Court rules assessment under Direct Tax Vivad Se Vishwas Act not a "search case" for petitioner, deems 125% tax unsustainable.

The court held that the petitioner's case should not be considered a "search case" under the Direct Tax Vivad Se Vishwas Act, as the assessment was not based on a search conducted directly on the petitioner. The court found the Designated Authority's determination of tax payable by the petitioner as 125% of the disputed tax to be unsustainable. The court set aside the previous order and directed the Designated Authority to determine the tax payable by the petitioner as a non-search case in accordance with the Act and Circular No. 4/2021 within two weeks.

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Issues Involved:
1. Whether the petitioner's case should be considered a "search case" under the Direct Tax Vivad Se Vishwas Act, 2020 (DTVSV Act).
2. The applicability and interpretation of Section 3 of the DTVSV Act.
3. The validity of FAQ No. 70 in Circular No. 21/2020 issued by the CBDT.
4. The effect of Circular No. 4/2021 on the interpretation of a "search case."
5. The correctness of the tax determination by the Designated Authority under the DTVSV Act.

Detailed Analysis:

Issue 1: Whether the petitioner's case should be considered a "search case" under the DTVSV Act.
The petitioner argued that the assessment was not based on any search conducted directly on him but was based on information obtained from searches conducted on other entities. The petitioner contended that his case does not fall under the definition of a "search case" as per Section 3(b) of the DTVSV Act, which requires the tax arrears to be determined in any assessment on the basis of a search under Section 132 or Section 132A of the Income-tax Act.

The respondents, however, argued that the assessment order was framed based on information obtained from searches conducted by the Directorate of Income Tax (Investigation) in Kolkata and that the petitioner's case should be considered a "search case" under the DTVSV Act.

Issue 2: The applicability and interpretation of Section 3 of the DTVSV Act.
Section 3 of the DTVSV Act outlines the amount payable by a declarant. Sub-clause (a) applies to cases where the tax arrear is the aggregate amount of disputed tax, interest, and penalty, while sub-clause (b) applies to cases where the tax arrear includes tax, interest, or penalty determined in any assessment on the basis of a search. The petitioner argued that his case falls under sub-clause (a) and not sub-clause (b) since no search was conducted directly on him.

Issue 3: The validity of FAQ No. 70 in Circular No. 21/2020 issued by the CBDT.
FAQ No. 70 clarified that if an assessment order is framed under Section 143(3)/144 based on a search executed in another taxpayer's case, it should be considered a "search case." The petitioner challenged this FAQ, arguing that it is contrary to the provisions of the DTVSV Act and should be ignored.

Issue 4: The effect of Circular No. 4/2021 on the interpretation of a "search case."
Circular No. 4/2021, issued after the petition was filed, clarified that a "search case" means an assessment or reassessment made under Sections 143(3)/144/147/153A/153C/158BC of the Income-tax Act in the case of a person referred to in Section 153A or Section 153C or Section 158BC or Section 158BD on the basis of a search initiated under Section 132, or requisition made under Section 132A of the Income-tax Act. This circular modified FAQ No. 70 to this extent.

Issue 5: The correctness of the tax determination by the Designated Authority under the DTVSV Act.
The Designated Authority had determined the tax payable by the petitioner to be 125% of the disputed tax, treating the case as a "search case." The petitioner argued that this determination was based on an incorrect interpretation of the DTVSV Act and the relevant circulars.

Judgment:
The court concluded that the petitioner's case should not be considered a "search case" under the DTVSV Act. The assessment order was not based on a search conducted directly on the petitioner, and the petitioner was not a person referred to in Sections 153A or 153C of the Income-tax Act. The court found that the Designated Authority's determination of the tax payable by the petitioner as 125% of the disputed tax was unsustainable.

The court set aside the Order dated 26th January 2021 in Form No.3 passed by the Designated Authority and directed the Designated Authority to pass a fresh order in Form No.3, determining the tax payable by the petitioner as a non-search case in accordance with the DTVSV Act and Circular No. 4/2021 within two weeks from the date of receipt of the order. The petition was allowed, and no order as to costs was made.

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