TMI Blog1999 (4) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... 977 correspondingly specifying the increased tax liability of Rs. 1,65,32,082. The assessee disputed the adjustment made under section 143(1)(a) by filing an appeal on December 26, 1997. However, the said appeal was not liable to be admitted for want of compliance with the requirement of sub-section (4) of section 249, namely non-payment of tax payable as per the return of the income. However, no order rejecting the appeal had been made. The assessee before filing the appeal had moved an application for rectification also on December 22, 1997, under section 154 of the Income-tax Act, before the Assessing Officer. The Assessing Officer vide his order dated July 27, 1998, partially accepted the application and reduced the adjusted income under section 143(1)(a) to Rs. 1,33,77,190. Corresponding thereto, the tax payable as specified in the intimation was reduced to Rs. 57,09,640. Thus, as on March 31, 1998, under the Income-tax Act the tax stood determined at Rs. 57,09,640, under section 143(1)(a) of the Act. The assessee had preferred a revision under section 264 against the order dated July 27, 1998, which was pending. Under the Finance (No. 2) Act of 1998 which came into force wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the limitation was also pending before the Commissioner of Income-tax, when the petitioner filed a declaration on December 31, 1998. The assessee's eligibility as declarant as on December 31, 1998, is not in dispute. Under section 90(1) of the KVSS the designated authority was to make an order determining the amount payable by the declarant within 60 days from the date of receipt of declaration. The order is required to set forth the particulars of tax arrear and the sum payable towards full and final settlement of the tax arrears. Within 30 days of the making of such order under section 90(2), the declarant is required to pay the sum so determined by the designated authority. He has also to intimate the fact of payment to the designated authority along with the proof thereof, on receipt of which the designated authority is to issue the certificate to the declarant. After furnishing the declaration on December 31, 1998, the next thing which the assessee-petitioner came to know was the impugned order dated February 26, 1999, passed by the designated authority recording that the Assessing Officer has informed the designated authority that in exercise of his power under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of events noticed above, it was urged that the Assessing Officer having already exercised his power under section 154 on an application being made in that regard by the petitioner, has concluded the matter as to the prima facie adjustments to be made under section 143(1)(a). As far as he was concerned, by application of mind as early as on July 27, 1998, he had concluded the questions and no application for rectification was pending before him. His belief as to the chargeability of the amount in question to tax, which was not included by the assessee in his returned income, was still persisting. That is manifest from the fact that in regular assessment under section 143(3) which has come into existence on March 30, 1999, barely a month after the passing of the order under section 154, again shows the very same additions in the returned income, by the very same Assessing Officer which has been deleted in purported suo motu exercise of jurisdiction under section 154 without giving notice to the assessee, and the fact that proceedings for regular assessment had already been initiated by issuing notice under section 143(2) much prior to having recourse to exercise of jurisdiction unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble in respect thereof. Such adverse orders may also be relating to determining the status of a person as assessee though may not affect computations of income inasmuch as determination of status may affect the rate of income-tax applicable to a person depending on his status as well, attracting other provisions which in the end result in enhancing the liability of the assessee under the Act. It cannot be referable to liabilities and obligations or rights beyond the precincts of the Income-tax Act. In this connection it would also be apposite to notice that the KVSS does not affect the liability of the assessee to any tax in any sense. In fact it does not adjudicate as to the liability of the assessee to assessment of income under the Income-tax Act or liabilities to tax under the different Acts mentioned in the Schedule to the Scheme. The KVSS only concerns the liability already determined and existing and remaining outstanding because the assessee has failed to discharge such obligation. No part of the Scheme determines the liability of the assessee that arises under the Income-tax Act or other different Acts. It only concerns itself with recovery of the unpaid tax as on the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him in making adjustment under section 143(1)(a), but was directed to infructuate the declaration made on December 31, 1998, under the Scheme which followed filing the revision on December 30, 1998, against the order dated July 27, 1998. The Assessing Officer had made certain additions in the first instance on being satisfied prima facie about their apparent exigibility to tax in addition to the returned income, on November 18, 1997. The assessee had filed an appeal against the intimation under section 143(1)(a) on December 26, 1997. However, before the appeal was filed, which requires as a condition to be admitted, payment of tax as per the returned income, the petitioner had preferred a rectification application also before the Assessing Officer. The Assessing Officer had considered that application, accepted partly the claim of the assessee as to the debatability or non-taxability of additions made by the Assessing Officer to a large extent, but not fully. Notice under section 143(2) had also been issued for regular assessment during which the issue as to disputed additions could be agitated and brought back to assessment. Thus the proceedings had already reached a stage where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made. In proceeding under section 143(3), which could be made on hearing, he had no intention to delete the addition and allow the tax reduction as per intimation under section 143(1)(a), which is apparent from the fact that having reduced the tax payable under section 143(1)(a) on February 26, 1999, by treating the additions to be a mistake apparent from the order, an order which was not intimated to the assessee, the officer hastened to make an order under section 143(3) subjecting the assessment to the same additions raising the liability to a level which would sustain the assessee to a person with "tax arrear" again. Viewed in this background of the chain of events, the declaration was filed by the petitioner fulfilling all the conditions prescribed therein for availing of whatever benefits the legislation offered under the Scheme. Thereafter the order on the declaration is to be made within 60 days by the designated authority for determining the amount payable under the Scheme by the declarant. That were to expire on March 1. On February 26, 1999, the order is made under section 154 in purported exercise of powers under section 154 reducing the assessment to returned income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exists and next day after rejecting the declaration redetermine the liability which will resurrect the tax arrear as well as litigation, as has happened in this case demonstrably. One cannot fail to notice that within sixty days of the declaration the designated authority has to make an order under section 90(1) determining the sum payable by the assessee towards full and final settlement of "tax arrears" and on payment of such sum within a period of 30 days from passing an order under section 90(2) the assessee gets the consequential reliefs which includes under section 90(3) that every order passed under section 90(1) determining the sum payable under the Scheme shall be conclusive as to matters stated therein and no matter covered by such order shall be reopened in any other proceeding not only under the concerned tax enactment but also under any other law for the time being in force, and results in withdrawal of litigation pending at the assessee's behest under section 90(4). Thus by prohibiting the reopening of the matter pertaining to tax determination in respect of which tax was in arrear and directly withdrawal of pending litigation the Legislature made it clear that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven otherwise, we are satisfied that merely because there is a modification or alteration in the quantum of tax arrears as on the date when the order under section 90(1) is to be made from the one which exist as on the date the declaration was filed, as a result of orders which come into existence during the interregnum period to the extent permissible under the Scheme, would not make the declaration infructuous but at best may affect the determination of amount payable by the declarant, depending upon the dispute that continues to exist. As the question directly does not arise in this petition we refrain from expressing any firm opinion on the exact amount with reference to which the quantum of amount payable under the Scheme is to be determined. Prima facie, we are of the opinion that except in a case where the amount of tax, interest or penalty determined under the enactment as a result of orders made under the concerned enactment before the date of determination is reduced to zero and the Revenue does not intend to dispute such result, the scheme operates so long there are "tax arrears" to be recovered. This is in consonance with the twin object of the Scheme which has its av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme operates by ignoring the reduction as a result of the existing order. The above declaration of law as to the validity of the proviso to section 92 and reading down of clause (m) of section 87 has been accepted by the Union of India by issuing a press note released on November 26, 1998. Thus the Revenue has accepted that even in case as a result of subsequent decision the tax liability is reduced that is the subject-matter of dispute in future, the conditions of the Scheme having been satisfied enabling a person to make a declaration would not disentitle him to the benefit of the Scheme. He is entitled to insist for an order under section 90(1) for computation of amount payable under the Scheme by ignoring the order passed in his favour and to secure immunities and benefits from levy of interest, penalty and prosecution by not desiring to enter into the field of litigation any further. Taking any other view in the circumstances, would mean that the Scheme would remain wide open to abuse by making the declarations infructuous just before the day for determining the amount payable by making orders under the respective enactments, reducing the tax liability or deleting the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it. Undoubtedly, it is true that pending litigation or dispute is necessary condition for entering the field of the Scheme. It is reflected from the provisions of section 88 as well as section 95 of the Finance (No. 2) Act of 1998. The amount to be determined under section 88 is with reference to disputed income, disputed wealth, disputed gift, disputed chargeable expenditure, disputed chargeable interest. Section 95 makes it abundantly clear that unless an appeal or reference or writ petition is admitted and pending before any appellate authority or the High Court or the Supreme Court on the date of filing of declaration or application for revision is pending before the Commissioner on the date of filing declaration the provisions of the Scheme would not apply. So also in the case of indirect tax enactments the provision that in a case where no appeal or reference or writ petition is admitted and pending before any appellate authority or High Court or the Supreme Court or no application for revision is pending before the Central Government on the date of declaration made under section 88 the provisions of the Scheme shall not apply. These provisions leave no room for doubt that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic concept of tax arrears as well as the conditions which make a person eligible to make a declaration of tax arrears have direct relevance to the date of declaration. While the condition that there must be dispute pending in respect of tax arrears, there is no such condition which requires or can lead to this conclusion that tax arrear would constitute only such tax arrears which are disputed and not the arrears in respect of admitted tax liability. Therefore, once the case is made out that the assessee was a person who had "tax arrears" as on the date of making declaration and dispute was also pending in respect of such "tax arrears" which may not concern the entire amount of "tax arrears" he is entitled to make a declaration and claim the benefits that may have to be computed in accordance with the provisions of the Act. The subsequent determination of pending dispute which does not wipe out the tax liability of the arrears altogether cannot make the case fall in a category where there are no tax arrears within the meaning of section 87(m). Even in respect of a case where as a result of orders made under the relevant taxing statute tax liability is set aside altogether or reduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prosecution, etc. In case there are no arrears of tax but only of interest and penalty, demand in respect of such arrears is reduced to half. That construction saves the provision from the vulnerability to fall foul of article 14 on the ground of hostile discrimination. A person who for any reason has not paid admitted tax but is honest in his declaration is placed at a disadvantage position vis-a-vis a person not so transparent assessee whose tax declaration is not found acceptable and addition in income has been made, interest and penalties levied and also with those assessees who have recourse to even a wholly untenable dispute the benefit of reduction in tax liability is extended to admitted tax liability as well, inasmuch as a non-disputant assessee is prohibited to get any benefit under the KVSS, a disputant assessee will get benefit not only in respect of tax arrear in respect of which a dispute is pending, settlement of which is one of the purposes, but also in respect of undisputed liability, when recovery of all arrears is not the sole purpose but is interwined with settlement of the dispute. In such event, a case of an honest assessee being unequally treated is prima fa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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