Income Tax Penalty Revision Barred After Amnesty Grant for Finality of Disputes: Rajasthan HC

PCIT Vs Ram Das Maheshwai (Rajasthan High Court)

The Rajasthan High Court has delivered a significant ruling clarifying that once an assessee is granted immunity under the Direct Tax Dispute Resolution Scheme, 2016 (DTDRS), the Revenue cannot reopen or revise penalty proceedings by invoking Section 263 of the Income-tax Act, 1961, even on the ground that penalty was imposed under an incorrect provision. The judgment underscores the principle that amnesty schemes are intended to bring finality and quietus to tax disputes and that statutory immunity cannot be diluted through audit objections or revisional proceedings.

Factual Matrix

A search was conducted on the Nuwal Group, Jaipur, on 18 July 2012, of which the assessee was a member. Pursuant to the search, the assessee filed a return declaring income of ₹15.04 crore. The assessment was completed on 13 March 2015, and penalty proceedings were initiated under Section 271AAB, culminating in a penalty order dated 20 August 2015.

While the assessee’s appeal against the penalty was pending before the Commissioner (Appeals), the assessee opted for the Direct Tax Dispute Resolution Scheme, 2016 and was issued a certificate dated 9 November 2016 granting immunity from penalty and prosecution. Consequent thereto, the appeal was withdrawn.

Subsequently, based on an audit objection alleging that the penalty ought to have been imposed under Section 271AB instead of Section 271AAB, the Principal Commissioner invoked Section 263, set aside the penalty order, and directed a fresh decision. The Income Tax Appellate Tribunal quashed the revisional order, leading to the present appeal before the High Court under Section 260A.

Issues Before the Court

The Revenue raised, inter alia, the following substantial questions of law:

1. Whether the Tribunal was justified in holding that Section 263 could not be invoked once a DTDRS certificate granting immunity had been issued.

2. Whether the assessee was ineligible for DTDRS benefits due to the search proceedings.

3. Whether an erroneous assumption of law in imposing penalty under the “wrong” section rendered the original order prejudicial to the interests of the Revenue.

4. Whether the Tribunal ignored the principles laid down by the Supreme Court in Malabar Industrial Co. Ltd. v. CIT (243 ITR 831).

Statutory Framework

Under Section 204(3) of the Finance Act, 2016, any order passed under the DTDRS is declared conclusive, and the matters covered by such order “shall not be reopened in any proceeding under the Income-tax Act.” Further, the immunity granted under Section 205(b)(ii) extends to protection from penalty and prosecution under the Act in respect of the disputed tax.

Decision and Reasoning

The High Court dismissed the Revenue’s appeal, affirming the Tribunal’s order. The Court’s reasoning rests on four critical pillars:

First, the DTDRS certificate granting immunity was never challenged by the Department. As on the date of hearing, the certificate continued to “hold the field” and had attained finality. Any attempt to indirectly question its validity through Section 263 proceedings was impermissible.

Second, the immunity granted under the Scheme is general in nature, extending to “imposition of penalty under the Income-tax Act” and is not confined to a specific penalty provision. Consequently, the debate as to whether penalty should have been imposed under Section 271AAB or Section 271AB was rendered wholly academic.

Third, the Court rejected the Revenue’s argument that the assessee was ineligible for the Scheme due to the search. It noted that the assessment was framed under Section 143(3) read with Section 153B, and in any event, eligibility could not be questioned collaterally after issuance of the certificate.

Fourth, the Court held that revisional jurisdiction under Section 263 cannot be exercised to override or nullify statutory immunity granted under an amnesty scheme. An audit objection, by itself, does not confer jurisdiction where the law expressly bars reopening.

The Court concluded that none of the substantial questions of law framed by the Revenue arose from the Tribunal’s order.

Ratio Decidendi

Once immunity is granted under the Direct Tax Dispute Resolution Scheme, 2016, and the certificate issued thereunder attains finality, no further penalty proceedings, revision under Section 263, or reopening on the ground of incorrect application of a penalty provision can be sustained.

Significance and Practical Implications

This ruling reinforces the foundational objective of tax amnesty schemes — certainty and closure. It sends a clear signal that the Revenue cannot perpetuate litigation by recharacterising issues already settled under such schemes. The judgment is particularly relevant in the context of ongoing and future disputes under Vivad se Vishwas–type schemes, where similar attempts to revisit concluded matters may arise.

For taxpayers, the decision provides reassurance that opting for an amnesty scheme, once accepted by the Department, results in comprehensive immunity and legal finality. For the administration, it serves as a reminder that statutory promises of closure must be honoured in both letter and spirit.

Conclusion

The Rajasthan High Court’s decision decisively answers the question: there can be no “Vivad after Vivad.” Amnesty, once granted and unchallenged, brings an end to the dispute, leaving no scope for revisional or penalty proceedings to survive thereafter.

FULL TEXT OF THE JUDGMENT/ORDER OF RAJASTHAN HIGH COURT

1. This appeal is filed under Section 260A of the Income Tax Act, 1961 (hereinafter ‘the Act’) against the order dated 14.06.2018 passed by the Income Tax Appellate Tribunal, Jaipur Bench, Jaipur (for short ‘tribunal’).

2. The brief facts are that on 18.07.2012 a search was conducted at Nuwal Group, Jaipur of which the assessee-respondent (hereinafter ‘respondent’) was a member. In pursuance to the search, proceedings were initiated and the respondent filed return declaring income of Rs.15,04,61,890/-. The return was accepted, assessment was finalized on 13.03.2015 and satisfaction for initiating the penalty proceedings under Section 271AAB was recorded in assessment order. Penalty was imposed vide order dated 20.08.2015. During the pendency of the appeal before the Commissioner of Income Tax (Appeal) (hereinafter ‘CIT’), the petitioner applied under the amnesty scheme and was issued certificate under the Direct Tax Dispute Resolution Scheme, 2016 (for short ‘the scheme’). The appeal was withdrawn on 11.11.2016. On the basis of audit objection that the penalty should have been imposed under Section 271AB instead of 271AAB, notice was issued by the revisional authority which was responded to on 20.03.2018. The revisional order was passed on 27.03.2018 setting aside the penalty order dated 20.08.2015 directing that de novo order be passed. In appeal, the tribunal on 14.06.2018 set aside the revisional order, hence, the present appeal.

3. This appeal was admitted on 13.05.2019 on following substantial questions of law:-

“i) Whether on the facts and circumstances of the case and law the Tribunal was justified in quashing the order passed u/s 263 of the I.T. Act, 1961 by stating that the PCIT has no jurisdiction to invoke provisions of Section 263 of the I.T. Act when an assessee has been granted certificate under the Direct Tax Dispute Resolution Scheme, 2016?

ii) Whether on the facts and circumstances of the case and law the order of the ITAT was not perverse in quashing the order passed u/s 263 of the I.T. Act,1961 as it is clearly stated in Sec. 208 of the DTDRS, Scheme 2016 that search cases were not eligible to avail the scheme and still the assessee chose to file application in DTDRS 2016 hiding the fact that search was carried out in his case for the A.Y. under consideration?

iii) Whether on the facts and circumstances of the case and law the order of the ITAT was not pervers in quashing the order passed u/s 263 of the I.T. Act, 1961 which was initiated as he penalty order was found to be erroneous and prejudicial to the interest of revenue?

iv) Whether on the facts and in circumstances of the case and in law the ITAT was justified in quashing the order passed u/s 263 of the I.T. Act, 1961 without appreciating the verdict passed by the Hon’ble Supreme Court in Malabar Industrial Co. Ltd., Vs. CIT (2000) 243 ITR 831 that held that incorrect assumption of fact or an incorrect application of law would satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in this category.?“

4. Learned counsel for the revenue submits that certificate granted under the scheme is void. After search, the respondent was not eligible to apply under the scheme. The argument is that the tribunal erred in setting aside the revisional order in view of the immunity granted to the respondent under the scheme.

5. Per contra, the petitioner was eligible to apply under the scheme as the bar was for the cases where the assessment was finalised under Section 153A or 153C of the Act, whereas the assessment of the respondent was finalised under Section 143(3) read with Section 153B of the Act. The contention is that the department till date, has not challenged the certificate issued under the amnesty scheme and it has attained finality.

6. The contention of the learned counsel for the revenue challenging the certificate issued under the scheme has a fallacy. No such challenge was made before the tribunal. It is arguable case as to whether respondent was eligible to apply under the scheme when assessment order was passed under Section 153B and scheme debarred the cases where assessment was finalized under Section 153A or 153C.

7. It is an undisputed fact that till date, the certificate dated 09.11.2016 issued under the scheme holds the field.

8. It would be relevant to reproduce the immunity granted in the certificate:

“b. Immunity is granted subject to the provisions contained in the Scheme, from instituting any proceeding for prosecution for any offence under the Income-tax Act/Wealth-tax Act or from the imposition of penalty under the said enactment (as per section 205 (b) (ii) of the Finance Act, 2016), in respect of the disputed tax as detailed in the table below:

Under Section 204(3) of the scheme, the order passed under Section 204(1) is conclusive and matter covered by such order shall not be reopened in any proceeding under the Act.

9. Once there is immunity granted to the respondent against penalty proceedings, the fact as to whether the penalty should have been imposed under Section 271AAB or under Section 271AB of the Act, would make no difference. The immunity is general against the penalty proceedings and not with regard to a particular provision. The revision on the basis of the audit objection for passing a de novo order, as the penalty should have been imposed under Section 271AB, cannot be sustained in view of the immunity granted to the respondent. The substantial questions of law framed do not arise from the order of the tribunal.

10. The appeal is dismissed.