2025 (9) TMI 659 - HC - Income Tax

Payment dated 01.10.2021 treated as made on 30.09.2021; petitioner entitled to benefits under VSV Act, Form 5 directed

Khandelwal Construction Company Versus Principal Commissioner of Income Tax-17, Mumbai and Ors.

HC held the payment reflected on 01.10.2021 is to be treated as made on 30.09.2021, entitling the petitioner to benefits under the VSV Act. Respondent is ... Entitlement for benefits of the VSV Act - Payment of Tax/Demand on the last date but reflected on next date - whether the payment which is reflected as paid on 01.10.2021, should be considered as paid on 30.09.2021? - HELD THAT:- Payment should be considered to have been made on 30.09.2021 and Respondent No. 1 should be directed to issue Form 5 to the Petitioner. For the aforesaid direction, we derive support from the decision of this Court in Vardhman Chemicals [2002 (4) TMI 17 - BOMBAY HIGH COURT] In the said case, this Court was dealing with a case under Kar Vivad Samadham Scheme, 1988, wherein though the cheque was tendered within the due date, but the same got cleared beyond the due date, and therefore, the Department refused to settle the appeal as the payment was not made within the due date prescribed. The facts in the present case are similar, inasmuch as though the challan was tendered by the Petitioner on 30.09.2021, however due to system error due to quarterly closing, such challan was returned on the next day and the payment was made on the next day. Even considering the object behind the enactment of the VSV Act, we are of the opinion that delay of one day, and that too for no fault of the Petitioner, should not disentitle the Petitioner from the benefits of the scheme. We allow the petition in terms of prayer clause (a) reproduced earlier. Rule is made absolute in the aforesaid terms and the Writ Petition is also disposed of in terms thereof. However, there shall be no order as to costs. ISSUES PRESENTED AND CONSIDERED 1. Whether a payment tendered by a taxpayer on the last date prescribed under the Direct Tax Vivad Se Vishwas Act, 2020 but reflected in the Department's records as made on the following day due to a bank/system error should be treated as having been made on the last prescribed date for purposes of entitlement to benefits under the VSV Act (including issuance of Form No.5). 2. Whether the VSV Act permits condonation of delay in deposit of the disputed tax or requires strict adherence to the recorded date of payment, and how the object and spirit of the Act inform the Court's exercise of discretion in such cases. ISSUE-WISE DETAILED ANALYSIS Issue 1: Treatment of payment reflected on the next day due to bank/system error - Legal framework Legal framework: The VSV Act provides a mechanism for settlement of pending tax disputes by filing Forms No.1 and 2, acceptance via Form No.3, deposit of the determined amount within prescribed timelines, submission of Form No.4 to inform payment, and issuance of Form No.5 as acknowledgment. Timely payment by the assessee is a condition precedent to processing and issuance of Form No.5. Issue 1: Precedent Treatment Followed: The Court relied on prior decisions treating payment effected by cheque or tendered within time but reflected as received later due to banking processes as effective on the date of tender/encashment initiation, with the substantive effect of extinguishing the debt subject to conditional revival if the instrument is dishonoured. The Court also relied on a decision under the VSV Act that allowed relief where short payment was inadvertent and consistent with the Act's object. Issue 1: Interpretation and reasoning The Court examined factual material demonstrating a bank/system error: a contemporaneous letter from the bank confirming that a manual challan presented on the due date was not processed due to technical/quarterly-closing issues and was returned to the customer on the next working day. Applying the principle that a payment instrument (e.g., cheque or challan) delivered to the collecting agency/bank within the due date operates as payment for practical and equitable purposes - subject to revival if payment ultimately fails - the Court concluded the deposit should be considered made on the last prescribed date. The Court analogised the present facts to prior decisions where a cheque delivered within time and debited by the drawer's bank was treated as payment notwithstanding later crediting in the payee's account. Issue 1: Ratio vs. Obiter Ratio: Where a taxpayer tenders payment within the last prescribed date but, due to bank/system error beyond the taxpayer's control, the departmental or bank record shows payment on a subsequent day, the payment will be treated as having been made on the last prescribed date for purposes of the VSV Act, entitling the taxpayer to the benefits of the scheme (including issuance of Form No.5), provided the factual record establishes the external error. Issue 1: Conclusion The Court held that the payment of the disputed tax should be regarded as made on the last date (30.09.2021) despite departmental records showing 01.10.2021, and directed issuance of Form No.5. The Court based this on the bank's letter demonstrating system error and analogous precedent. (See cross-reference to Issue 2 regarding statutory object.) Issue 2: Whether VSV Act permits condonation of delay and role of the Act's purpose in exercising judicial discretion Issue 2: Legal framework The VSV Act contains no express provision for condonation of delay in depositing the amount determined in Form No.3; timely deposit is a statutory precondition for settlement under the scheme. Judicial intervention, therefore, requires consideration of whether equitable principles and the scheme's object justify treating an out-of-record payment as timely when delay is attributable to factors outside the assessee's control. Issue 2: Precedent Treatment Followed: The Court relied on jurisprudence under analogous settlement schemes and prior VSV Act decisions where minor or inadvertent defaults were excused in view of the Act's object - to unlock disputed tax and put an end to litigation - especially where the taxpayer did not act mala fide and the default did not yield unfair advantage. Issue 2: Interpretation and reasoning The Court emphasised the purpose and spirit of the VSV Act - settlement of disputes and cessation of protracted litigation. Considering that the present delay amounted to a single day and was caused by the bank's technical error rather than any inaction or deliberate conduct by the taxpayer, the Court concluded that strict adherence to the recorded date would frustrate the statute's object. The Court treated the bank's confirmation of technical failure as sufficient to attribute the delay to circumstances beyond the taxpayer's control and to justify treating the payment as timely. Issue 2: Ratio vs. Obiter Ratio: In interpreting time-bound settlement schemes like the VSV Act, courts may treat payments tendered within the prescribed period as timely where credible evidence shows the failure to reflect payment on departmental records resulted from bank/system error beyond the taxpayer's control, and where excusing the technical delay advances the scheme's object without causing prejudice. Obiter: The absence of an express statutory condonation clause was noted; the decision does not rewrite statutory timelines but recognises that equitable treatment is available where the record demonstrates external fault and the substantive objective of the Act favors settlement. Issue 2: Conclusion The Court concluded that the VSV Act's object supports treating a one-day delay caused by bank/system error as immaterial, and that such a delay should not disentitle the taxpayer from the benefits of the scheme. Consequently, the application under the VSV Act had to be processed and Form No.5 issued. Cross-references and operative direction Cross-reference: The conclusions on Issue 1 and Issue 2 are interdependent - the factual finding of bank/system error (Issue 1) informs the equitable application of the VSV Act's purpose (Issue 2). Operative direction: The Court directed the appropriate authority to treat the payment as having been made on the last prescribed date and to issue Form No.5; no order as to costs was made.