2022 (11) TMI 26 - HC - Income Tax

Court Allows Late Appeal under Vivad Se Vishwas Scheme, Invalidates CBDT Circular, Directs Quick Settlement

The court ruled in favor of the petitioner, holding that the appeal was eligible to settle under the Vivad Se Vishwas Scheme (VSV Scheme) despite being ... Meaning of 'pending' for appeals under the VSV Act - competence or validity of an appeal is not a prerequisite for its pendency - interpretation of Section 2(1)(a) and Section 2(1)(n) of the VSV Act - scope of CBDT's power to issue circulars under Section 10 of the VSV Act (analogy to Section 119 of the IT Act) - invalidity of administrative instructions insofar as they are adverse to the assessee - quashing of Forms issued under VSV Scheme and direction to treat an appeal as pendingMeaning of 'pending' for appeals under the VSV Act - competence or validity of an appeal is not a prerequisite for its pendency - interpretation of Section 2(1)(a) and Section 2(1)(n) of the VSV Act - The meaning of the word 'pending' in Section 2(1)(a) of the VSV Act and whether an appeal must be valid/competent or admitted to be regarded as pending on the specified date. - HELD THAT: - The Court held that where a statute contemplates the 'pendency' of an appeal, the requirement is only that an appeal has been filed and remains undetermined as on the specified date; there is no statutory qualification that the appeal must be valid, competent or admitted. Reliance was placed on the principle that validity or competence of an appeal is for the appellate forum to decide after hearing, and an appeal which may later be found barred or incompetent nevertheless remains an appeal pending until so adjudicated. The Court cited earlier authority in support of the view that irregularity or incompetence does not expunge the existence of an appeal and therefore cannot be read into the VSV Act as a condition for eligibility. [Paras 13, 15, 16]An appeal filed and undetermined on the specified date is 'pending' for the purposes of Section 2(1)(a) of the VSV Act even if it is irregular, barred by limitation or not admitted prior to that date.Scope of CBDT's power to issue circulars under Section 10 of the VSV Act (analogy to Section 119 of the IT Act) - invalidity of administrative instructions insofar as they are adverse to the assessee - FAQ-59 requiring admission of appeal contrary to law - Whether FAQ-59 in CBDT Circular No.21/2020 (requiring admission of an appeal before the date of declaration as a condition for deeming the appeal to be pending) is valid. - HELD THAT: - The Court observed that although the CBDT has power to issue directions under Section 10 of the VSV Act, that power is analogous to the Board's power under Section 119 of the IT Act and does not permit issuance of circulars adverse to assessees. Administrative instructions cannot override or add conditions to statutory provisions. Consequently, to the extent FAQ-59 imposes 'admission' of the appeal before filing the declaration as a pre-condition for treating an appeal as pending on the specified date, it is contrary to law and liable to be set aside. The Court noted authoritative statements that circulars inconsistent with the statute have no legal existence and that judicial declarations of law prevail over executive circulars. [Paras 18, 19, 20, 21]FAQ-59 of CBDT Circular No.21/2020 is invalid insofar as it treats 'admission' of an appeal prior to filing the declaration as a necessary condition for deeming the appeal pending under the VSV Act.Quashing of Forms issued under VSV Scheme and direction to treat an appeal as pending - relief under the VSV Act - revision of Forms 3 - Relief to be granted consequential to the statutory interpretation: whether the petitioner's quantum appeal before CIT(A) filed on 24.05.2019 is to be treated as pending on 31.01.2020 and whether the Forms issued should be revised to settle both quantum and penalty appeals under the VSV Act. - HELD THAT: - Applying the interpretation that an appeal filed and undetermined on the specified date is 'pending', and having held that FAQ-59 cannot add an 'admission' requirement, the Court quashed the impugned Forms issued by the designated authority to the extent they refused settlement of the quantum appeal. The Court directed respondent No.1 to treat the appeal filed before the CIT(A) on 24.05.2019 as pending on 31.01.2020 and to issue revised Forms 3 settling both the quantum appeal before CIT(A) and the penalty appeal before the ITAT in accordance with the VSV Act within eight weeks. [Paras 21, 22]The appeal filed on 24.05.2019 is to be treated as pending as on 31.01.2020; the impugned Forms are quashed to the extent of rejecting settlement of the quantum appeal and respondent No.1 is directed to issue revised Forms 3 settling both appeals under the VSV Act.Final Conclusion: The High Court held that an appeal filed and undetermined on the specified date qualifies as 'pending' under the VSV Act even if it is irregular or not yet admitted; accordingly, FAQ-59 of CBDT Circular No.21/2020 is invalid to the extent it conditions pendency on prior admission of the appeal, quashed the relevant Forms, and directed respondent No.1 to treat the petitioner's quantum appeal for Assessment Year 2014-15 as pending on 31.01.2020 and to issue revised Forms 3 settling both the quantum and penalty appeals under the VSV Act within the time prescribed. Issues Involved:1. Eligibility to settle quantum appeal under the Vivad Se Vishwas Scheme (VSV Scheme)2. Interpretation of the term 'pending' in Section 2(1)(a) of the VSV Act3. Validity of FAQ-59 of Circular No.21/2020 issued by CBDTDetailed Analysis:1. Eligibility to settle quantum appeal under the Vivad Se Vishwas Scheme (VSV Scheme)The petitioner challenged the respondent's action of partially settling the dispute related to penalty for Assessment Year 2014-15 under the VSV Scheme without settling the quantum appeal pending before the Commissioner of Income Tax (Appeals) [CIT(A)]. The respondent held the petitioner ineligible to settle the quantum appeal on three grounds: the appeal was filed after the limitation period, FAQ-59 did not cover the petitioner's case, and a condonation of delay order under Section 249(3) was necessary for eligibility under the VSV Act.2. Interpretation of the term 'pending' in Section 2(1)(a) of the VSV ActThe petitioner argued that the VSV Act only required the appeal to be 'pending' before an appellate forum, which includes CIT(A) and ITAT, without stipulating that the appeal should be filed within the limitation period or admitted before a specified date. The petitioner cited the judgment in Shyam Sunder Sethi vs. PCIT, which held that an appeal is 'pending' from the time it is filed until its disposal, regardless of its admission status.The respondent contended that the appeal against the assessment order was filed after a delay of about two years, and the designated authority rejected the petitioner's declaration for the quantum appeal based on FAQ-59 issued by CBDT, which required the appeal to be admitted by the appellate authority before the date of filing the declaration.3. Validity of FAQ-59 of Circular No.21/2020 issued by CBDTThe petitioner argued that FAQ-59, which required the appeal to be admitted before filing the declaration, was contrary to the VSV Act. The court noted that when a section contemplates the pendency of an appeal, it does not need to be valid or competent. The court referred to several judgments, including Raja Kulkarni v. The State of Bombay, which held that an appeal remains pending even if ultimately found to be incompetent.The court also emphasized that CBDT cannot issue circulars adverse to the assessee under Section 10 of the VSV Act, similar to Section 119 of the Income Tax Act, 1961. The Supreme Court in UCO Bank, Calcutta vs. Commissioner of Income Tax held that circulars should not be prejudicial to assessees and should ensure fair enforcement of fiscal laws. The court concluded that FAQ-59, to the extent it required the appeal to be admitted before filing the declaration, was contrary to law.Relief:The court quashed the Forms 3 dated 23rd January 2021 and 12th February 2021, as well as FAQ-59 of Circular No.21/2020 issued by CBDT, to the extent mentioned. The respondent was directed to treat the appeal filed against the assessment order for Assessment Year 2014-15 as pending as of 31st January 2020 and to issue revised Forms 3, settling both the quantum appeal and the penalty appeal in accordance with the VSV Act within eight weeks.