Court quashes notices under Income Tax Act, citing Vivad Se Vishwas Scheme.

The court allowed the writ petitions, quashing the impugned notices issued under Section 263 of the Income Tax Act, 1961. It emphasized that proceedings under Section 263 could not continue once the petitioners had opted for the Direct Tax Vivad Se Vishwas Scheme, 2020, reiterating the scheme's intention to reduce litigation and provide peaceful resolutions for taxpayers.

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Issues Involved:
1. Jurisdiction of notices issued under Section 263 of the Income Tax Act, 1961.
2. Validity of reopening assessments under Section 148 of the Income Tax Act.
3. Applicability of the Direct Tax Vivad Se Vishwas Scheme, 2020.
4. Classification of income from the sale of property.
5. Application of promissory estoppel and principles of fair administration.

Issue-wise Detailed Analysis:

1. Jurisdiction of Notices Issued under Section 263 of the Income Tax Act, 1961:
The petitioners challenged the impugned notices dated 22.02.2021 under Section 263 of the Income Tax Act, 1961, arguing that these notices were without jurisdiction. They contended that they had opted to settle their cases under the Direct Tax Vivad Se Vishwas Scheme, 2020. The respondents argued that the assessment orders dated 27.12.2018 were erroneous and prejudicial to the interest of the Revenue, justifying the invocation of Section 263. The court found that once the petitioners had opted to settle the dispute under the Vivad Se Vishwas Act, 2020, the proceedings initiated under Section 263 had to be dropped.

2. Validity of Reopening Assessments under Section 148 of the Income Tax Act:
The facts indicated that the petitioners, along with their siblings, sold a property in the financial year 2010-2011. The assessments were reopened under Section 148, leading to separate assessment orders dated 27.12.2018. The petitioners had filed appeals before the CIT Appeals under Section 246A. The court noted that the reopening of assessments was based on the non-admission of capital gains in the returns filed by the petitioners.

3. Applicability of the Direct Tax Vivad Se Vishwas Scheme, 2020:
During the pendency of the appeals, the petitioners opted for the Vivad Se Vishwas Scheme and filed Form 1 and Form 2. The Designated Authority issued Form 3, quantifying the refund amounts. The court emphasized that the scheme aimed to bring closure to disputes regarding tax arrears. It held that the intention of the Act was to prevent reopening settled matters under Section 263 once the scheme was opted for.

4. Classification of Income from the Sale of Property:
The respondents argued that the income from the sale should be treated as "income from other sources" rather than "long-term capital gain," and that the petitioners incorrectly claimed benefits under Section 54F. The court observed that the assessment orders were based on the petitioners' claims of 54(F) exemption and subsequent investments in residential properties. However, it concluded that these issues could not be reopened under Section 263 once the Vivad Se Vishwas Scheme was opted for.

5. Application of Promissory Estoppel and Principles of Fair Administration:
The petitioners relied on various decisions, including Radha Krishnan Industries Vs. State of Himachal Pradesh, to argue that the rule of law requires fairness in the application of tax statutes. The court agreed, noting that the principles of promissory estoppel and fair administration applied, and that the Revenue should not act in a manner that undermines the credibility of the tax settlement schemes.

Conclusion:
The court allowed the writ petitions, quashing the impugned notices issued under Section 263 of the Income Tax Act, 1961, and emphasized that the proceedings under Section 263 could not continue once the petitioners had opted for the Direct Tax Vivad Se Vishwas Scheme, 2020. The court reiterated the intention of the scheme to reduce litigation and provide a peaceful resolution for taxpayers.

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