Revenue's Unfair Action Overturned; Petitioner Granted Proper Hearing

The court found that the Revenue violated principles of natural justice by not providing a fair opportunity for the Petitioner to present its case. The rejection of the application without waiting for the Petitioner's reply was set aside, and the matter was remanded for a proper hearing. All other issues were left open, and the petition was disposed of with no order as to costs.

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Issues Involved:

1. Revocation of Form 3 issued under the Direct Tax Vivad Se Vishwas Act, 2020 (DTVSV Act).
2. Rejection of the Petitioner’s application under the DTVSV Act for assessment year 2011-2012.
3. Breach of principles of natural justice.
4. Applicability of Section 9 of the DTVSV Act.
5. Competence of the Designated Authority to rectify errors.

Detailed Analysis:

1. Revocation of Form 3 Issued Under the DTVSV Act:
The Petitioner challenged the revocation of Form 3 issued by the Designated Authority, which determined the amount payable under the DTVSV Act. The Petitioner argued that once Form 3 was issued, the Designated Authority did not have the power to revoke it except in specific circumstances mentioned in Section 4(6) of the DTVSV Act, which were not applicable in this case. The Petitioner had made payments that were treated as payments under the DTVSV Act, and sought to withdraw the appeal pending before the Commissioner of Income Tax (Appeals) based on the issuance of Form 3.

2. Rejection of the Petitioner’s Application Under the DTVSV Act:
The Petitioner’s application under the DTVSV Act was rejected on the grounds that the case was treated as a Search Case, and the disputed tax exceeded Rs. 5 Crores, making the Petitioner ineligible under Section 9 of the DTVSV Act. The Revenue argued that the assessment was based on information from a search conducted on the Petitioner, and thus fell under the definition of a Search Case as clarified by CBDT circulars.

3. Breach of Principles of Natural Justice:
The Petitioner contended that there was a breach of principles of natural justice as no opportunity of hearing was granted before the revocation of Form 3 and rejection of the application. The Petitioner received an email on 23rd March 2021 to show cause within three days, but the application was rejected on 26th March 2021 without waiting for the reply, which was filed on 30th March 2021. The court found that the Revenue acted in a "tearing hurry" without affording a fair and reasonable opportunity to the Petitioner, which violated the principles of natural justice.

4. Applicability of Section 9 of the DTVSV Act:
The Petitioner argued that Section 9 of the DTVSV Act, which excludes cases where the assessment is based on a search and the disputed tax exceeds Rs. 5 Crores, was not applicable. The Petitioner claimed that the assessment did not have any direct connection with undisclosed income found in the search proceedings. The Revenue, however, maintained that the Petitioner’s case was indeed a Search Case as the assessment was based on incriminating material from the search.

5. Competence of the Designated Authority to Rectify Errors:
The Revenue argued that the Designated Authority had the power to rectify apparent errors under Section 5 of the DTVSV Act, as clarified by CBDT Circular No. 9/2020. This allowed the Designated Authority to amend orders to correct any patent errors, which justified the revocation of Form 3 and rejection of the application.

Conclusion:
The court found that the Revenue’s actions violated the principles of natural justice by not providing a fair and reasonable opportunity for the Petitioner to present its case. The rejection of the application on 26th March 2021, without waiting for the Petitioner’s reply, was set aside. The matter was remanded back to the Designated Authority to take a decision after giving the Petitioner a proper opportunity of hearing and considering the submissions. All other contentions of the parties were kept open, and the petition was disposed of with no order as to costs.

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