Case Law Details
PCIT Vs Swatiben Biharilal Parekh (Gujarat High Court)
Revision u/s 263 – settlement of dispute under the Direct Tax Vivad Se Vishwas Act – Whether opting the VSV Scheme and finalizing thereof is nothing but the closure of disputes in respect of tax arrears which cannot be subsequently reopened by issuing notice u/s 263 of the Act for revising the assessment order?
Introduction: The Gujarat High Court recently delivered a significant judgment in the case of “PCIT Vs Swatiben Biharilal Parekh.” This case revolves around the application of the Direct Tax Vivad Se Vishwas (VSV) Scheme and the authority’s power to revise an assessment order under Section 263 of the Income Tax Act. Let’s delve into the facts, analysis, and conclusions of this case.
Facts: The case involves an assessment completed under Section 143(3) read with Section 147 of the Income Tax Act, 1961, for the assessment year 2012-13. The assessing officer had added Rs. 11,32,448 to the total income of the assessee, attributing it to the estimation of profit at 8% of transactions of shares carried out during the year. The Principal Commissioner of Income Tax (PCIT) later observed that the entire share transaction of Rs. 1,41,55,592 remained unexplained. Additionally, the total transaction value exceeded the threshold limit of Rs. 60 lakhs as prescribed under Section 44AD of the Act.
The PCIT found that the failure to apply Section 68 had rendered the assessment order erroneous and prejudicial to the interest of revenue. Consequently, on January 31, 2022, the PCIT passed an order under Section 263, canceling the assessment and directing a fresh assessment with necessary inquiry and verification.
Analysis: The core issue before the Gujarat High Court was whether the initiation of proceedings under Section 263 of the Income Tax Act was valid, considering the application of the VSV Scheme. The VSV Scheme aims to settle tax disputes and provides a mechanism for taxpayers to resolve outstanding tax arrears by paying the specified amount.
The Tribunal, while allowing the assessee’s appeal, relied on the judgment of the Madras High Court in the case of Gopalakrishnan Commissioner of Income Tax (2022). The Madras High Court had held that once a taxpayer opts to settle the dispute under the VSV Act, proceedings initiated under Section 263 of the Income Tax Act cannot continue. The VSV Act aims to provide a conclusive resolution to tax disputes, and matters covered by its orders cannot be reopened under any other law or proceeding.
The Gujarat High Court also examined various sections of the VSV Act, including Section 5, which emphasizes the conclusive nature of orders passed under the VSV Scheme. Sub-section (3) of Section 5 explicitly rejects the reopening of matters covered by VSV orders in any other proceeding.
Conclusion: In light of the VSV Scheme and the precedent set by the Madras High Court, the Gujarat High Court concluded that the initiation of proceedings under Section 263 of the Income Tax Act was not valid in this case. Once a taxpayer opts for the VSV Scheme, the intention is to bring closure to disputes regarding tax arrears. Matters covered by VSV orders cannot be reopened under any other law or proceeding.
Therefore, the appeal of the assessee was justified, and the Tribunal’s decision to quash the order under Section 263 was upheld. This case highlights the importance of understanding the implications of opting for the VSV Scheme and how it can impact subsequent proceedings under the Income Tax Act.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. This Tax Appeal challenges the order dated 18.04.2023 passed by the Income Tax Appellate Tribunal, Rajkot, in ITA No.30/Rjt/2023 for Assessment Year 2012-13.
2. Following substantial questions of law have been raised:
“(A) Whether on the facts of the case as well as in law, the Appellate Tribunal was justified in quashing the order under Section 263 of the Income Tax Act of Ld. PCIT when Explanation 2 of Section 263 of the Act expressly provides that it is final opinion of the Ld. Pr. CIT to deem an order prejudicial and erroneous to the interest of revenue?
(B) Whether on the facts of the case as well as law, the Appellate Tribunal was justified in quashing the order under Section 263 of the Income Tax Act of Ld. PCIT especially when the Assessment Order passed by the AO is unsustainable in law?
(C) Whether on the facts of the case as well as in law, the Appellate Tribunal was justified in quashing the order u/s 263 of the Income Tax Act of Ld. PCIT observing that the assessing officer has failed to add ought to have been made much more than what was assessed and the Scheme does not debar the assessing officer to make the addition of the remaining correct amount?
(D) Whether on the facts of the case as well as law, the Appellate Tribunal was justified in quashing the order u/s. 263 of Act of Ld. PCIT holding that the opting the VSV Scheme and finalizing thereof is nothing but the closure of disputes in respect of tax arrears which cannot be subsequently reopened by issuing notice u/s 263 of the Act for revising the assessment order?
(E) Whether on the facts of the case as well as law, the Appellate Tribunal was justified in allowing the appeal of the assessee against the order u/s. 263 of the Income Tax Act of Ld. PCIT when there was gross inadequacy in inquiry conducted as per order of Apex Court in case of the Commissioner of Income Tax Vs. M/s. Paville Projects Pvt. Ltd. (CA No. 6126 of 2021 (SC))?
3. Facts briefly narrated in the memo of appeal read as under:
3.1 The brief facts are that the assessment was completed u/s. 143(3) r.w.s. 147 of the Income Tax Act, 1961 (the Act) on 27.12.2019 assessing the total income at Rs. 12,49,770/-. The variation between the returned income and assessed income is attributable to the addition of Rs.11,32,448/- made on account of estimation of profit u/s 44AD of the Act @ 8% of transactions of shares carried out during the year under consideration by the assessee on NSE to the tune of Rs.1,41,55,592/-. Subsequently, the Pr. CIT on examination of Assessment records observed that whole transactions of shares of Rs.1,41,55,592/-was unexplained and the same was required to be taxed u/s 68 of the Act as the assessee did not file any details thereof. Also the total transaction value was beyond the threshold limit (Rs.60 lakhs) as prescribed u/s 44AD of the Act. The Assessing officer has failed to consider this issue while finalizing the assessment. The PCIT has observed that non application of Section 68 has rendered the order erroneous as well as prejudicial to the interest of revenue. Therefore, the assessment was prima-facie found to be erroneous in so far as it is prejudicial to the interest of revenue. Accordingly, the PCIT passed an order u/s. 263 dated 31.01.2022 cancelling the assessment u/s. 143(3) r.w.s. 147 of the Act and a direction to make a fresh assessment by conducting necessary inquiry and verification.
3.2 Being aggrieved with the said order u/s. 263 of the Act, the assessee filed an appeal before the Appellate Tribunal. The Appellate Tribunal has quashed the order of PCIT-1, Rajkot passed u/s. 263 of the Act.
4. The Tribunal while allowing the appeal of the assessee held as under:
“7. We have carefully considered the facts of the matter and the judgment relied upon by the Ld. Counsel in the case of Gopala Krishnan Rajkumar vs. PCIT (supra). We find that the Hon’ble Court has been pleased to observe opting the VSV Scheme and finalizing thereof is nothing but the closure of disputes in respect of tax arrears which cannot be subsequently reopened by issuing notice under Section 263 of the Act for revising the assessment order. Needless to mention that the view is squarely applicable in favour of the assessee before us.
8. Furthermore, Section 5 of the VSV Act prescribes as follows:
“5. (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 this Act and grant a certificate to the declarant containing particulars of the tax arrear and the amount payable after such determination, in such form as may be prescribed.
(2) The declarant shall pay the amount determined under sub-section (1) within fifteen days of the date of receipt of the certificate and intimate the details of such payment to the designated authority in the prescribed form and thereupon the designated authority shall pass an order stating that the declarant has paid the amount.
(3) Every order passed under sub-section (1), determining the amount payable under this Act, shall be conclusive as to the matters stated therein and no matter covered by such order shall be reopened in any other proceeding under the Income-tax Act or under any other law for the time being in force or under any agreement, whether for protection of investment or otherwise, entered into by India with any other country or territory outside India.
Explanation.—For the removal of doubts, it is hereby clarified that making a declaration under this Act shall not amount to conceding the tax position and it shall not be lawful for the income-tax authority or the declarant being a party in appeal or writ petition or special leave petition to contend that the declarant or the income-tax authority, as the case may be, has acquiesced in the decision on the disputed issue by settling the dispute.”
9. A bare reading of the above Section, particularly, sub-section (3) of Section 5 clearly rejects restriction in reopening in any other proceeding under the Income Tax Act or under any other law for the time being in force in any matter covered by such order which has been passed under sub-section (1) determining the amount payable under this Act which has been said to be conclusive. In that view of the matter, the impugned order passed by the Ld. PCIT, is according to us, lacks jurisdiction and the same is, therefore, not sustainable in the eye of law. Thus, the impugned order is quashed.
5. Having perused the order of the Tribunal, we find that the Tribunal considered the decision of the Madras High Court in the case of Gopalakrishnan Commissioner of Income Tax reported in [2022] 140 taxmann.com 394 (Madras) and the Division Bench of this Court while considering the issue of the finality of the benefit of the Vivad Scheme and Section 5 thereof and held as under:
“9. In the decision of the Madras High Court in case of Gopalakrishnan (Supra) wherein also in the facts akin to the present one, the Madras High Court considered the provisions of the Scheme and interpreting Section 5 of the Act held as under :
“39. The question therefore that arises for consideration is whether the impugned proceedings initiated after the petitioners opted to settle the dispute under the Direct Tax Vivad Se Vishwas Act, 2020 are sustainable or not?
40. The expression disputed tax has been denied in Section 27 of the Direct Tax Vivad Se Vishwas Act, 2020 reads as under: (j) “disputed tax”, in relation to an assessment year or financial year, as the case may be, means the income-tax, including surcharge and cess (hereafter in this clause referred to as the amount of tax) payable by the appellant under the provisions of the Income-tax Act, 1961, as computed hereunder:—
(A) in a case where any appeal, writ petition or special leave petition is pending before the appellate forum as on the specified date, the amount of tax that is payable by the appellant if such appeal or writ petition or special leave petition was to be decided against him;
(B) in a case where an order in an appeal or in writ petition has been passed by the appellate forum on or before the specified date, and the time for filing appeal or special leave petition against such order has not expired as on that date, the amount of tax payable by the appellant after giving effect to the order so passed;
(C) in a case where the order has been passed by the Assessing Officer on or before the specified date, and the time for filing appeal against such order has not expired as on that date, the amount of tax payable by the appellant in accordance with such order;
(D) in a case where objection filed by the appellant is pending before the Dispute Resolution Panel under section 144C of the Income-tax Act as on the specified date, the amount of tax payable by the appellant if the Dispute Resolution Panel was to confirm the variation proposed in the draft order;
(E) in a case where Dispute Resolution Panel has issued any direction under sub-section (5) of section 144C of the Income-tax Act and the Assessing Officer has not passed the order under subsection (13) of that section on or before the specified date, the amount of tax payable by the appellant as per the assessment order to be passed by the Assessing Officer under sub-section (13) thereof;
(F) in a case where an application for revision under section 264 of the Income-tax Act is pending as on the specified date, the amount of tax payable by the appellant if such application for revision was not to be accepted:
Provided that in a case where Commissioner (Appeals) has issued notice of enhancement under section 251 of the Income-tax Act on or before the specified date, the disputed tax shall be increased by the amount of tax pertaining to issues for which notice of enhancement has been issued:
Provided further that in a case where the dispute in relation to an assessment year relates to reduction of tax credit under section 115JAA or section 115Dof the Income-tax Act or any loss or depreciation computed thereunder, the appellant shall have an option either to include the amount of tax related to such tax credit or loss or depreciation in the amount of disputed tax, or to carry forward the reduced tax credit or loss or depreciation, in such manner as may be prescribed.
(k) “Income-tax Act” means the Income tax Act, 1961;
(l) “last date” means such date as may be notified by the Central Government in the Official Gazette;
(m) “prescribed” means prescribed by rules made under this Act;
(n) “specified date” means the 31st day of January, 2020;
(o) “tax arrear” means,—
(i) the aggregate amount of disputed tax, interest chargeable or charged on such disputed tax, and penalty leviable or levied on such disputed tax; or
(ii) disputed interest; or
(iii) disputed penalty; or
(iv) disputed fee, as determined under the provisions of the Income- tax Act.
41. As per Section 3 of the the Direct Tax Vivad Se Vishwas Act, 2020, notwithstanding anything contained in the Income Tax Act or any other law for the time inforce the amount payable by a declarant shall be as specified in the table to the said section.
42. As per Section 4(6) of the Direct Tax Vivad Se Vishwas Act, 2020, the declarations filed under Section(1) shall be presumed to have never been made if : –
“a) Any material particular furnished in the declaration is found to be false at any stage;
b) The declarant violates any of the conditions referred to in this Act;
c) The declarant acts in any manner which is not in accordance with the undertaking given by him under subsection (5) And in such cases, all the proceedings and claims which were withdrawn under Section 4 and all the consequences under the Income-Tax Act against the declarant shall be deemed to have been revived.”.
43. Section 6 of the Direct Tax Vivad Se Vishwas Act, 2020, makes it very clear that once there is a compliance with the timeliness specified under Section (5), the designated authority shall not institute any proceedings in respect of an offence or aims or levy any penalty or charge any interest under the Income Tax in respect of the tax arrears.
44. Section 5 of the Direct Tax Vivad Se Vishwas Act, 2020, also makes it clear that save as otherwise expressly provided in sub-section(3) of Section 5 or Section 6, noting contained in this Act shall be construed as conferring any benefit, concession or immunity on the declarant in any proceedings other than those in relation to which the declaration has been made.
45. The intention of the parliament enacting the of the Direct Tax Vivad Se Vishwas Act, 2020, is to bring a closure of disputes in respect of tax arrears. Whether the petitioner had correctly or wrongly availed the benefit of Section 57(F) of the Income Tax Act or not cannot be re-opened once again under Section 263 of the Income Tax Act, 1961.
46. Once the petitioners had opted to settle the dispute under the Direct Tax Vivad Se Vishwas Act, 2020, the proceedings initiated under Section 263 have to go. If on the other hand the respective petitioners had not filed Form 1 and 2 or not accepted with the issue of Form 3, the Impugned Notice seeking to re-open the assessment under Section 263 of the Income Tax Act, 1961 could be justified.”
10. In light of the facts and the decision of the Madras High Court, it was not open for the authorities to initiate proceedings under Section 263 of the Act, especially when they were clearly so barred. We are also conscious of the fact that even if the appeal memo which is placed on record is seen, the matter in issue before the CIT (Appeals) which was sought to be brought to rest by opting for the benefit of the Scheme was in context of the same issue which the Revenue sought to invoke by issuing notice under Section 263 of the Act.
6. The Tribunal therefore cannot be faulted for allowing the appeal of the assessee as it was not open for the authorities to initiate proceedings under Section 263 of the Act, when they were barred.
7. Therefore the appeal does not involve any substantial question of law and hence is accordingly dismissed.
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