Vivad Se Vishwas settlement bars confirmation of related penalty without considering the effect of withdrawal and accepted declaration.

Where the underlying quantum dispute had been settled under the Vivad Se Vishwas Scheme and the assessee sought withdrawal of the first appeal, the penalty connected with that settled dispute could not be confirmed without first addressing the legal effect of the settlement. The appellate authority's confirmation of penalties under section 271(1)(b) and section 271(1)(c) was therefore found improper, as the withdrawal request and accepted declaration were material facts. The impugned penalty orders were set aside and the assessee's appeals were allowed.

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Issues: Whether the penalty orders under section 271(1)(b) and section 271(1)(c) of the Income-tax Act, 1961 could be sustained when the assessee had opted for the Vivad Se Vishwas Scheme, the declaration had been accepted, and the appeal before the first appellate authority was sought to be withdrawn.

Analysis: The appeals concerned penalty demands arising from the same assessment year and were founded on the assessee's request that the appeals be withdrawn after opting for the Vivad Se Vishwas Scheme. The settlement of the quantum dispute and acceptance of the declaration were treated as material facts. In that situation, the continuance of penalty proceedings without first examining whether the underlying quantum stood settled was found to be improper. The appellate authority was held to have acted incorrectly in proceeding to confirm the penalties despite the express withdrawal request and the stated settlement position.

Conclusion: The penalty orders were unsustainable and were set aside, with the result that the assessee succeeded.

Final Conclusion: The common reasoning applied to both appeals resulted in deletion of the impugned penalty confirmations and allowance of the assessee's appeals.

Ratio Decidendi: Where the underlying quantum dispute has been settled under the Vivad Se Vishwas Scheme and the assessee seeks withdrawal of the appeal, penalty connected with that settled dispute cannot be confirmed without first addressing the effect of such settlement.

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