2022 (7) TMI 286 - HC - Income Tax

Eligibility of Vivad se Vishwas scheme - Denial of claim as prosecution proceedings under Section 276 CC of the Act were instituted for the aforesaid assessment years before the date of filing of the declarations and the proceedings were pending - compounding fees for offences committed by the Petitioners under Section 276CC - HELD THAT - As basic thrust is settlement of direct tax disputes in respect of tax arrears which as already noticed above has a definite connotation under the Vivad se Vishwas Act. Therefore, the interpretation which has been put forward by the respondents runs counter to the scope of settlement as contemplated under the Vivad se Vishwas Act. To that extent answers given to FAQ Nos.22 and 73 are contrary to the very scheme of the Vivad se Vishwas Act. Coming back to the facts of the present case, prosecution against petitioner No.1 is under Section 276 CC which pertains to failure to furnish return under Sections 139 (1) or under Section 153 A etc., of the Act. Such delayed filing of income tax returns cannot be construed to be a tax arrear within the meaning of Section 2 (1) (o) of the Vivad se Vishwas Act. Therefore, such pending prosecution cannot be said to be in respect of tax arrear though it may be relatable to the assessment years in question and cannot render petitioner No.1 ineligible. Thus, having regard to the discussions made above, rejection of the declarations of petitioner No.1 by the respondents on 31.01.2021 and 31.03.2021 cannot be sustained and those are accordingly set aside and quashed. Consequently, the matter is remanded back to the respondents who shall consider the declarations of petitioner No.1 dated 29.12.2020 (or subsequent declarations dated 31.01.2021 and 31.03.2021) in conformity with the provisions of the Vivad se Vishwas Act dehors the answers given to FAQ Nos.22 and 73. In view of the decision rendered on the second grievance of the petitioners, it may not be necessary for us to adjudicate on the other grievance of the petitioners relating to computation of compounding fee by the respondents and the related compounding of offences under Section 276 CC of the Act. Writ petition is accordingly allowed to the extent indicated above

Summary

Issues Involved:
1. Computation of Compounding Fee under Section 276CC of the Income Tax Act.
2. Rejection of Declarations under the Direct Tax Vivad se Vishwas Act, 2020.

Detailed Analysis:

1. Computation of Compounding Fee under Section 276CC of the Income Tax Act:

The petitioners challenged the computation of the compounding fee by the respondents for offences under Section 276CC of the Income Tax Act for the assessment years 2011-12 to 2015-16. The petitioners contended that the fee should be Rs.36,96,000, whereas the respondents quantified it at Rs.2,96,32,920. The petitioners argued that this computation was arbitrary and contrary to the Act and the Guidelines for Compounding Offences under Direct Tax Laws, 2019. They also sought compounding for the assessment year 2010-11, which was initially excluded from their application. The respondents maintained that the fee was computed in accordance with CBDT guidelines and that the high-powered committee's decision on compounding was binding. The court did not delve deeply into this issue due to its decision on the second grievance.

2. Rejection of Declarations under the Direct Tax Vivad se Vishwas Act, 2020:

The petitioners' second grievance was the rejection of their declarations under the Direct Tax Vivad se Vishwas Act, 2020, for the assessment years 2011-12 to 2015-16. The respondents rejected these declarations, citing pending prosecution proceedings under Section 276CC of the Income Tax Act. The court analyzed the relevant provisions of the Vivad se Vishwas Act, particularly Section 9(a), which excludes the applicability of the Act if prosecution has been instituted in respect of tax arrear relating to an assessment year before the date of filing the declaration. The court referred to the Bombay High Court's decision in Macrotech Developers Limited, which held that the exclusion applies only if the prosecution is in respect of tax arrear as defined under the Act, not merely any pending prosecution.

The court concluded that the prosecution under Section 276CC for delayed filing of returns did not constitute a "tax arrear" under the Vivad se Vishwas Act. Therefore, the pending prosecution could not render the petitioners ineligible to file declarations under the Act. The court set aside the respondents' rejection of the declarations and remanded the matter back to the respondents to reconsider the declarations in conformity with the Act, disregarding the answers to FAQ Nos. 22 and 73, which were found to be contrary to the Act's scheme.

Conclusion:

The court allowed the writ petition to the extent of setting aside the rejection of the declarations under the Vivad se Vishwas Act and remanded the matter for reconsideration. The issue of compounding fee computation was not adjudicated due to the resolution of the second grievance. No costs were awarded, and any pending miscellaneous petitions were closed.