2025 (5) TMI 1501 - HC - Income Tax

Settlement under the DTVSV Scheme was rejected - whether the dispute falls within the meaning of the term disputed tax ? - HELD THAT - In the present case the petitioner does not fall within the exclusionary provisions of Section 96 of tIhe FA2 Act. Thus it would be difficult for this court to accept that the dispute which is pending is incapable of settlement under the provisions of the DTVSV Scheme. There is no cavil that on the plain reading of the provisions of the FA2 Act embodying the DTVSV Scheme the subject dispute falls within its scope. It is necessary to bear in mind that the DTVSV Rules have been framed under Section 99 of the FA2 Act for carrying out the provisions of the DTVSV Scheme Petitioner s application has been rejected solely on the ground that it has in fact not claimed carry forward of loss in the subsequent assessment year and therefore none of the options as set out in Rule 9 (1) are applicable - This reasoning is erroneous. The fact that the petitioner had not claimed carry forward loss in his return for the subsequent assessment year AY 23-24 does not preclude it from settlement of its dispute under the DTVSV Scheme for AY 2022-23. The only implication of not claiming a carry forward loss in the next assessment year is that the petitioner would not get the said benefit of the carry forward of loss in the assessment of that year. In any event benefit of carry forward of losses from previous assessment year is contingent on the Assessee complying with the requisite conditions. Thus notwithstanding that an Assessee may be entitled to carry forward losses relatable to prior assessment years an assessee would not be granted the benefit if it does not specifically claim the same in its return. This does not detract from the fact that the assessee could claim a loss in the prior assessment year which it is entitled to carry forward. There is a distinction between an assessee being entitled to a benefit and the assessee claiming the same. The question of whether a dispute relating to a particular assessment year can be settled must be considered as confined to the issues relating to that assessment year. The determination of the same cannot be made contingent on the assessee s action in the subsequent assessment years. The approach of the designated authority to eliminate the applicability of options available to the assessee under Rule 9 (1) of the DTVSV Rules on the basis of an action of the assessee taken for AY 2023-24 is erroneous. Thus under the second option clause (ii) of Rule 9 (1) of DTVSV Rules the Assessee would be entitled to carry forward NIL losses as the entire carry forward loss had been reduced by the AO. The fact that the AO had in fact not claimed any carry forward of loss in the next assessment year would not be destructive of the petitioner s right to exercise its option in terms of Rule 9 (1) of the DTVSV Rules.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court include:

(a) Whether the petitioner's declaration under the Direct Tax Vivad Se Vishwas Scheme, 2024 (DTVSV Scheme) can be rejected on the ground that the petitioner did not claim carry forward of loss in the return filed for the subsequent assessment year (AY 2023-24).

(b) The interpretation and applicability of Rule 9 of the Direct Tax Vivad Se Vishwas Rules, 2024 (DTVSV Rules), specifically whether the petitioner could exercise the options under Rule 9 despite not claiming the carry forward loss in subsequent years.

(c) Whether the dispute relating to reduction of loss or unabsorbed depreciation falls within the scope of the DTVSV Scheme under the Finance (No. 2) Act, 2024 (FA2 Act), or is excluded under Section 96 of the FA2 Act.

(d) The proper scope and effect of Rule 9 of the DTVSV Rules in relation to the computation of disputed tax and the entitlement of the petitioner to settle disputes under the DTVSV Scheme.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Applicability of Rule 9 of the DTVSV Rules and the petitioner's entitlement to exercise options despite not claiming carry forward loss in subsequent years

The relevant legal framework is Rule 9 of the DTVSV Rules, which governs the manner of computing disputed tax where the dispute relates to reduction in loss or unabsorbed depreciation to be carried forward. Rule 9(1) provides two options for the declarant:

(i) To include tax payable on the amount by which loss or unabsorbed depreciation is reduced and carry forward the loss ignoring such reduction; or

(ii) To carry forward the reduced amount of loss or unabsorbed depreciation, paying tax and interest accordingly.

Sub-rule (2) clarifies that the declarant must exercise one of these options; it cannot be imposed by the Assessing Officer (AO).

The Court noted that the petitioner's application was rejected on the basis that the petitioner had not claimed carry forward loss in the subsequent assessment year, and thus, the options under Rule 9 were deemed inapplicable. The Revenue argued that since the petitioner did not claim carry forward loss in AY 2023-24, the second option under Rule 9 could not be exercised, and the petitioner was liable to pay the entire tax computed on the carry forward amount.

The petitioner's counsel contended that the options under Rule 9 must be considered independently of the petitioner's actions in subsequent years. The benefit of carry forward loss is contingent upon compliance with conditions in subsequent years, but failure to claim the carry forward loss does not negate the petitioner's entitlement to exercise options under Rule 9 for the relevant assessment year. The Court agreed, emphasizing a distinction between the entitlement to carry forward losses and the actual claiming of such losses in subsequent returns. The Court held that the petitioner's failure to claim the carry forward loss in AY 2023-24 does not preclude settlement of the dispute for AY 2022-23 under the DTVSV Scheme.

The Court further clarified that the scope of Rule 9 is confined to the manner of computing disputed tax and does not control or curtail the scope of the main enactment (FA2 Act). Therefore, the rejection of the petitioner's application solely on the ground of non-claim of carry forward loss in the subsequent year was erroneous.

Issue (c): Whether the dispute falls within the scope of the DTVSV Scheme or is excluded under Section 96 of the FA2 Act

The Court referred to Section 89(1) of the FA2 Act, which defines "appellant" and "disputed tax." The petitioner qualified as an appellant since an appeal was pending before the Commissioner of Income Tax (Appeals). The dispute related to reduction of loss, which falls under the proviso to Clause (j) of Section 89(1), granting the appellant an option to include tax related to loss or carry forward the reduced loss as prescribed.

Section 96 of the FA2 Act lists exclusions from the DTVSV Scheme, such as cases involving assessments based on search operations, prosecution instituted before filing declaration, undisclosed foreign income or assets, and certain offences. The Court found that the petitioner did not fall within any exclusionary category under Section 96.

Thus, the Court concluded that the petitioner's dispute is within the ambit of the DTVSV Scheme and eligible for settlement.

Issue (d): Interpretation of the DTVSV Scheme and Rule 9 in context of the petitioner's case

The Court examined the legislative intent and the scheme of the FA2 Act and DTVSV Rules. Rule 9 was framed under Section 99 of the FA2 Act to provide the manner of determination of disputed tax, including treatment of brought forward or carry forward losses or depreciation. The Court emphasized that Rule 9 is procedural and does not define the scope of disputes eligible under the DTVSV Scheme.

The designated authority's rejection based on a narrow reading of Rule 9 and the petitioner's non-claim of carry forward loss in the subsequent year was found to be an erroneous approach. The Court held that the question of settlement must be confined to the issues relating to the relevant assessment year and cannot be made contingent on the petitioner's actions in subsequent years.

The Court also noted that under the second option of Rule 9, the petitioner would be entitled to carry forward NIL losses if the entire loss was reduced by the AO, which does not affect the petitioner's right to exercise the option.

3. SIGNIFICANT HOLDINGS

The Court held:

"The fact that the petitioner had not claimed carry forward loss in his return for the subsequent assessment year [AY 23-24] does not preclude it from settlement of its dispute under the DTVSV Scheme for AY 2022-23. The only implication of not claiming a carry forward loss in the next assessment year is that the petitioner would not get the said benefit of the carry forward of loss in the assessment of that year."

"There is a distinction between an assessee being entitled to a benefit and the assessee claiming the same. The question of whether a dispute relating to a particular assessment year can be settled, must be considered as confined to the issues relating to that assessment year. The determination of the same cannot be made contingent on the assessee's action in the subsequent assessment years."

"Rule 9 has been framed in exercise of the powers under Section 99 of the FA2 Act solely for the purposes of providing the manner for computing the disputed tax. The import of Rule 9 neither is nor can be construed to control or curtail scope of the main enactment."

"The approach of the designated authority to eliminate the applicability of options available to the assessee under Rule 9 (1) of the DTVSV Rules on the basis of an action of the assessee taken for AY 2023-24 is erroneous."

Consequently, the Court allowed the petition, set aside the impugned rejection orders, and directed the designated authority to process the petitioner's application in accordance with the DTVSV Scheme and Rules, bearing in mind the Court's observations.

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