2024 (8) TMI 1245 - HC - Income Tax

Section 154 rectification cannot reopen tax matters settled under DTVSV Act after compliance with determination certificate

Delhi HC held that rectification proceedings under Section 154 of Income Tax Act cannot reopen matters already settled under DTVSV Act. The court found ... Validity of Rectification proceedings - proceedings under the DTVSV Act and the issuance of Form 5 concluded - statutory period of limitation - respondents take the view that the AO while computing the additions in the original order of assessment had referred to and applied an incorrect tax rate HELD THAT:- Validity of the notice would necessarily have to be evaluated basis the date of its issuance as opposed to when the same may have be drawn. Notwithstanding the above, and in our considered opinion, the order u/s 154 is liable to be struck down on a more fundamental plane. As per the scheme of the DTVSV Act, we find that an applicant desirous of settlement is required to file a declaration carrying requisite particulars in terms of Section 4. Designated Authority is required to grant a certificate which would encapsulate particulars of the tax arrears and the amount payable upon such determination. In terms of sub-section (2) of Section 5, the declarant is thereafter statutorily placed under an obligation to pay the amount as determined under sub-section (1) within 15 days of the receipt of the certificate and duly intimate the Designated Authority of compliance. Sub-section (1) of Section 5 clearly injuncts the respondents thereafter from reopening any matter covered by an order of determination made by the Designated Authority in any other proceedings under the Income Tax Act or, for that matter, any other law for the time being in force. We also bear in mind the provisions which stand enshrined in Section 4 (6). On a conjoint reading of Section 4 (6) alongside Section 5 (3), we find that the determination as carried out by the Designated Authority is clearly rendered finality and cannot possibly be reopened or revised by any authority under the Income Tax Act by taking recourse to a power which may otherwise be available to be exercised. As is manifest from a reading of those provisions, the only contingency where a determination made may be liable to be revisited or recalled would be where it is subsequently found that the application made by the declarant is found to suffer from an incorrect declaration or the suppression of a material fact. Absent the above, the declaration and the determination is conferred finality under the DTVSV Act. The closure which comes to be accorded to the dispute thus is intended to operate upon both sides, namely, the assessee as well as the Revenue. This would clearly flow from the special legislative objectives underlying the DTVSV Act and its avowed intent of according a closure to all tax disputes. It is perhaps for this reason that the Legislature constructed in Section 4 (6) a salutary safeguard with regard to the conclusiveness and finality which otherwise stands attached to a determination under the enactment by virtue of Section 5 (3). However, the action which is asserted to be one in exercise of the powers conferred by Section 154 of the Act would clearly not fall within the ambit of Section 4 (6). We note that it is not the case of the respondent that the petitioner had failed to make a disclosure with respect to any material particular or any disclosure so made subsequently being found to be false. We find ourselves unable to sustain the impugned action. We consequently allow the instant writ petition and quash the rectification notice, rectification order and notice of demand. Issues Involved:1. Validity of the rectification notice dated 08 March 2022.2. Validity of the rectification order dated 30 March 2022.3. Validity of the demand notices issued pursuant to the rectification order.4. Applicability and finality under the Direct Tax Vivad Se Vishwas Act, 2020 (DTVSV Act).5. Statutory period of limitation under Section 154 of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Validity of the Rectification Notice Dated 08 March 2022:The petitioner challenged the rectification notice dated 08 March 2022 issued under Section 154 of the Income Tax Act, 1961. The notice indicated that there was an apparent mistake in the computation sheet, leading to the charging of short gross tax liability. The petitioner argued that the notice was issued after the final determination of liability under the DTVSV Act, which conferred finality to the tax arrears. The court noted that the original assessment order was passed on 22 December 2017, and the issue of incorrect tax rate was not raised during the assessment or appeal stages.2. Validity of the Rectification Order Dated 30 March 2022:The rectification order dated 30 March 2022 was issued following the rectification notice. The order stated that the wrong tax rate was applied to the additions made by the Assessing Officer (AO), and the income was recomputed at INR 1,04,50,164/-. The petitioner contended that this rectification was not tenable, given the finality accorded under the DTVSV Act. The court observed that the rectification was sought after the issuance of Form 5 under the DTVSV Act, which should have concluded the matter.3. Validity of the Demand Notices Issued Pursuant to the Rectification Order:The demand notices issued on 30 March 2022 and 28 April 2022 were also challenged. These notices were based on the rectified computation of tax liability. The court held that since the rectification itself was not sustainable, the consequent demand notices were also invalid.4. Applicability and Finality under the DTVSV Act:The court emphasized the provisions of Sections 4 and 5 of the DTVSV Act, which confer finality on the determination of tax arrears once the Designated Authority issues a certificate (Form 5). The court noted that the DTVSV Act aims to provide a conclusive settlement of tax disputes, and the determination made under this Act cannot be reopened or revised unless there is a false declaration or suppression of material facts by the declarant. The court found no such false declaration or suppression in this case, rendering the rectification action unsustainable.5. Statutory Period of Limitation under Section 154 of the Income Tax Act, 1961:The court considered the statutory period of limitation for rectification under Section 154, which allows rectification within four years from the end of the financial year in which the order sought to be amended was passed. The court noted that the rectification order, though dated 30 March 2022, appeared to have been signed and communicated only on 22 April 2022, potentially beyond the permissible period. However, the court primarily struck down the rectification on the grounds of finality under the DTVSV Act.Conclusion:The court allowed the writ petition, quashing the rectification notice dated 08 March 2022, the rectification order dated 30 March 2022, and the subsequent demand notices. The court directed the parties to proceed in terms of the determination made under the DTVSV Act, emphasizing the finality and conclusiveness of the settlement under this Act.