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TMI Blog2022 (7) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 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 res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondents for offences committed under Section 276 CC of the Income Tax Act, 1961 (briefly, the Act hereinafter) for the assessment years 2011-12, 2012-13, 2013-14, 2014-15 and 2015-16, vide the order dated 05.03.2021. While the petitioners seek quashing of such computation and quantifying the compounding fee at Rs.36,96,000-00, they further seek a direction to the respondents for compounding of such offence for the assessment year 201011 as well. Second grievance of the petitioners pertains to rejection of declaration filed by petitioner No.1 under the Direct Tax Vivad se Vishwas Act, 2020 by the respondents for the assessment years 2011-12, 2012-13, 2013-14, 2014-15 and2015-16. 4. Petitioner No.1 is a company engaged in the business of mining and infrastructural works. Business operations of the petitioner No.1 are spread across different states of the country. Petitioner No.2 is a former Managing Director of petitioner No.1 who had resigned from his position on 24.12.2018. Petitioner No.3 is a Director of petitioner No.1. 5. Petitioner No.1 is an assessee under the Act. For the assessment years 2010-2011 to 2015-2016, petitioner No.1 filed its returns after the due date for fili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts were filed for each of the assessment years 2010-11 to 2015-16. 11. Petitioner No.1 applied before respondent No.3 vide the letter dated 03.09.2019 for compounding of the offences under Section 276 CC of the Act for the assessment years 2011-12 to 2015-16. Later on, when it was realised that due to inadvertence assessment year 2010-11 was not included in the compounding application, petitioner No.1 addressed a letter dated 22.02.2021 to the third respondent to treat the petitioner s application for compounding dated 03.09.2019 as an application for the assessment year 2010-11 as well. 12. It is stated that petitioner No.1 had also submitted declarations under the Vivad se Vishwas scheme for the assessment years 2011-12 to 2015-16, but those were not being considered since the offences had not been compounded. 13. Respondent No.6, vide the impugned letter / order dated 05.03.2021, conveyed approval for compounding of offences under Section 276 CC of the Act for the assessment years 201112 to 2015-16. Respondent No.6 directed the petitioners to make payment of the compounding charges in the following manner:- Sl.No. Assessment Year Amount i. 2011-12 Rs.1,05,93,600-00 ii. 2012-13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled fresh applications on 31.01.2021, which were rejected on 30.03.2021 on the same grounds that the provisions of the Direct Tax Vivad se Vishwas Act, 2020 would not be applicable in view of the pending prosecution proceedings against petitioner No.1. 21. Thereafter, petitioner No.1 had filed fresh declarations dated 30.03.2021 as the deadline for filing declarations was 31.03.20221 and there being no limitation as to the number of declarations that could be filed under the Direct Tax Vivad se Vishwas Act, 2020. It is contended that there was no basis for rejection of the declarations filed by petitioner No.1 under the Direct Tax Vivad se Vishwas Act, 2020. The criminal complaints pertain to alleged delay in filing of returns under Section 153A of the Act whereas declarations of petitioner No.1 dated 29.12.2020, 31.01.2021 and 30.03.2021 relate to resolving disputed tax arrears. Therefore, the two are totally unrelated. Pending criminal cases do not relate to subject matter of the declarations. In this connection petitioners have placed reliance on a decision of a Division Bench of the Bombay High Court in Macrotech Developers Limited Vs. Principal Commissioner of Income Tax 2021 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted on 31.03.2021 for the same reasons. Thereafter, petitioner No.1 again filed declarations for the said assessment years on 31.03.2021 which are pending as no decision thereon has been taken in deference to order of this Court dated 15.04.2021. 24. Answering respondents have asserted that rejection of the declarations of petitioner No.1 filed under the Vivad se Vishwas scheme was in accordance with Section 9 of the Direct Tax Vivad se Vishwas Act, 2020 and clarifications issued by the CBDT vide the Circular Nos.7/2020, 9/2020 and 21/2020. Thereafter, reference has been made to Section 9 of the aforesaid Act. Answering respondents have also referred to CBDT Circular No.7/2020 dated 04.03.2020, more particularly to the Frequently Asked Question (FAQ) No.22 and the answer given thereto which are extracted hereunder: CBDT s Circular No.7/2020 dated 04.03.2020. FAQ No.22: In the case of an assessee prosecution has been instituted and is pending in Court. Is assessee eligible for the Vivad se Vishwas? Answer : No. However, where only notice for intimation of prosecution has been issued with reference to tax arrears, the taxpayer has a choice to compound the offence and opt for Vivad se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1 supra) has quashed the said FAQ No.73 as being in contravention of Section 9 of the Direct Tax Vivad se Vishwas Act, 2020. 29. Mr. Avinash Desai, learned counsel for the petitioner, submits that the returns for the assessment years 2010-11 to 2015-16 were filed within the same assessment years though after the due date of filing of returns. A conjoint reading of Section 139 (1) and Section 139 (4) of the Act would show that no adverse inference can be drawn against petitioner No.1 for filing of returns after the due date but within the same assessment years. 30. Insofar filing of returns pursuant to notice dated 29.09.2016 under Section 153A of the Act for the assessment years 2010-11 to 2015-16 is concerned, learned counsel for the petitioners submits that there was no wilful or intentional default by petitioner No.1. As a matter of fact, petitioner No.1 was going through a severe financial crunch which caused the temporary default. However, petitioner No.1 had paid the entire additional tax of Rs.9,32,59,471-00 and had filed the returns of income under Section 153A of the Act for the assessment years 2010-11 to 2015-16 on 18.02.2017. It was in such circumstances that petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed nor any stay granted by the Supreme Court. 35. On the other hand, Mr. B.Narasimha Sarma, learned counsel for respondent Nos.3 to 6 has relied upon the counter affidavit filed by the said respondents. While justifying initiation of criminal prosecution against the petitioners under Section 276 CC of the Act, he, however, submits that respondents acted fairly and judiciously in accepting the prayer of the petitioners for compounding of offences under Section 276 CC of the Act. Thereafter, the high powered committee constituted for compounding of offences quantified the compounding fee at Rs.2,96,32,920-00. He asserts that the compounding fee was determined by the committee in accordance with the guidelines of the CBDT dated 14.06.2019 regarding compounding of offences, further submitting that such guidelines are binding on the committee. 36. Mr. Sarma has also justified rejection of the declarations of petitioner No.1 under the Vivad se Vishwas scheme. Referring to Section 9 of the Direct Tax Vivad se Vishwas Act, 2020, he submits that as on the date of filing of the declarations by petitioner No.1, the criminal prosecutions were pending. As the offences were not yet compounded si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... timely collection of revenue. Therefore, there was an urgent need to provide for resolution of the pending tax disputes which will not only benefit the Government by generating timely revenue but would also benefit the tax payers who would be able to deploy the time, energy and resources saved by opting for such dispute resolution towards their business activities. 40. Provisions of the Vivad se Vishwas Act relevant for the present lis may now be referred to. Section 2 provides for definition of various expressions used in the Vivad se Vishwas Act. As per Section 2 (1) (g) disputed income in relation to an assessment year means, the whole or so much of the total income as is relatable to the disputed tax. Disputed tax is defined in section 2(1)(j) to mean income tax including surcharge and cess in relation to an assessment year or financial year, as the case may be, payable by the appellant under the provisions of the Act in the manner computed under the said provision. Similarly, disputed fee , disputed interest and disputed penalty are also defined under sections 2(f), 2(h) and 2(i). Disputed fee means the fee determined under the Act in respect of which appeal has been filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted fee and tax arrear shall be deemed to have been withdrawn from the date on which certificate is issued under section 5(1). As per subsection (3), where the appeal or writ petition is pending in the High Court or in the Supreme Court, the declarant is required to withdraw such appeal or writ petition with the leave of the Court after issuance of certificate under sub-section (1) of section 5. 45. Section 5 provides for the time and manner of payment. As per sub-section (1), the designated authority shall within a period of fifteen days from the date of receipt of the declaration by order determine the amount payable by the declarant in accordance with the provisions of the Vivad se Vishwas Act and grant a certificate to the declarant containing particulars of the tax arrear and the amount payable after such determination. While under sub-section (2), the declarant is required to pay the amount determined under sub-section (1) within fifteen days, sub-section (3) makes it clear that once an order is passed under subsection (1) that would be conclusive as to the matters stated therein, which cannot be re-opened. 46. Section 6 provides for immunity from prosecution or imposition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate granted under Sub-Section (1) of Section 5 shall be in Form No.5. Form No.5 is appended to the Vivad se Vishwas Rules. A perusal of Form No.5 would show that it is a certification certifying full and final settlement of tax arrear under Section 5 (2) read with Section 6 of the Vivad se Vishwas Act. Thus, immunity is granted to the declarant from prosecution or from imposition of penalty in respect of the tax arrear. 52. A Division Bench of the Bombay High Court in Macrotech Developers Limited (1 supra) had analysed the provisions of Section 9 (a) and thereafter has held as follows: 27.1. As per sub-clause (i), provisions of the Vivad se Vishwas Act would not apply in respect of tax arrear relating to an assessment year in respect of which an assessment has been made including on the basis of search and seizure. In so far sub-clause (ii) is concerned, provisions of the Vivad se Vishwas Act would not apply in respect of tax arrear relating to an assessment year in respect of which prosecution has been instituted on or before the date of filing of declaration. Likewise in sub-clause (iii), provisions of the said Act would not be applicable in respect of tax arrear relating to any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries of persons would not be eligible to file declaration under the Vivad se Vishwas Act in view of their exclusion in terms of section 9(b) to (e). 53 Thus, Bombay High Court has held that the thrust of the aforesaid provision is in respect of tax arrear. The prosecution must be in respect of tax arrear as defined under the Vivad se Vishwas Act which naturally is relatable to an assessment year. Under Section 9 certain categories of assessees are excluded from availing the benefit of the Vivad se Vishawas Act. Exclusion under Clause (a) of Section 9 is in respect of tax arrear which is further circumscribed by Sub-Clause (ii) to the extent that if prosecution has been instituted in respect of tax arrear of the declarant relating to an assessment year on or before the date of filing of declaration, he would not be entitled to apply under the Vivad se Vishwas Act. 54. As already discussed above, tax arrear in the context of the Vivad se Vishwas Act has a definite connotation under Section 2 (1) (o) which has to be read in conjunction with Section 2 (1) (f) to 2 (1) (j). 55. Respondents have placed reliance upon FAQ No.22 and the answer given thereto in Circular No.7 of 2020 of CBDT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he answer given to FAQ No.73 is an improvement over the answer given to FAQ No.22. In FAQ No.73 it has been opined that ineligibility to file declaration relates to an assessment year in respect of which prosecution has been instituted; the taxpayer would not be eligible to file declaration for the said assessment year even on issues not relating to the prosecution. This appears to be the stand of CBDT which is reflected in the counter affidavit of the respondents. 58. In Macrotech Developers Limited (1 supra), petitioners had sought for quashing of the answer given to FAQ No.73. After a threadbare analysis, Bombay High Court held as follows: 32. We are afraid such an interpretation given by respondent No. 2 in the answer to question No. 73 is not in alignment with the legislative intent which has got manifested in the form of section 9(a)(ii). The ineligibility to file declaration is in respect of tax arrear relating to an assessment year in respect of which prosecution has been instituted. Therefore, to say that the ineligibility under section 9(a)(ii) relates to an assessment year and if for that assessment year a prosecution has been instituted, then the tax payer would not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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. 61. 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. 62. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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