2023 (9) TMI 695 - HC - Income Tax

Tax Dispute Settled: Section 263 Proceedings Invalidated Post-Vivad se Vishwas Scheme Settlement.

The Court held that proceedings under Section 263 of the Income Tax Act could not be initiated once a dispute was settled under the Direct Tax Vivad se ... Revision u/s 263 - assessee took benefit of the Direct Tax Vivad se Vishwas Scheme - HELD THAT:- It was not open for the authorities to initiate proceedings under Section 263 of the Act, especially when they were clearly so barred. We are also conscious of the fact that even if the appeal memo which is placed on record is seen, the matter in issue before the CIT (Appeals) which was sought to be brought to rest by opting for the benefit of the Scheme was in context of the same issue which the Revenue sought to invoke by issuing notice u/s 263 of the Act. ISSUES PRESENTED AND CONSIDERED 1. Whether proceedings under Section 263 of the Income-tax Act, 1961 can be initiated in respect of an assessment matter which has been settled by the taxpayer under the Direct Tax Vivad se Vishwas Act, 2020 ('DTVSV Act' or 'the Scheme'). 2. Whether an order passed by the designated authority under Section 5 of the DTVSV Act is conclusive and bars re-opening or revisiting of matters in any other proceedings under the Income-tax Act or other laws. 3. Whether divergence between figures declared under the DTVSV Scheme and figures in departmental records permits initiation of revision proceedings under Section 263 of the Income-tax Act. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Whether proceedings under Section 263 can be initiated after settlement under the DTVSV Act - Legal framework: Section 5(1)-(3) of the DTVSV Act requires the designated authority to determine the amount payable on receipt of a declaration and grant a certificate. Section 5(3) declares every order under subsection (1) to be conclusive as to the matters stated therein and bars reopening of such matters in any other proceedings under the Income-tax Act or any other law. Section 6 prevents institution of proceedings in respect of offence, penalty or interest upon compliance. Section 4(6) provides situations when declarations are to be treated as never made. - Precedent treatment: The Court relied on and followed the reasoning of a High Court decision addressing similar facts, which held that once a declarant opts for settlement under the DTVSV Act and complies with its procedural requirements, subsequent proceedings (including under Section 263) in respect of the settled dispute are impermissible. That prior decision was treated as directly applicable rather than distinguished. - Interpretation and reasoning: The Court interpreted Section 5(3) as an explicit statutory bar to reopening matters that have been determined by the designated authority. The legislative intent of the DTVSV Act was read as seeking finality and closure of disputes relating to tax arrears. Consequently, the Court reasoned that initiating revisionary proceedings under Section 263 in respect of an issue already settled under the Scheme would undermine the Act's object of settling disputes and providing conclusive closure. - Ratio vs. Obiter: The holding that proceedings under Section 263 are barred once the Scheme's requirements are complied with is ratio in the context of the facts (settlement under DTVSV Act followed by a Section 263 notice). Observations on the broader policy of the DTVSV Act being intended to bring closure are explanatory but supportive of the ratio. - Conclusion: The Court concluded that where a declarant has validly availed the DTVSV Scheme and the designated authority has determined the payable amount (and issued certificate), initiation of proceedings under Section 263 in respect of the settled issue is not permissible; such proceedings must be quashed. Issue 2 - Conclusiveness of orders under Section 5 of the DTVSV Act and its effect on other proceedings - Legal framework: Section 5(3) makes every order determining the amount payable 'conclusive as to the matters stated therein' and expressly provides that no matter covered by such order shall be reopened in any other proceeding under the Income-tax Act or any other law. The Explanation to Section 5 clarifies that making a declaration does not amount to conceding the tax position, and neither the declarant nor the income-tax authority may contend acquiescence in the disputed issue. - Precedent treatment: The earlier High Court decision was applied to interpret the conclusiveness clause as barring reopening. The Court treated that precedent as persuasive and in point. - Interpretation and reasoning: The Court emphasized the plain language of Section 5(3) and its non obstante character. It read Section 5(3) together with Sections 4(6) and 6 to conclude that the Scheme contemplates finality: once the designated authority determines and certifies the payable amount and the declarant complies, the matter is foreclosed for any further proceedings under the Income-tax Act. The Court also noted that the Explanation prevents characterizing the settlement as an admission, reinforcing that conclusive effect is procedural, not substantive concession. - Ratio vs. Obiter: The determination that Section 5(3) operates as an absolute bar to reopening covered matters in other proceedings is applied as ratio to the facts. Discussion about the Explanation preventing an inference of admission is interpretative and supportive of the ratio. - Conclusion: Orders under Section 5(1) of the DTVSV Act are conclusive regarding matters stated therein, and covered matters cannot be reopened in any proceeding under the Income-tax Act or other laws, subject only to the limited exceptions provided by Section 4(6) (e.g., material falsehoods or violation of Scheme conditions). Issue 3 - Effect of differences in figures between the declaration and departmental records on the permissibility of Section 263 proceedings - Legal framework: The DTVSV Act prescribes the basis for disputed tax and the mechanics of declaration and payment. Section 4(6) permits treating declarations as never made if material particulars are false or conditions violated. Section 5(3) bars reopening of matters determined by the designated authority. - Precedent treatment: The Court considered the previous High Court reasoning that where the declarant has filed requisite forms and accepted the designated authority's determination, subsequent departmental action is unsustainable; conversely, if the declarant had not complied with scheme requirements (Forms 1/2 or acceptance of Form 3), reopening could be justified. - Interpretation and reasoning: The Court examined the departmental contention that declared figures differed from departmental figures and that this justified invoking Section 263. It held that mere divergence in figures, by itself, does not permit Section 263 if the dispute as to that issue has been settled under the Scheme and the Scheme's procedures have been complied with. The Court observed that if the declaration is materially false or the declarant violates Scheme conditions, Section 4(6) would revive departmental proceedings; absent such infirmity, the conclusive provision of Section 5(3) controls. - Ratio vs. Obiter: The conclusion that numerical differences do not justify Section 263 after valid settlement is ratio as applied to the presented facts. The qualification that false particulars or non-compliance permit revival under Section 4(6) is a necessary qualification of the ratio (not mere obiter). - Conclusion: Discrepancies between figures in departmental records and figures settled under the DTVSV Scheme do not alone authorize initiation of Section 263 proceedings; reopening is permissible only where statutory exceptions (e.g., material falsity or breach of Scheme conditions under Section 4(6)) apply. Cross-reference and final determination - The Court cross-referenced the conclusive bar in Section 5(3) with the exceptions in Section 4(6) and the protection in Section 6, concluding that the statutory scheme manifests a legislative intent to provide finality and prevent vexatious re-litigation of matters settled under DTVSV. - Application to facts: The Court found that the petitioner had availed the DTVSV Scheme in respect of the same issue sought to be revisited under Section 263, and there was no material allegation that the declaration was false or that Scheme conditions had been violated. Consequently, the notice issued under Section 263 was quashed and set aside.