Assessee Entitled to DTVSV Act Benefit During Pendency of Prosecution Not Involving Tax Arrears: Bombay High Court

Assessee Entitled to DTVSV Act Benefit During Pendency of Prosecution Not Involving Tax Arrears: Bombay High Court

The petitioner challenged the order pending before the Income Tax Appellate Tribunal

The Bombay High Court has directed the Income Tax Department to decide the application filed by the assessee in conformity with the Direct Tax Vivad Se Vishwas (DTVSV) Act, 2020.

The bench comprising Justice KR Shriram and Justice NK Gokhale observed that the petitioner/assessee had paid the self-assessment tax. However, he did not pay the demand made due to reassessment or reopening of the assessment and challenged the order (now pending) before the Income Tax Appellate Tribunal (ITAT).

As permissible under the 31 July 2017 Central Board of Direct Taxes (CBDT) Office Memorandum, the petitioner had even deposited 20 percent of the demand and, hence, was not an assessee in default.

The petitioner submitted that Section 9(a)(ii) of the DTVSV Act disentitled a person to be eligible in respect of tax arrears relating to an assessment year for which the prosecution was instituted.

The appellant/assessee was subjected to reassessment proceedings. The IT department raised the demand of Rs. 6.77 crores and Rs. 7.37 crores against which the assessee filed an appeal before the Commissioner of Income Tax (Appeals) and paid 20 percent of the demand made in the 29 February 2016 CBDT Office Memorandum.

However, the IT department initiated prosecution for willfully attempting to evade the payment of taxes on a demand that arose pursuant to the reassessment.

During the prosecution pendency, the assessee filed a declaration under the DTVSV Act. But it was rejected on the grounds that Section 9(a)(ii) debarred the assessee against whom prosecution was instituted on or before the date of filing the declaration.

The petitioner contended that the bar was when prosecution was initiated relating to tax arrears. Whereas the respondent department, in the circular, clarified that whether or not the prosecution was related to tax arrears, the taxpayer was disentitled to apply for settlement of a pending appeal under the DTVSV Act.

The petition alleged that the purported clarification was ultra vires and contrary to the provisions of the DTVSV Act. Also, the Direct Tax Vivad Se Vishwas Rules were beyond the powers and authority conferred upon the respondent under Section 11 of the Act was arbitrary, and violative of Article 14 of the Constitution of India.

The department contended that on the date of filing the declaration, prosecution had already been initiated against the petitioner on account of tax arrears. Therefore, the respondent rightly rejected the declaration.

The sanction given by the Principal Commissioner of Income Tax to prosecute the petitioner and its directors (where it was mentioned there was a willful attempt to evade payment of tax), would be covered under the definition of tax arrears. The sanction letter stated the assessee paid only Rs.45 lakhs against the outstanding demand of Rs.6.78 crores for Assessment Year 2010–2011. For the AY 2011–2012, nothing was paid against the Rs.7 lakh outstanding demand.

The court noted that the tax arrears would mean the aggregate amount of disputed tax, interest chargeable or charged on disputed tax, and penalty leviable or levied on disputed tax, interest, penalty, or fee as determined under the DTVSV Act provisions.

The judges held that under Section 9(a)(ii), the only exclusion was a pendency of prosecution of tax arrears relatable to an assessment year as on the date of filing the declaration and not a pendency of prosecution of an assessment year.

Thus, the bench directed the IT department to decide the application filed by the assessee in conformity with the DTVSV Act.