Court quashes incorrect rectification order, emphasizes audit objections cannot be sole basis for reassessment.

The court quashed the incorrect rectification order dated 15th February 2021, finding it was not based on a mistake apparent on record. The court directed reconsideration of the application for settlement under the DTVSV Scheme, setting aside the rejection and ordering determination of the payable amount within two weeks. The modification of the assessment order was deemed illegal as it solely relied on audit objections. The court emphasized that audit objections cannot be the basis for reassessment and that the bar under Section 5 of the Act of 2020 did not apply in this case.

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Issues Involved:
1. Quashing of the rectification order dated 15th February 2021.
2. Direction to reconsider the application for settlement of disputed tax under the Direct Tax Vivad Se Vishwas Act, 2020 (DTVSV Scheme).
3. Legality of the modification of the assessment order dated 21st December 2019.
4. Validity of the rectification under Section 154 of the Income Tax Act, 1961.
5. Impact of audit objections on the assessment order.
6. Application of the Circular No. 26 (LXXVI-3) dated 7th July 1955.
7. Reassessment based on audit objections.
8. Bar under Section 5 of the Act of 2020.

Issue-wise Detailed Analysis:

1. Quashing of the rectification order dated 15th February 2021:
The court held that the rectification order dated 15th February 2021 was incorrect. The rectification was based on an audit objection that was not a mistake apparent on the record but a debatable issue of law. The court found that the original assessment order dated 21st December 2019 did not contain any apparent mistake that warranted rectification under Section 154 of the Income Tax Act, 1961.

2. Direction to reconsider the application for settlement of disputed tax under the DTVSV Scheme:
The court directed the Respondent to reconsider the application for settlement of disputed tax under the DTVSV Scheme. The court set aside the consequential order rejecting the Petitioner's application for settlement under the DTVSV Scheme and restored the application to the file of the AO as on 28th December 2020. The Respondent was directed to determine the amount payable by the assessee in accordance with the provisions of the Act of 2020 and grant a Certificate to the assessee within two weeks.

3. Legality of the modification of the assessment order dated 21st December 2019:
The court found that the modification of the assessment order dated 21st December 2019 was solely based on the audit objection and not on any independent opinion of the AO. The court noted that both the original and modified computations were permissible under the Act of 1961, but the modification resulted in an increased tax liability due to a change in the rate at which the tax was calculated.

4. Validity of the rectification under Section 154 of the Income Tax Act, 1961:
The court held that the rectification under Section 154 was not valid as it was based on a debatable issue rather than an apparent mistake. The court cited the Supreme Court's decision in T.S. Balaram, Income Tax Officer, Company Circle IV, Bombay v. M/s Volkart Brothers, Bombay, which held that a mistake apparent on the record must be obvious and not something that requires a long-drawn process of reasoning.

5. Impact of audit objections on the assessment order:
The court found that the audit objection was an opinion on the law and not a mistake apparent from the record. The court referred to the Supreme Court's decision in M/s Indian & Eastern Newspaper Society, which held that an audit opinion on a point of law cannot be regarded as 'information' for reopening the assessment.

6. Application of the Circular No. 26 (LXXVI-3) dated 7th July 1955:
The court noted that the Circular No. 26 (LXXVI-3) allowed the assessee to select a sequence of set-off that was more beneficial to it. The audit objection was raised in ignorance of this Circular, which was relevant to the sequence of set-off of losses.

7. Reassessment based on audit objections:
The court held that reassessment based on the audit objection was not permissible. The court cited the Supreme Court's decision in CIT Vs. Kelvinator of India Ltd., which held that mere change of opinion cannot form the basis for initiating reassessment proceedings.

8. Bar under Section 5 of the Act of 2020:
The court found that the bar under Section 5 of the Act of 2020 was not attracted in this case as the Form 3 had not been issued. The rectification proceedings were initiated consequent to an audit objection dated 31st August 2020, and not upon receipt of the application of the assessee on 28th December 2020 under the Act of 2020.

Conclusion:
The writ petition was disposed of with directions to set aside the rectification order dated 15th February 2021 and the consequential order rejecting the Petitioner's application for settlement under the DTVSV Scheme. The Respondent was directed to determine the amount payable by the assessee and grant a Certificate in accordance with the provisions of the Act of 2020 within two weeks.

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