2025 (5) TMI 130 - HC - Income Tax

Rejection of petitioner s declaration made in the prescribed form (Form 1) under DTVSV Scheme - rejection remarks as uploaded on the portal indicate that the petitioner s declaration was disregarded as it did not refer to the pending writ petition - petitioner contends that the non-disclosure of the details of the pending writ petition before this court was neither essential nor material. He submitted that the writ petition would have been rendered infructuous on settlement of the appeal which was pending before the CIT(A) . As concluded petitioner had not taken into account that the amount payable would be 110% of the disputed tax. And second that the AAR had not determined the income arising out of capital gains which is chargeable to tax; therefore the dispute stemming from the decision of the AAR was not covered by the DTVSV Scheme - HELD THAT - As petitioner had unequivocally waived its rights whether direct or indirect to seek or pursue any remedy or any claim in relation to the tax arrears which may otherwise have been available. Thus in any event the petitioner would be precluded from pursuing its writ petition which is pending before this court. We say so because the petitioner s grievance regarding the disfavourable advance ruling the redressal of which is sought by petitioning this court would not survive after settlement of the subject dispute pending in the appeal filed before the CIT(A). It is also relevant to note that the said undertaking was in terms of Sub-section (4) of Section 91 of the Finance (No. 2) Act 2024. We may also take note of Sub-section (3) of Section 91 of the said Act which inter alia requires the declarant to withdraw its writ petition filed before the High Court or the Supreme Court in respect of any order in respect of tax arrears . The petitioner had expressly confirmed that it would withdraw the writ petition Pending before this court if the certificate was issued by the Designated Authority (Form 2). We are also unable to sustain the Designated Authority s finding that the date of petitioner s declaration is required to be construed as 07.02.2025 and not 23.12.2024. As held hereinbefore the petitioner s declaration filed on 23.12.2024 could not be treated as non est and ignored. Thus the Designated Authority was required to issue a certificate determining the amount payable by the declarant in accordance with the provisions of the DTVSV Scheme within fifteen days of the date of receipt of the declaration. Admittedly no such order was passed by the Designated Authority within the period as prescribed under Section 92 (1) of the Finance (No. 2) Act 2024. There is no cavil that the Designated Authority had refrained from passing such an order on account of its objections including failure to mention that the writ petition preferred by the petitioner was pending before this court in the declaration - We do not find the said non-disclosure to be material or of any significance in the given facts and circumstances of the case. Once the petitioner had filled up the field by entering CIT(A) in the relevant column regarding where dispute was pending; it could not fill in the details of the writ petition under the same column of Form no. 1. The settlement of the dispute pending before the CIT(A) in the petitioner s appeal would also be dispositive of the petitioner s writ petition pending before this court. However to obviate any such objection on the part of the Designated Authority the petitioner had once again filed a declaration by furnishing revised Form no. 1 which mentioned the pending writ petition albeit in another column. The revised Form no. 1 was clearly in aid of the declaration made earlier on 23.12.2024 and thus was necessarily be read to substitute the earlier declaration. We are convinced to say so for the reasons that the declaration filed on 23.12.2024 could not be construed as non est or not having been made for the reasons as stated herein before. At the stage of reopening of the assessment it is not ascertained whether the income of the assessee chargeable to tax has escaped assessment. The quantum of any such income and tax payable on the same is yet to be determined; the same is determined by the AO at the culmination of the proceedings. There is no determination of the disputed income disputed tax tax arrear disputed penalty and disputed interest at the stage of issuance of notice under Section 148 or 148A of the Act. Consequently it would be impossible to determine the amount payable for settlement of the dispute under DTVSV Scheme which in terms of Section 90 of Finance (No. 2) Act 2024 is based on the quantum of disputed tax disputed penalty disputed interest or disputed fee. It is in this context that the FAQ No. 26 of CBDT Circular No. 12 of 2024 dated 15.10.2024 clarifies that in such cases DTVSV Scheme would be inapplicable. The FAQ 26 expressly indicates that it is in respect of writ petitions challenging notices issued under Section 148 or 148A of the Act. More importantly the principle on the basis of which the clarification is rendered that the disputed tax is not determined is wholly inapplicable in the facts of the present case. Thus the present petition is allowed. The Designated Authority is directed to process the petitioner s declaration and determine the amount payable by the declarant in accordance with the provisions of the DTVSV Scheme by construing the date of declaration filed by the petitioner.

Summary

The core legal questions considered by the Court in this matter are:

1. Whether the petitioner's declaration under the Direct Tax Vivad Se Vishwas Scheme, 2024 (DTVSV Scheme) was valid despite non-disclosure of a pending writ petition before the High Court challenging an Advance Ruling related to the taxability of capital gains arising from conversion of shares into partnership interest.

2. Whether the petitioner's revised declaration filed after the prescribed deadline could be treated as a fresh declaration attracting higher payment liability under the Scheme.

3. Whether disputes pending before the Authority for Advance Rulings (AAR) or writ petitions challenging AAR orders fall within the ambit of disputes eligible for settlement under the DTVSV Scheme.

4. The interpretation and application of Sections 90 and 91 of the Finance (No. 2) Act, 2024, particularly regarding the requirements for full and true disclosure, withdrawal of pending appeals and writs, and consequences of non-disclosure or false disclosure in declarations under the Scheme.

5. The applicability of relevant CBDT circulars and FAQs, including the significance of the date of declaration for determining the amount payable under the Scheme.

Issue-wise Detailed Analysis

1. Validity of Declaration Despite Non-disclosure of Pending Writ Petition

Legal Framework and Precedents: Section 91(5)(a) of the Finance (No. 2) Act, 2024 mandates that a declaration shall be deemed not to have been made if any material particular furnished in the declaration is found to be false at any stage. The petitioner's declaration was required to disclose all relevant disputes pending in relation to the tax arrear.

Court's Interpretation and Reasoning: The Court held that non-disclosure of the pending writ petition before the High Court challenging the AAR order was not a material non-disclosure rendering the declaration invalid. The central dispute was the quantum of tax payable, which had been determined by the Assessing Officer (AO) in an assessment order and was pending appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The writ petition challenged the AAR order but did not determine the quantum of income or tax. The Court reasoned that since the appeal before CIT(A) was dispositive of the dispute, failure to mention the writ petition did not amount to false disclosure under Section 91(5)(a).

Key Evidence and Findings: The petitioner had filed the declaration disclosing the appeal pending before CIT(A) and had also undertaken to withdraw both the writ petition and the appeal upon issuance of the certificate under the Scheme. The Court noted the absence of any allegation that the particulars furnished were false.

Application of Law to Facts: The Court applied the legal fiction in Section 91(5)(a) strictly and found no material falsehood in the declaration. The undertaking to withdraw the writ and appeal further reinforced the petitioner's bona fide intent to settle the dispute.

Treatment of Competing Arguments: The Revenue argued that full disclosure was mandatory and the writ petition was central to the dispute. The Court rejected this, emphasizing the primacy of the appeal before CIT(A) and the petitioner's undertaking.

Conclusion: The declaration was valid despite initial non-disclosure of the writ petition.

2. Effect of Revised Declaration Filed After Deadline

Legal Framework and Precedents: CBDT Circulars No. 19/2024 and 20/2024 provide that declarations filed after 31.01.2025 attract payment of 110% of disputed tax, whereas earlier declarations attract 100%. Section 92(1) requires the Designated Authority to determine the amount payable within 15 days of receipt of declaration.

Court's Interpretation and Reasoning: The Court held that the initial declaration filed on 23.12.2024 was valid and could not be ignored or treated as non est. Therefore, the date of declaration had to be construed as 23.12.2024, not 07.02.2025 when the revised declaration was filed. The revised declaration was in aid of the earlier one and was not a fresh declaration attracting the higher payment liability.

Key Evidence and Findings: No order was passed by the Designated Authority within the prescribed 15-day period after the initial declaration. The revised declaration was filed only after objections were raised.

Application of Law to Facts: The Court applied the statutory timeline and the principle that a valid declaration once made cannot be ignored. The petitioner's revised declaration was a clarification rather than a new declaration.

Treatment of Competing Arguments: The Revenue contended the revised declaration date should be considered, attracting higher payment. The Court rejected this, emphasizing procedural fairness and statutory timelines.

Conclusion: The date of declaration is 23.12.2024, and the petitioner is liable to pay 100% of disputed tax as per the Scheme provisions.

3. Eligibility of Disputes Pending Before AAR or Challenging AAR Orders Under DTVSV Scheme

Legal Framework and Precedents: CBDT Circular No. 9/2020 (FAQ 3) under the earlier DTVSV 2020 Scheme clarified that disputes pending before the AAR are generally ineligible unless the AAR has determined total income and only a writ challenging that order is pending. Section 90 of the Finance (No. 2) Act, 2024 requires full and true disclosure.

Court's Interpretation and Reasoning: The Court found that the AAR had only held that capital gains were chargeable but had not determined the total income or quantum of tax. The AO's assessment order determined the quantum of income and tax, and the appeal before CIT(A) challenged this assessment. The writ petition challenging the AAR order did not determine income or tax. Therefore, the dispute was eligible for settlement under the Scheme.

Key Evidence and Findings: The assessment order dated 23.05.2022 determined the disputed income and tax. The writ petition was pending but did not affect the determination of disputed tax.

Application of Law to Facts: The Court distinguished the present facts from cases where no income determination has been made, making the Scheme inapplicable. The Court rejected reliance on FAQ No. 26 of CBDT Circular No. 12/2024, which pertains to writs challenging notices under Sections 148/148A where income is yet to be determined.

Treatment of Competing Arguments: The Revenue argued the dispute was ineligible as the AAR had not determined income. The Court rejected this, emphasizing the assessment order's role in determining disputed tax.

Conclusion: The dispute is eligible for settlement under the DTVSV Scheme.

4. Interpretation of Sections 90 and 91 of the Finance (No. 2) Act, 2024

Legal Framework: Section 90 mandates filing of declaration in prescribed form; Section 91 provides for deemed withdrawal of appeals and writs upon issuance of certificate, requires undertaking to waive rights to remedies, and invalidates declarations with false or incomplete material particulars.

Court's Interpretation and Reasoning: The Court emphasized that the petitioner's undertaking to irrevocably waive all rights to pursue remedies precludes continuation of the writ petition. The Court held that the petitioner's declaration complied with the statutory requirements and that the Designated Authority's rejection based on non-disclosure or eligibility was unsustainable.

Key Evidence and Findings: The petitioner's undertaking was clear, unequivocal, and in prescribed form. The petitioner confirmed willingness to withdraw the writ and appeal upon issuance of certificate.

Application of Law to Facts: The Court applied the statutory provisions to uphold the validity of the declaration and the petitioner's eligibility.

Treatment of Competing Arguments: The Revenue's reliance on non-disclosure and eligibility criteria was rejected as inconsistent with the statutory scheme and facts.

Conclusion: The petitioner complied with Sections 90 and 91 and is entitled to have its declaration processed.

5. Applicability of CBDT Circulars and FAQs

Legal Framework: CBDT Circulars provide administrative guidance on the DTVSV Scheme, including timelines, payment percentages, and eligibility criteria.

Court's Interpretation and Reasoning: The Court held that the Circulars and FAQs must be read in context and applied to facts. The petitioner's case did not fall within the exceptions outlined in FAQ No. 26 of Circular No. 12/2024, which addresses writs filed against notices under Sections 148/148A before income determination.

Key Evidence and Findings: The assessment order determining income and tax was passed prior to the writ petition, distinguishing the petitioner's case from the FAQ scenario.

Application of Law to Facts: The Court applied the Circulars' clarifications correctly, rejecting the Designated Authority's reliance on inapplicable FAQs.

Treatment of Competing Arguments: The Revenue's argument based on FAQs was dismissed as factually and legally misplaced.

Conclusion: The petitioner's declaration is eligible under the Scheme as per applicable Circulars.

Significant Holdings

"We are unable to accept the Designated Authority's view that the declaration furnished by the petitioner was liable to be rejected or ignored for failure to mention the pendency of the writ petition."

"The settlement of the said dispute would be dispositive of the petitioner's claim that no income chargeable to tax had arisen from extinguishment of the equity shares of Domino India and its conversion to a partnership interest in Domino LLP."

"The declaration filed on 23.12.2024 could not be treated as non est and ignored."

"The petitioner had unequivocally waived its rights whether direct or indirect to seek or pursue any remedy or any claim in relation to the tax arrears."

"The disputed income was determined by the AO in the assessment order and the appeal pending before CIT(A) was the subject matter of the declaration. Therefore, the dispute is eligible for settlement under the DTVSV Scheme."

"The FAQ No. 26 of CBDT Circular No. 12 of 2024 is not applicable in the facts of the present case."

"The Designated Authority is directed to process the petitioner's declaration and determine the amount payable by the declarant in accordance with the provisions of the DTVSV Scheme by construing the date of declaration filed by the petitioner as 23.12.2024 and issue an appropriate certificate in the prescribed form within a period of fifteen days."

The Court established the core principles that a declaration under the DTVSV Scheme must be construed liberally in light of the statutory scheme; non-disclosure of ancillary proceedings not dispositive of the disputed tax does not invalidate the declaration; and the date of the original valid declaration governs the applicable payment liability. The Court emphasized the importance of the petitioner's undertaking to waive remedies and the primacy of the assessment order and appeal in determining the disputed tax.

In final determinations, the Court allowed the petition, held the petitioner's initial declaration valid, rejected the Designated Authority's reasons for refusal, and directed the Designated Authority to process the declaration and issue the certificate under the Scheme within fifteen days, treating the declaration date as 23.12.2024.