2025 (9) TMI 1135 - HC - Income Tax

Designated authority's rejection of Form-1 under DTVSV Scheme, 2024 set aside; directed to process petitioner's declaration

HC quashed the respondent Designated Authority's rejection of the petitioner's Form-1 declaration under the DTVSV Scheme, 2024. The court found the ... DTVSV Scheme - declaration in Form-1 filed by the petitioner under the said Act rejected merely on the ground that the appeal was not valid or competent. HELD THAT:- Appeal filed by the petitioner was pending on the specified date i.e. 22.07.2024 and therefore, we are of the opinion that the Designated Authority was not justified in rejecting the declaration filed by the petitioner in Form-1 on the ground that appeal filed by the petitioner was an invalid appeal as the appeal was very much pending as on 22.07.2024 even if the same was held to be invalid subsequently. The appeal cannot be said to be not filed or pending only on the ground that it was held to be non-maintainable by CIT(Appeals) subsequently. Therefore, the respondent Designated Authority could not have rejected the declaration in Form-1 filed by the petitioner under the said Act merely on the ground that the appeal was not valid or competent. The impugned communication in both the petitions dated 11.04.2025 displayed on the Portal of the Department, rejecting declaration in Form-1 filed by the petitioner under the DTVSV Scheme, 2024 is hereby quashed and set aside. The respondent Designated Authority is directed to process the declaration in Form-1 filed by the petitioner under the DTVSV Scheme, 2024 in accordance with the said scheme. ISSUES PRESENTED AND CONSIDERED 1. Whether a declarant is eligible to file a declaration under the Direct Tax Vivad Se Vishwas Scheme, 2024 (DTVSV Scheme, 2024) where an appeal was pending on the 'specified date' (22.07.2024) but was subsequently held non-maintainable by the appellate authority before filing of the declaration. 2. Whether the Designated Authority may examine the validity, competence or maintainability of an appeal when determining eligibility under the DTVSV Scheme, 2024, or is its task confined to ascertaining whether an appeal was pending on the specified date. 3. The relevance and effect of CBDT Guidance Note/Circular inserting FAQ No.36 (Guidance Note No.2/2024) clarifying eligibility where an appeal was pending as on the specified date but disposed of thereafter, and the weight to be accorded to earlier judicial decisions dealing with analogous dispute resolution schemes. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Eligibility where appeal was pending on specified date but later held non-maintainable Legal framework: Eligibility under the DTVSV Scheme, 2024 is governed by Chapters/Sections 88-99 of Finance (No.2) Act, 2024; 'specified date' is defined by section 89(1)(n) as 22.07.2024; declarations are filed under section 90 read with section 91, and tax payable is to be computed as on a notified date. Precedent Treatment: The Court followed earlier high-court decisions construing analogous settlement schemes (e.g., rulings interpreting VSV/Kar Vivad Samadhan Scheme) which hold that pendency on the relevant date is the operative criterion and that the question of validity or competence of an appeal is for the appellate forum. Interpretation and reasoning: The Court holds that if an appeal was instituted and was pending on the specified date, the declarant meets the statutory eligibility condition irrespective of a later finding of non-maintainability. The emphasis is on the factual state of pendency as of the specified date; subsequent adjudication on maintainability does not retrospectively negate that pendency. The scheme's object-resolution of pending litigation and generation of revenue-supports a construction that looks to the existence of pending proceedings on the cut-off date rather than their ultimate fate. Ratio vs. Obiter: Ratio - An appeal pending on the specified date satisfies the eligibility requirement of the Scheme even if subsequently held to be non-maintainable; the Designated Authority cannot disqualify a declarant solely on the basis of a later ruling of non-maintainability. Conclusion: The petitioner was eligible to file the declaration as the appeal was pending on 22.07.2024 despite later being held non-maintainable; the rejection on the ground of subsequent non-maintainability was erroneous. Issue 2 - Scope of Designated Authority's inquiry into validity/competence of appeal Legal framework: Sections 88-99 constitute a self-contained Code for settlement; section 89(1)(l) defines 'last date' and (n) defines 'specified date'; section 90 prescribes filing and payment obligations; the scheme prescribes the parameters for the Designated Authority's role in processing declarations. Precedent Treatment: The Court relied on authority that interpreted similar statutory schemes to restrict the settlement authority's role to checking statutory eligibility rather than deciding the competence or validity of appeals - those are matters for the appellate court where the appeal was filed. Interpretation and reasoning: The Court reasons that it is not for the Designated Authority to probe whether an appeal was 'sham', 'ineffective' or inherently invalid; to allow such inquiry would intrude on the jurisdiction of appellate forums and defeat the scheme's purpose of closing pending litigation. The correct enquiry for the Designated Authority is whether an appeal existed and was pending on the specified date; legal challenges to competence or maintainability are separate adjudicative matters and do not negate the factual existence of pendency. Ratio vs. Obiter: Ratio - The Designated Authority cannot reject a declaration solely on the basis that the appeal was subsequently held non-maintainable; its remit is to determine eligibility by reference to pendency on the specified date. Conclusion: The Designated Authority erred in rejecting the declaration on grounds of subsequent non-maintainability; it must process declarations where pendency on the specified date is established. Issue 3 - Effect of CBDT Guidance (FAQ No.36) and applicability of prior authorities Legal framework: Section 97 empowers issuance of guidance/FAQs; Guidance Note No.1/2024 and Guidance Note No.2/2024 (inserting FAQ No.36) interpret eligibility by stating that cases in which an appeal was pending on 22.07.2024 remain eligible even if disposed of later and that disputed tax is to be calculated as if the appeal were yet to be disposed. Precedent Treatment: The Court treated FAQ No.36 and the earlier judicial decisions as consonant and persuasive in construing the Scheme's objective and eligibility criteria, and followed the reasoning of those authorities which interpreted analogous 'pendency on a cut-off date' provisions to require only factual pendency. Interpretation and reasoning: The Court accords effect to FAQ No.36 as a relevant administrative clarification reflecting the statutory purpose; the FAQ aligns with judicial precedents that an appeal's later invalidation does not negate its pendency. The combined effect of the Scheme's text, FAQ No.36, and precedent supports the conclusion that eligibility is determined by the state of proceedings on the specified date and not by subsequent disposition on maintainability grounds. Ratio vs. Obiter: Ratio - Administrative guidance in the form of FAQ No.36 properly construed confirms that eligibility depends on pendency on the specified date; judicial decisions interpreting analogous schemes are followed and applied. Conclusion: FAQ No.36 is a valid and controlling guide to eligibility in the present context and, together with precedent, mandates that declarations where appeals were pending on 22.07.2024 be processed notwithstanding subsequent dismissal as non-maintainable. Remedial Direction and Outcome Interpretation and reasoning: Given the statutory scheme, applicable guidance and precedents, an order rejecting a declaration solely because the appellate authority later found the appeal non-maintainable is unsustainable. Processing of the declaration must follow the Scheme's procedures without re-litigation of the appeal's maintainability by the Designated Authority. Conclusion: The Court quashed the communication rejecting the declaration and directed the Designated Authority to process the declaration under the DTVSV Scheme, 2024 in accordance with the Scheme. The order to reject on the ground of subsequent non-maintainability was held to be contrary to law and the Scheme's object and guidance.