Direct Tax Vivad se Vishwas Act Clarified: Pending Prosecution Not a "Tax Arrear," Allows New Declarations. Case Remanded.

The HC set aside the respondents' rejection of the petitioners' declarations under the Direct Tax Vivad se Vishwas Act, 2020, due to pending prosecution under Section 276CC of the Income Tax Act. The court determined that such prosecution did not constitute a "tax arrear" under the Act, thus allowing the petitioners to file declarations. The matter was remanded for reconsideration in accordance with the Act, disregarding certain FAQs deemed contrary to its scheme. The issue concerning the computation of the compounding fee was not addressed, as the court resolved the primary grievance. No costs were awarded, and any pending miscellaneous petitions were closed.

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Issues Involved:
1. Computation of Compounding Fee under Section 276CC of the Income Tax Act.
2. Rejection of Declarations under the Direct Tax Vivad se Vishwas Act, 2020.

Detailed Analysis:

1. Computation of Compounding Fee under Section 276CC of the Income Tax Act:

The petitioners challenged the computation of the compounding fee by the respondents for offences under Section 276CC of the Income Tax Act for the assessment years 2011-12 to 2015-16. The petitioners contended that the fee should be Rs.36,96,000, whereas the respondents quantified it at Rs.2,96,32,920. The petitioners argued that this computation was arbitrary and contrary to the Act and the Guidelines for Compounding Offences under Direct Tax Laws, 2019. They also sought compounding for the assessment year 2010-11, which was initially excluded from their application. The respondents maintained that the fee was computed in accordance with CBDT guidelines and that the high-powered committee's decision on compounding was binding. The court did not delve deeply into this issue due to its decision on the second grievance.

2. Rejection of Declarations under the Direct Tax Vivad se Vishwas Act, 2020:

The petitioners' second grievance was the rejection of their declarations under the Direct Tax Vivad se Vishwas Act, 2020, for the assessment years 2011-12 to 2015-16. The respondents rejected these declarations, citing pending prosecution proceedings under Section 276CC of the Income Tax Act. The court analyzed the relevant provisions of the Vivad se Vishwas Act, particularly Section 9(a), which excludes the applicability of the Act if prosecution has been instituted in respect of tax arrear relating to an assessment year before the date of filing the declaration. The court referred to the Bombay High Court's decision in Macrotech Developers Limited, which held that the exclusion applies only if the prosecution is in respect of tax arrear as defined under the Act, not merely any pending prosecution.

The court concluded that the prosecution under Section 276CC for delayed filing of returns did not constitute a "tax arrear" under the Vivad se Vishwas Act. Therefore, the pending prosecution could not render the petitioners ineligible to file declarations under the Act. The court set aside the respondents' rejection of the declarations and remanded the matter back to the respondents to reconsider the declarations in conformity with the Act, disregarding the answers to FAQ Nos. 22 and 73, which were found to be contrary to the Act's scheme.

Conclusion:

The court allowed the writ petition to the extent of setting aside the rejection of the declarations under the Vivad se Vishwas Act and remanded the matter for reconsideration. The issue of compounding fee computation was not adjudicated due to the resolution of the second grievance. No costs were awarded, and any pending miscellaneous petitions were closed.

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