2025 (6) TMI 163 - HC - Income Tax

Direct Tax Vivad Se Vishwas (DTVSV) Scheme 2024 - Application is rejected as the proceedings were initiated on the basis of a search conducted u/s 132 of the said Act and therefore it comes within the ambit of Section 96 of the said Scheme - HELD THAT - The order impugned indicates that the competent authority under the said Scheme proceeded to reject the said application perceiving the initiation of a proceeding being an outcome of a survey u/s 132 and therefore activated the provisions under Section 96 of the said Scheme. The order of the assessing officer evinced that the case was processed u/s 143 (1) of the Income Tax Act on a survey operation having done u/s 133A and there is no reflection that such initiation was an outcome of the search u/s 132 or u/s132A of the said Act. In absence of any material justifying the formation of an opinion that the proceeding was initiated on a search u/s 132 the authorities could not have surreptitiously arrived at the decision that it was the resulted effect of a search under Section 132 of the said Act. AO has vividly and exclusively indicated the genesis of the initiation of the proceeding being a survey operation u/s 133A and therefore we do not find any justification in the impugned order passed by the competent authority under the said Scheme to take a different view without recording any proper reasons in this regard. Admittedly the proceeding u/s 133A of the Income Tax Act is consciously omitted under Section 96 of the said Scheme and therefore the embargo created thereunder with regard to availment of the Scheme does not operate and therefore the order dated 4th February 2025 impugned in the instant writ petition cannot be justified. Accordingly the order is hereby quashed and set aside.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the petitioner's application under the Direct Tax Vivad Se Vishwas (DTVSV) Scheme, 2024 can be rejected on the ground that the assessment proceedings were initiated on the basis of a search conducted under Section 132 of the Income Tax Act, 1961, thereby attracting the exclusion under Section 96 of the Scheme?

- Whether the initiation of assessment proceedings based on a survey under Section 133A of the Income Tax Act falls within the ambit of Section 96 of the DTVSV Scheme, which excludes proceedings initiated on the basis of search under Section 132 or 132A?

- Whether the competent authority under the Scheme was justified in rejecting the application without proper reasons and on an erroneous premise that the proceedings were search-based?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of Section 96 of the DTVSV Scheme to proceedings initiated on the basis of search under Section 132

The legal framework revolves around the provisions of the Direct Tax Vivad Se Vishwas Scheme, 2024, particularly Section 96, which excludes the Scheme's applicability to tax arrears relating to assessment years where assessments have been made under specified sections of the Income Tax Act based on a search initiated under Section 132 or 132A. The relevant subsections cited include assessments under Section 143(3), 144, 147, 153A, or 153C, if they arise from a search.

The Court interpreted the exclusionary clause in Section 96(a)(i) strictly, emphasizing that the Scheme does not apply to cases where the assessment is initiated on the basis of a search under Section 132 or 132A. The rationale behind this exclusion is to prevent the Scheme's benefits from being availed in cases involving more serious tax evasion or concealment detected through search operations, which warrant stringent scrutiny and prosecution.

Key evidence considered was the assessment order dated 29th May 2023, which indicated the assessment was made following a survey operation under Section 133A, not a search under Section 132. The assessing officer's report and the procedural history clearly indicated the genesis of the assessment proceedings was a survey, not a search. The Court found no material or record supporting the conclusion that a search under Section 132 had triggered the assessment proceedings.

The Court applied the law to the facts by distinguishing between survey and search operations under the Income Tax Act. Since Section 96 excludes only search-based proceedings and not survey-based ones, the petitioner's case did not fall within the exclusion. The Court rejected the opposing argument that the proceedings were search-based, noting that the authorities failed to provide any proper reasons or evidence to substantiate such a claim.

The conclusion was that the exclusion under Section 96 of the Scheme does not operate in the petitioner's case, as the assessment was initiated on the basis of a survey under Section 133A, which is consciously omitted from the exclusion list. Therefore, the petitioner's application under the Scheme should not have been rejected on this ground.

Issue 2: Validity of the rejection order under the DTVSV Scheme

The impugned order dated 4th February 2025 rejected the petitioner's application under the DTVSV Scheme on the premise that the assessment proceedings were initiated following a search under Section 132. The Court scrutinized the reasoning and found it to be surreptitious and devoid of proper justification.

The legal principle guiding this issue is that administrative or quasi-judicial orders must be based on material evidence and reasoned conclusions. The Court emphasized that the competent authority under the Scheme cannot arbitrarily or erroneously construe the nature of the proceedings to deny the petitioner's statutory remedy.

The Court noted that the assessing officer explicitly stated the proceedings originated from a survey under Section 133A, and there was no indication or material to suggest a search under Section 132 or 132A. The authority under the Scheme failed to record any reasons or provide any evidence to the contrary before rejecting the application.

On application of law to facts, the Court held that the rejection order was legally unsustainable and liable to be quashed. The Court underscored the importance of adherence to procedural fairness and reasoned decision-making in tax administration, especially when denying benefits under a statutory scheme designed to resolve disputes.

The competing argument by the revenue that the proceedings were search-based was treated as unsubstantiated and rejected for lack of evidence. The Court concluded that the rejection was improper and ordered the matter to be reconsidered afresh on merits.

3. SIGNIFICANT HOLDINGS

"On a manifest reading of the aforementioned provision, it is aptly clear that the provision of the said Scheme indicated therein shall not apply in respect of a tax period relating to an assessment year in respect of which an assessment has been made under sub-Section (3) of Section 143 or Section 144 or Section 147 or Section 153A or Section 153C of the Income Tax Act, if initiated on the basis of a proceeding under Section 132 or Section 132A of the Income Tax Act."

"In absence of any material justifying the formation of an opinion that the proceeding was initiated on a search under Section 132 of the Act, the authorities could not have surreptitiously arrived at the decision that it was the resulted effect of a search under Section 132 of the said Act."

"The assessing officer has vividly and exclusively indicated the genesis of the initiation of the proceeding being a survey operation under Section 133A and, therefore, we do not find any justification in the impugned order passed by the competent authority under the said Scheme to take a different view without recording any proper reasons in this regard."

"Admittedly, the proceeding under Section 133A of the Income Tax Act is consciously omitted under Section 96 of the said Scheme and, therefore, the embargo created thereunder with regard to availment of the Scheme does not operate and, therefore, the order dated 4th February, 2025 impugned in the instant writ petition cannot be justified."

The core principles established include the strict interpretation of exclusion clauses in statutory schemes, the distinction between survey and search operations under the Income Tax Act for the purpose of Scheme applicability, and the requirement for reasoned and evidence-based administrative decisions when rejecting applications under such schemes.

Final determinations were that the petitioner's application under the DTVSV Scheme could not be rejected on the ground that the assessment proceedings were search-based, as the proceedings originated from a survey operation under Section 133A. The impugned rejection order was quashed, and the matter was remanded to the competent authority for fresh consideration on merits in accordance with law and the materials available.