Bombay High Court Quashes CBDT Circular: Condition of ‘Limine’ added to Appeal is Contrary to Direct Tax Vivad Se Viswas Act, 2020

Bombay High Court Quashes CBDT Circular: Condition of ‘Limine’ added to Appeal is Contrary to Direct Tax Vivad Se Viswas Act, 2020

The Bombay High Court has quashed a circular dated 4 December, 2020, issued by the Central Board of Direct Tax (CBDT) to the extent that it restricts appeals to those dismissed in ‘limine’ on the ground that it was not only averse to the interest of the assessee but also contrary to the object and reasons of the Direct Tax Vivad Se Viswas Act, 2020 (DTVSV-A).

The division judge’s bench of Justices Dhiraj Singh Thakur and Kamal Khata has observed that the additional qualification, viz. ‘in limine,’ added to the word appeal, is averse to the assessee, against the mandate of DTVSV-A, and thus contrary to law.

In the instant case, the petitioner/assessee filed an e-return of income, in which it declared a total income of Rs. 16,27,70,190. The petitioner revised its Income Tax Return (ITR) to declare an income of Rs. 16,15,96,380.

Thereafter, the revised ITR was processed, refunding the amount of Rs. 1,50,46,150. Its assessment was selected for scrutiny under Computer-Assisted Scrutiny Selection (CASS), and notices were issued, which were responded to by the Petitioner.

An assessment was passed by the DCIT assessing the petitioner’s income on account of disallowing deductions claimed by the Petitioner. A show cause notice was issued and interest was charged.

An appeal was preferred under Section 246A(1) of the Act read with rule 45 of the Income Tax Rules, 1962 against the order passed by the DCIT dated 25th March 2013.

The appeal was dismissed on 20 August 2014, to which an appeal was preferred before the Income Tax Appellate Tribunal (‘ITAT’) under Section 253 of the Income Tax Act read with Rule 47(1) on 30 September 2014. However, the ITAT dismissed the appeal.

On 17th March, 2020, the DTVSV-A was introduced. The Petitioner made an application to avail herself of the benefit. The application was rejected by an order on the basis of the Circular which stated that the case was not eligible under DTVSV-A.

It was the case of petitioner that the rejection was against the object of the DTVSV-A as provided in Circular of 2020. The Petitioner ought not to be deprived of DTVSV-A as beneficial legislation inasmuch as the Petitioner was admittedly in litigation prior to the specified date as envisaged by it.

Per contra, the department contended that the appeal was dismissed on merits, and in law. The classification was not disadvantageous to other classes of taxpayers, and there is no unjust or arbitrary discrimination. The circular has a rational nexus and did not want the beneficial legislation to be misused by those whose appeals were adjudicated. The case of the Petitioner was beyond the purview of the DTVSV-A.

The bench upon perusal of the objective of the DTVSV stated that it was enacted to reduce litigation.

“It is not in dispute that the DTVSV-A was enacted with the objective of, inter alia, reducing pending income tax disputes, generate timely revenue for the Government and benefit taxpayer by providing them peace of mind, certainty and savings on account of time and resources that would otherwise be spent on the long-drawn and vexatious litigation process to resolve the disputes,” noted the bench.

With regard to the condition ‘Appeal dismissed in limine’ the Court was of the view that the qualifying words ‘in limine’ apparently restricted the eligible assessees for availing settlement under the DTVSV and was contrary to its object and reasons.

Furthermore, the Court referred to the decision passed by the Delhi High Court in the case of Medeor Hospital Limited vs. Principal Commissioner of Income Tax and the Gujarat High Court in the case of Tushar Agro Chemical vs. Pr CIT, wherein it was held that CBDT cannot issue circulars adverse to the assessee.

Therefore, the bench struck down the Circular dated 4 December, 2020 issued by the CBDT.