2022 (6) TMI 1123 - HC - Income Tax

Direct Tax Vivad Se Vishwas Act 2020 - declaration rejected as Form 3, dated 27th January, 2021, which was issued, was stated to have been issued inadvertently and therefore cancelled - Correctness of revenue withdrawing the Form 3 declaration already issued in favour of the assessee - HELD THAT - Very often we come across cases where the assessee comes to the court stating that they have not been permitted to make alterations or amendments to the declaration which they have filed and very often such requests are declined on flimsy, frivolous and hypertechnical ground. When such cases come before the Court, the revenue would contend that they are guided and bound by the terms and conditions of the VSV Act and until and unless there is a specific provision provided for under the Act or the Rules framed thereunder, the assessee has no right to make any alteration. If the same stand is applied to the case of the revenue before us, the only answer which can be given is that once a declaration is issued in Form no.3, there appears to be no statutory provision which permits the Department to withdraw or cancel the Form 3. It may be a different aspect if there are reasons for either not fully accepting the Form 3 declaration while issuing Form 4 declaration or for any other reasons, which is not the case before us. Therefore, we are of the prima facie view that the Form 3 declaration once having been issued can be processed and taken to its logical end either may be fully in favour of the assessee or otherwise but there appears to be no provision to withdraw Form 3 declaration which was admittedly issued in favour of the assessee on 27th January, 2021. Delay in filling in appeal - period of limitation - scope of condonation of delay - as argued Circular dated 4th December, 2020 covers cases only when the appeals are filed with an application for condonation of delay between 1st April, 2019 and 31st January, 2020 and the appeal in the assessee s case was filed before this Court on 8th January, 2021 and therefore in terms of the Circular, an application under the VSV Act is not maintainable - One important issue which the revenue has lost sight of is that the appeal which is filed before this Court on 8th January, 2021 was time barred and there was a delay of 400 days in filing the appeal. Even prior to filing the appeal the assessee had filed the declaration under the VSV Act on 30th December, 2020. This appears to have been done by abundant caution mentioning the cut off date as 31st January, 2020 in column B of the Declaration. The assessee was put on notice and the affidavit and the application for condonation of delay along with the memorandum of grounds were served on the assessee and soon after receipt of the same on 12th January, 2021 a revised declaration under the VSV was filed mentioning the relevant details. On 21st January, 2021 delay in filing the appeal was condoned and the appeal was also admitted. The question would be as to what is the effect of the condonation of the delay in filing the appeal. The last date for filing the appeal was 13th December, 2019 but the appeal was filed only on 8th January, 2021. Consequently, there was a delay of 400 days. By virtue of the order passed by this Court on 20th January, 2021 condoning the delay, it is deemed that the appeal filed by the revenue for all purposes was within time, that is, as if the appeal had been presented not later than 13th December, 2019. This would be the correct interpretation of the legal provisions and the effect of an order of a court condoning the delay. This is as a result of deeming fiction which is created by condoning the delay committed by the revenue and treating the appeal as if it had been presented within time. Thus the appeal filed by the revenue before this Court for all purposes should be treated to have been an appeal filed not later than 13th December, 2019. Thus the petitioner/assessee was well within his right to have chosen to avail the benefit of the VSV Act and the declaration filed by the assessee has to be treated to be a valid declaration and has to be processed in accordance with the provisions of the VSV Act. The other aspect would be whether the revenue can take advantage of its wrong. In other words, the revenue now seeks to contend that the assessee cannot avail the benefit of the Scheme on the ground that the appeal was filed by them much after 31st January, 2020, that is, on 8th January, 2021 alone and therefore, in terms of the clarification issued by the CBDT the declaration cannot be entertained. We are of the clear view that the order passed by the revenue dated 9th September, 2021 is not sustainable and not in accordance with law. In the result, the writ petition is allowed. The order dated 9th September, 2021 as well as the earlier reply as given by the revenue to the assessee namely, letter dated 15th July, 2021, are held to be bad in law and accordingly quashed. The scheme had been periodically extended and one has to look to the object for such extension and one of the objects was to augment the revenue and if that was the object of the scheme then liberal interpretation requires to be given, however, not to the extent of reviving the scheme but to consider the declaration filed under the scheme will before the closure of the scheme and to direct them to be processed in accordance with law. We direct the concerned respondent to restore the Form 3 declaration dated 27th January, 2021 which was withdrawn/deleted from the server of the Department and process the Form 3 declaration in accordance with law. This direction be complied with by the appropriate respondent within a period of eight weeks from the date of receipt of the server copy of this order.

Summary

Issues Involved:
1. Validity of the withdrawal of Form 3 declaration under the Direct Tax Vivad Se Vishwas Act, 2020 (VSV Act).
2. Applicability of Circular No. 21/2020 issued by the CBDT.
3. Effect of condonation of delay in filing the appeal.
4. Right of the assessee to avail the benefit of the VSV Act.
5. Revenue's contention based on the timing of the appeal filing.
6. The principle that the State cannot take advantage of its own wrong.
7. Continuation of processing declarations under the VSV Act after the Scheme's closure.

Detailed Analysis:

1. Validity of the Withdrawal of Form 3 Declaration:
The assessee challenged the order by the Assistant Commissioner of Income Tax rejecting the revival of Form 3 declaration issued under the VSV Act. The court noted that the revenue did not cite any statutory provision empowering them to withdraw a Form 3 declaration once issued. The court emphasized that without a specific provision in the Act or Rules, the Department could not withdraw or cancel the Form 3 declaration. The court held that the Form 3 declaration, once issued, should be processed to its logical conclusion, either in favor of the assessee or otherwise.

2. Applicability of Circular No. 21/2020 Issued by the CBDT:
The revenue referred to Question No. 59 in Circular No. 21/2020, which clarified the eligibility criteria for filing appeals under the VSV Act. The court examined whether this Circular applied to the assessee's case, where the appeal was filed on 8th January 2021. The court observed that the Circular covered cases where appeals were filed with an application for condonation of delay between 1st April 2019 and 31st January 2020. The court concluded that the revenue's interpretation was incorrect, as the appeal was time-barred and the delay had been condoned.

3. Effect of Condonation of Delay in Filing the Appeal:
The court discussed the legal effect of condoning the delay in filing the appeal. The delay of 400 days was condoned on 20th January 2021, making it as if the appeal had been filed within the original time limit. The court cited the Kerala High Court's decision in S.V. Suhasini Devi & Anr. vs. Padmanabhan Madhavan, which held that condonation of delay should be treated as if the appeal was filed within the time allowed by law. Consequently, the court held that the appeal should be treated as filed not later than 13th December 2019.

4. Right of the Assessee to Avail the Benefit of the VSV Act:
Given the condonation of delay, the court held that the assessee was within his right to avail the benefit of the VSV Act. The declaration filed by the assessee was deemed valid and had to be processed in accordance with the VSV Act's provisions.

5. Revenue's Contention Based on the Timing of the Appeal Filing:
The revenue contended that the assessee could not benefit from the Scheme as the appeal was filed after 31st January 2020. The court rejected this argument, emphasizing that the appeal should be treated as if filed within the original time limit due to the condonation of delay.

6. The Principle That the State Cannot Take Advantage of Its Own Wrong:
The court cited the Supreme Court's decision in Superintendent of Taxes, Dhubri & Ors. vs. M/s. Onkarmal Nathmal Trust, stating that the State cannot take advantage of its own wrong and lack of diligence. The court applied this principle to the case, concluding that the revenue's actions were not justified.

7. Continuation of Processing Declarations Under the VSV Act After the Scheme's Closure:
The court addressed the revenue's argument that the Scheme had ended and processing the declaration was not possible. The court disagreed, noting that the Scheme had been periodically extended, with the last extension until 31st October 2021. The court held that the Department must act on declarations filed before the Scheme's closure and process them in accordance with the law.

Conclusion:
The court allowed the writ petition, quashing the revenue's orders dated 9th September 2021 and 15th July 2021. The court directed the revenue to restore and process the Form 3 declaration within eight weeks. The related appeal by the revenue was closed, with liberty granted to restore the appeal if the assessee's declaration under the VSV Act was rejected for valid reasons.