Court Invalidates DTVSV Act Rejection, Quashes Circular Disqualifying Taxpayers with Pending Prosecution.

The court allowed the petition, ruling that the rejection of the petitioner's declaration under the DTVSV Act was invalid as the prosecution was not related to tax arrear. The court also quashed the clarification in Circular No. 21/2020, which disqualified taxpayers from the DTVSV Act due to any pending prosecution, as it misaligned with the legislative intent. The court directed respondent no. 1 to reassess the petitioner's declaration in accordance with the DTVSV Act, disposing of the petition with no order as to costs.

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Issues Involved:
1. Legality of rejection of declaration under the Direct Tax Vivad Se Vishwas Act 2020 (DTVSV Act).
2. Validity of the clarification issued by respondent no. 2 in Circular No. 21/2020.

Summary:

Issue 1: Legality of rejection of declaration under the DTVSV Act

The petitioner challenged the rejection by respondent no. 1 of the declaration filed on 31st January 2021 under the DTVSV Act for Assessment Years 2010-2011 and 2011-2012. The rejection was based on the initiation of prosecution under Section 276C(2) of the Income Tax Act. The petitioner argued that the bar against the applicability of the DTVSV Act is only when the prosecution relates to tax arrear. The court noted that the purpose of the DTVSV Act is to reduce litigations in direct taxes by allowing taxpayers to settle pending disputes. The court referred to the judgment in Macrotech Developers Ltd. v. Principal Commissioner of Income Tax, which clarified that the DTVSV Act does not apply if prosecution is related to tax arrear. The court concluded that the prosecution in the petitioner's case was not related to tax arrear and thus, the rejection of the declaration was invalid.

Issue 2: Validity of the clarification issued by respondent no. 2 in Circular No. 21/2020

The petitioner also challenged the validity of the clarification issued by respondent no. 2 in reply to question no. 73 in Circular No. 21/2020, which stated that any pending prosecution disqualifies a taxpayer from the DTVSV Act. The court found that this clarification was not in alignment with the legislative intent as held in Macrotech Developers Ltd. The court reiterated that the ineligibility under Section 9(a)(ii) of the DTVSV Act is only in respect of tax arrear related to an assessment year and not any prosecution for that assessment year. The court set aside and quashed the clarification in question no. 73 of Circular No. 21/2020.

Conclusion:

The court allowed the petition, directing respondent no. 1 to decide the petitioner's declaration in conformity with the provisions of the DTVSV Act. The petition was disposed of with no order as to costs.

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