Gujarat HC quashes Form 3 rejection, allows MAT Credit carry forward under Direct Tax Vivad se Vishwas Scheme

Gujarat HC quashed Form 3 under Direct Tax Vivad se Vishwas Scheme and rejection of rectification application. Court held petitioner entitled to carry forward reduced MAT Credit for tax payment under the scheme, supported by CBDT Circular FAQ. Respondent failed to consider AO's order permitting MAT Credit carry forward while calculating amount payable. Matter remanded to respondent for recalculation of refund entitlement under the scheme rules, considering AO's order under section 154.

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Issues Involved:
1. Validity of Form 3 under the Direct Tax Vivad se Vishwas (DTVSV) Scheme.
2. Rejection of the application to rectify Form 3.
3. Entitlement to carry forward reduced MAT Credit under the DTVSV Scheme.
4. Calculation of tax payable and refund due under the DTVSV Scheme.

Detailed Analysis:

1. Validity of Form 3 under the Direct Tax Vivad se Vishwas (DTVSV) Scheme:
The petitioner-Company filed its return of income for Assessment Year 2013-14, which was subjected to a search and subsequent assessment, resulting in an increased assessed income. The petitioner opted to settle pending appeals under the DTVSV Scheme by filing Form No. 1 and 2 on 30.01.2021. The respondent issued Form No. 3 on 17.04.2021, determining tax payable before 30.04.2021 as Rs. 4,06,211/-. The petitioner contended that the respondent did not consider the MAT Credit of Rs. 35,11,241/- in the calculation, which should have reduced the tax payable to zero. The court found that the respondent failed to account for the MAT Credit as per the order dated 29.01.2021, making Form 3 invalid.

2. Rejection of the Application to Rectify Form 3:
The petitioner filed an application to rectify Form No. 3, which was rejected by the respondent on 28.10.2021. The petitioner argued that the respondent did not consider the effect of the order dated 29.01.2021, which allowed the carry forward of MAT Credit. The court observed that the respondent erroneously rejected the rectification application without properly applying Rule 10 of the Direct Tax Vivad Se Vishwas Rules, 2020, which permits the carry forward of reduced MAT Credit.

3. Entitlement to Carry Forward Reduced MAT Credit under the DTVSV Scheme:
The petitioner claimed that under Rule 10 of the DTVSV Rules and FAQ No. 53 issued by the CBDT, they were entitled to carry forward the reduced MAT Credit of Rs. 35,11,241/-. The respondent argued that the petitioner had only reduced MAT Credit of Rs. 17,800/- in the return of income, thus not entitled to further reduction. The court held that the petitioner was indeed entitled to carry forward the reduced MAT Credit as per Rule 10 and FAQ No. 53, and the respondent's failure to account for this was incorrect.

4. Calculation of Tax Payable and Refund Due under the DTVSV Scheme:
The petitioner provided a detailed calculation showing that after accounting for MAT Credit and pre-paid taxes, they were entitled to a refund of Rs. 40,34,078/-. The respondent's calculation in Form No. 3 did not consider the MAT Credit properly, resulting in an incorrect tax payable amount. The court directed the respondent to re-calculate the tax payable and refund due by correctly applying Rule 10 and considering the MAT Credit as per the order dated 29.01.2021.

Conclusion:
The court quashed and set aside Form No. 3 and the rectification order, remanding the matter back to the respondent to re-calculate the entitlement of the refund in accordance with the DTVSV Scheme and the Rules thereunder. The respondent is directed to complete this exercise within twelve weeks from the receipt of the order. The rule is made absolute to the aforesaid extent, with no order as to costs.

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