2025 (10) TMI 98 - HC - Income Tax

Petitioner granted credit for advance and self-assessment tax; notices and penalties under s.187(3) FA Act set aside

Ajit Scanning & Diagnostic Centre Pvt. Ltd., Versus The Principal Commissioner of Income Tax-1, Thane & Other.

HC allowed the petition and held that the petitioner was entitled to credit for advance tax (and self-assessment tax) leading to a shortfall previously ... Rejection of Petitioner’s declaration made under the Income Declaration Scheme, 2016 (‘IDS’) - short fall in the payment of tax, by order passed u/s 187(3) of the FA Act - HELD THAT:- It is not in dispute that the total tax demand raised by the Income Tax Department under the IDS was Rs. 2,33,22,640/-. After giving credit for TDS of Rs. 8,64,944/-, the balance amount payable by the Petitioner was Rs. 2,24,57,696/-. Out of this amount, the Petitioner has paid a sum of Rs. 1,69,57,700/- in three installments, as more particularly set out by us earlier. This is how there is a shortfall of Rs. 54,99,996/-. This shortfall has arisen because the department has not given credit for the advance tax paid by the Petitioner for A.Y. 2015-16 and A.Y.2016-17. This court in the case of Rajendra Lilachand Sanghavi [2024 (3) TMI 1489 - BOMBAY HIGH COURT] after relying upon two other decisions of this court in the case of Kamla Chandra Singh Kabali [2022 (2) TMI 344 - BOMBAY HIGH COURT] and CEAT Limited [2024 (2) TMI 930 - BOMBAY HIGH COURT] in similar facts, allowed the Petitioner not only credit for advance tax paid but also for self assessment tax. In light of the decision rendered in Rajendra Sanghavi (supra), and considering the fair stand taken by the Revenue in their affidavit-in-reply, the Order passed under Section 187(3) of the Finance Act, 2016; the Notice issued under Section 148, the Assessment Order; the Demand Notice issued under Section 156; and the Show Cause Notice issued under Section 270A of the IT Act are all hereby quashed and set aside. ISSUES PRESENTED AND CONSIDERED 1. Whether an application made under the Income Declaration Scheme, 2016 can be held invalid under Section 187(3) of the Finance Act, 2016 on the ground of an alleged shortfall in payment where credit for advance tax paid prior to the declaration was not granted against the amount payable under the IDS. 2. Whether credit for advance tax (and by necessary implication self-assessment tax where applicable) paid before filing a declaration under the IDS must be allowed against the tax, surcharge and penalty quantified under the IDS. 3. Whether consequential actions taken by the Revenue - issuance of notice under Section 148 of the Income Tax Act, 1961, assessment under Sections 147 read with 144B, demand under Section 156 and penalty show-cause under Section 270A - are maintainable where the IDS declaration is held invalid on account of failure to grant advance tax credit. 4. The appropriate remedial directions where advance tax credit is found to have been wrongly denied in quantifying liability under the IDS. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of rejection of IDS declaration under Section 187(3) FA Act for alleged shortfall where advance tax credit was denied Legal framework: Section 187(3) of the Finance Act, 2016 permits the authority under the IDS to reject an application where the applicant fails to pay the amount determined as payable under the scheme. The amount payable is computed after giving allowable credits such as TDS and, as contested, advance tax. Precedent Treatment: The Court relied on a recent Division Bench decision of this Court which held that credit for advance tax (and self-assessment tax where relevant) must be allowed in similar facts. Earlier judgments of this Court addressing comparable questions were also relied upon. Interpretation and reasoning: The Court examined the admitted facts: the authority quantified the IDS liability without granting credit for advance tax of Rs.55,00,000, allowed TDS credit, and thereby recorded a shortfall. Payment in installments equaled the declared payable amount as computed by the petitioner after claiming advance tax credit. The Revenue accepted the correctness of the precedent during proceedings and conceded that, on that basis, credit should be given, which would eliminate any shortfall. The Court therefore reasoned that rejection under Section 187(3) was premised on an incorrect computation and was unsustainable. Ratio vs. Obiter: The holding that denial of advance tax credit, when such credit is otherwise admissible, cannot form the basis for a valid rejection under Section 187(3) is ratio decidendi insofar as it disposes of the question whether the IDS application could be deemed never to have been filed. Conclusion: The order rejecting the IDS application under Section 187(3) was quashed and set aside because the shortfall relied upon was attributable to the non-grant of an available advance tax credit. Issue 2 - Entitlement to credit for advance tax (and self-assessment tax) against IDS liability Legal framework: The IDS requires determination of the amount payable on declared undisclosed income; customary credits such as TDS are given. The question is whether advance tax paid prior to declaration is a permissible credit against the IDS liability. Precedent Treatment: The Court followed a Division Bench decision of this Court and other appellate decisions of this Court which, in similar factual matrices, allowed credit for advance tax and self-assessment tax against IDS liability. Interpretation and reasoning: Applying the precedents, the Court found that advance tax paid prior to filing the IDS declaration is to be accounted for in computing the net amount payable under the IDS. The Revenue accepted that position in its affidavit. The Court therefore interpreted the scheme and authoritative decisions to require grant of the advance tax credit. Ratio vs. Obiter: The direction that advance tax credit is to be allowed in determining IDS liability is ratio and forms the operative legal principle applied to the facts. Conclusion: The petitioner was entitled to credit for advance tax paid, which eradicated the alleged shortfall; advance tax credit must be given when computing IDS dues. Issue 3 - Maintainability of subsequent assessments, notices and penalties issued consequent to rejection of IDS application Legal framework: The Revenue issued notice under Section 148 (reopening), assessed under Section 147 read with Section 144B, issued demand under Section 156 and show-cause under Section 270A, all predicated on the premise that the IDS declaration was invalid and the declared income remained undisclosed. Precedent Treatment: Where an IDS declaration is validly made and accepted (or wrongly rejected for reasons that are rectifiable), subsequent reopening and assessments predicated solely on the alleged invalidity may be unwarranted. The Court relied on precedents indicating that corrective relief must follow where the underlying rejection is set aside. Interpretation and reasoning: Because the foundational rejection under Section 187(3) was quashed on the ground that advance tax credit was wrongly denied, the consequential reopening and assessment actions based on that rejection lacked a sustainable foundation. The Court concluded that the notices and orders which flowed from the flawed rejection must therefore be set aside. Ratio vs. Obiter: The conclusion that downstream notices and assessment orders are invalid where they rely on an erroneous declaration-rejection is ratio with direct application to the facts. Conclusion: The notice under Section 148, the assessment under Sections 147/144B, the demand under Section 156 and the show-cause under Section 270A were quashed and set aside as consequentially unsustainable. Issue 4 - Appropriate remedial directions and procedural consequence Legal framework: Where an IDS declaration is held validly filed but the quantification omitted allowable credits, equitable and statutory relief can include directions to recompute liability and to issue appropriate forms under the scheme. Precedent Treatment: Prior decisions provide for granting credit and remitting matters to the Revenue to give effect to that credit, including issuance of the requisite statutory forms consistent with the scheme. Interpretation and reasoning: In the exercise of its writ jurisdiction and in light of the Revenue's concession and controlling precedents, the Court directed issuance of Form No.4 under the IDS within a specified period after giving credit for the advance tax paid. This remedy restores the petitioner to the position he would have occupied had the credit been allowed initially and eliminates resultant enforcement actions. Ratio vs. Obiter: The directive to issue Form No.4 after granting advance tax credit is ratio as it is the operative relief granted to correct the identified error. Conclusion: The Court directed the concerned authorities to issue Form No.4 within four weeks after giving credit for the advance tax; the writ was made absolute and the related orders set aside, with no order as to costs.