of tax after issuance of Form 5 to the designated authority.

The declarant shall furnish an undertaking waiving his right, whether direct or indirect, to seek or pursue any remedy or any claim in relation to the tax arrears which may otherwise be available to him under any law for the time being in force, in equity, under statute or under any agreement entered into by India with any country or territory outside India whether for protection of investment or otherwise and the undertaking shall be made in such form and manner as may be prescribed.

The declaration under sub-section (1) shall be presumed never to have been made if, —

(a) any material particular furnished in the declaration is found to be false at any stage;

(b) the declarant violates any of the conditions referred to in this Act;

(c) the declarant acts in any manner which is not in accordance with the undertaking given by him under sub-section (5).  

In such cases, all the proceedings and claims which were withdrawn under Section 4 and all the consequences under the Income-tax Act against the declarant shall be deemed to have been revived. No appellate forum or arbitrator, conciliator or mediator shall proceed to decide any issue relating to the tax arrears mentioned in the declaration in respect of which an order has been made under sub-section (1) of Section 5 by the designated authority or the payment of sum under that section.

The Designated Authority upon receipt of a declaration from the assessee, he is obliged to determine the tax payable by the assessee.  The Designated Authority is required to give a certificate containing the amount of tax payable.  The assessee shall pay the dues of tax as mentioned in the certificate within 15 days from the date of receipt of the certificate.  After making payment he has to inform the payment details to the Designated Authority.

The High Court observed that once the Designated Authority determined the amount and issued the Certificate the Department reopen any matter covered by an order of determination made by the Designated Authority in any other proceedings under the Income Tax Act or, for that matter, any other law for the time being in force.   The determination as carried out by the Designated Authority is clearly rendered finality and cannot possibly be reopened or revised by any authority under the Income Tax Act by taking recourse to a power which may otherwise be available to be exercised.  If it is subsequently found that the application made by the declarant is found to suffer from an incorrect declaration or the suppression of a material fact then the determination of tax may be revisited or recalled.

The High Court further observed that it is not the case of the income tax department that the petitioner had failed to make a disclosure with respect to any material particular or any disclosure so made subsequently being found to be false. The High Court, therefore, quashed the rectification notice dated 08.03.2022 and rectification order dated 30.03.2022 under Section 154 of the Income Tax Act.