TaxTMI 
TaxTMI 
2022 (7) TMI 286
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....r Section 276CC of the Income Tax Act, 1961 for the Assessment years 2011-12 to 2015-16 vide Letter / Order dated 05.03.2021 as being arbitrary illegal unconstitutional and in contravention of the Income Tax Act 1961 and the Guidelines for Compounding Offences under Direct Tax Laws 2019 issued by the 2nd Respondent and consequently set aside the computation of the compounding fee vide Letter/Order dated 05.03.2021 by directing the Respondents to compound the offences under Section 276CC of the Income Tax Act 1961 for the Assessment years 2011-12 to 2015-16 by collecting Rs 36,96,000/ as the compounding fee payable by the Petitioner Company , b) declaring the action of the Respondents in not compounding the offences committed by the Petitioners under Section 276CC of the Income Tax Act, 1961 for the Assessment year 2010-11 as being arbitrary illegal and unconstitutional and consequently direct the Respondents to pass an order for compounding the offences under Section 276CC of the Income Tax Act 1961 for the Assessment year 2010-11. c) direct the Respondents to grant the Petitioner Company the benefits under the Direct Tax Vivad Se Vishwas Act, 2020 for the disputed assessment f....
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....inst it under Section 276 CC of the Act for failing to furnish returns pursuant to notice issued under Section 153A of the Act. 9. Petitioner No.1 replied to the show cause notice on 23.01.2017 requesting respondent No.5 to drop the proceedings under Section 276 CC of the Act. It was pointed out that petitioner No.1 was unable to file the returns and to pay the tax on the additional income within the prescribed period as it was facing severe financial crunch. However, petitioner No.1 had already paid taxes amounting to Rs.5,25,00,000-00 on the admitted additional income and that it had no intention to delay filing of returns. Thereafter, on 18.02.2017 petitioner No.1 duly filed its returns under Section 153A of the Act for the assessment years 2010-11 to 2015-16. Respondent No.4 was informed that petitioner No.1 had not only filed the returns but had also paid the entire additional tax of Rs.9,32,59,471-00. In the circumstances petitioner No.1 requested respondent No.4 to condone the delay in filing the returns and to drop the proceedings under Section 276 CC of the Act. 10. However, respondents filed complaints on 21.03.2018 before the Court of Special Judge for Economic Offence....
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....ee is concerned, according to the petitioners the amounts quantified by the respondents are erroneous as the compounding fee would only be Rs.36,96,000 00. In this connection petitioners have referred to and relied upon paragraph No.13.4.1 (d) of the Guidelines for Compounding Offences under Direct Tax Laws, 2019 which has to be read in conjunction with Section 139 (4) and Section 276 CC of the Act. Petitioners have also referred to and relied upon a Circular dated 22.04.2020 issued by the Central Board of Direct Taxes (CBDT) clarifying that the benefit under the Vivad se Vishwas scheme would be available to any person where the offences against such person have been compounded. 18. This Court by order dated 15.04.2021 had issued notice and as an interim measure, had directed the respondents to keep the application (declaration) made by petitioner No.1 under the Vivad se Vishwas scheme pending. 19. Petitioners have filed an additional affidavit in the form of interlocutory application being I.A.No.4 of 2021. Petitioner No.1 has enclosed the reasons for rejection of the declarations dated 29.12.2020 on 31.01.2021. As per the reasons, the declarations were rejected on the ground th....
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....t of compounding fee of Rs.2,96,32,920-00 to be paid within one month from the end of the month on receipt of the intimation; the intimation was sent by the assessing officer to petitioner No.1 on 05.03.2021. Answering respondents have denied the contention of the petitioners that the compounding fee for the assessment years 2011-12 to 2015-16 was erroneously computed and have asserted that the compounding fee was determined by the committee in accordance with the guidelines of the CBDT dated 14.06.2019 on compounding of offences which are binding on the committee. Petitioner No.1 had also filed a separate application on 22.01.2021 for compounding of offence under Section 276CC of the Act for the assessment year 2010-11. After considering the application, committee rejected the same for the reasons provided in the minutes of the meeting held on 19.02.2021. 23. It is further stated that petitioner No.1 had filed declarations under the Direct Tax Vivad se Vishwas Act, 2020 introducing the Vivad se Vishwas scheme on 29.12.2020 for the assessment years 2011-12 to 2015-16. The declarations were rejected on 31.01.2021 in accordance with Section 9 of the Direct Tax Vivad se Vishwas Act, ....
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....ect of an issue which is not in appeal. Will he be eligible to file declaration for issues which are in appeal for this assessment year and in respect of which prosecution has not been launched? Answer: The ineligibility to file declaration relates to an assessment year in respect of which prosecution has been instituted on or before the date of declaration. Since in this example, for the same assessment year (2012-13) prosecution has already been instituted, the taxpayer is not eligible to file declaration for this assessment year even on issues not relating to prosecution. 26. Thereafter averments have been made by answering respondents on the merit justifying initiation of prosecution proceedings under Section 276CC of the Act. Answering respondents have also given details of calculation of compounding fee and thereafter assert that there is no error in the computation of compounding fee. Computation of compounding fee has been done as per guidelines issued by the CBDT. 27. Contending that no case has been made out by the petitioners, respondents seek dismissal of the writ petition. 28. Petitioners have filed a rejoinder affidavit contesting the stand taken by the responden....
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....ing the need for compounding of such offences, learned counsel for the petitioner has referred to a decision of the Delhi High Court dated 11.04.2017 rendered in Vikram Singh Vs. Union of India W.P(C) 6825 of 2016. 32. Learned counsel for the petitioners submits that while respondent agreed to the prayer of the petitioners for compounding of the offences, nonetheless, respondents had computed the compounding charges in a very arbitrary manner seeking a huge amount for such compounding, virtually rendering compounding impossible. He submits that respondents had erred in quantifying such stiff amount as compounding charges. As against compounding charges of Rs.36,96,000-00, respondents have quantified the compounding charges at Rs.2,96,32,920-00 which is not only irrational but is absurd as well. 33. Turning to the rejection of declarations of the petitioners under the Vivad se Vishwas scheme, he submits that such rejection is wholly erroneous and contrary to Section 9 of the Direct Tax Vivad se Vishwas Act, 2020. That apart, this issue is squarely covered by a Division Bench decision of the Bombay High Court in Macrotech Developers Limited (1 supra). 34. On a query by the Court, ....
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....ssment years before the date of filing of the declarations and the proceedings were pending. Therefore, provisions of the Direct Tax Vivad se Vishwas Act, 2020 would not be applicable in respect of tax arrears for the aforesaid assessment years. Hence the declarations were rejected. 39. To appreciate the above, let us advert to and analyse relevant provisions of the Direct Tax Vivad se Vishwas Act, 2020 (briefly referred to hereinafter as 'the Vivad se Vishwas Act'). It is an Act to provide for resolution of disputed tax and for matters connected therewith or incidental thereto. The statement of objects and reasons necessitating the enactment says that over the years pendency of appeals filed by the tax payers as well as by the Government has increased due to the fact that the number of appeals that are filed is much higher than the number of appeals that are disposed of. As a result, a huge amount of disputed tax arrears is locked up in these appeals. It was stated that as on 30.11.2019 the amount of disputed direct tax arrears was Rs.9.32 lakh crores, whereas actual direct tax collection in the financial year 2018-19 was Rs.11.37 lakh crores. Therefore, it was noticed that the d....
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.... provisions of the Income Tax Act." 42. From the above, it is evident that 'tax arrear' would mean the aggregate amount of disputed tax, interest chargeable or charged on such disputed tax and penalty leviable or levied on such disputed tax; or disputed interest or disputed penalty or disputed fee as determined under the provisions of the Act. 43. Section 3 deals with the amount payable by a declarant. It says that subject to the provisions of the Vivad se Vishwas Act, where a declarant files a declaration on or before the last date to the designated authority in respect of tax arrear, then notwithstanding anything contained in the Act or in any other law for the time being in force, the amount payable by the declarant under the Vivad se Vishwas Act would be as provided in Section 3. A reading of Section 3 makes it clear that where a declarant files a declaration under the Vivad se Vishwas Act, the same is in respect of tax arrear. A statement is provided thereunder determining the amount payable depending upon the nature of the tax arrear. 44. Filing of declaration and particulars to be furnished are dealt with in section 4. Sub-section (1) says that the declaration shall be fi....
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....ent year in respect of which prosecution has been instituted on or before the date of filing of declaration; (iii) relating to any undisclosed income from a source located outside India or undisclosed asset located outside India; (iv) relating to an assessment or reassessment made on the basis of information received under an agreement referred to in section 90 or section 90A of the Income-tax Act, if it relates to any tax arrear;" 48. We will advert to Section 9 (a) a little later while we complete our reference to the relevant provisions of the Vivad se Vishwas Act. 49. Section 9 (b) to 9 (e) deals with situations where a detention order has been passed against a person or prosecution has been instituted against such person under various penal laws or special laws on or before filing of declaration in which event provisions of the Vivad se Vishwas Act would not apply. 50. While Section 10 empowers the CBDT to issue directions or orders to the income tax authorities from time to time, Section 12 is the rule making provision. 51. In exercise of the powers conferred by Sub-Section (2) of Section 12 read with Sub-Sections (1) and (5) of Section 4 and Sub-Sections (1) and (2) ....
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.... 9(a)(ii) postulates is that the provisions of the Vivad se Vishwas Act would not apply in respect of tax arrear relating to an assessment year in respect of which prosecution has been instituted on or before the date of filing of declaration. Therefore, the prosecution must be in respect of tax arrear relating to an assessment year. We are of the view that there is no ambiguity in so far the intent of this provision is concerned and as pointed out by the Supreme Court in Dilip Kumar and Company (supra), a statute must be construed according to the intention of the Legislature and that the courts should act upon the true intention of the Legislature while applying and interpreting the law. Therefore, what section 9(a)(ii) stipulates is that the provisions of the Vivad se Vishwas Act shall not apply in the case of a declarant in whose case a prosecution has been instituted in respect of tax arrear relating to an assessment year on or before the date of filing of declaration. The prosecution has to be in respect of tax arrear which naturally is relatable to an assessment year. 27.3. If we look at clauses (b) to (e) of section (9), we find that there is a clear demarcation in sectio....
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....the Vivad se Vishwas scheme unless the prosecution is compounded before filing the declaration. Thus, what answer to FAQ No.22 says is that where only notice for initiation of prosecution has been issued, assessee would be eligible to file declaration. However, once prosecution is instituted with respect to an assessment year, the assessee would not be eligible to file declaration for that assessment year unless the prosecution is compounded before filing the declaration. 56. The above stand taken by the CBDT has been further clarified in the answer given to FAQ No.73 in CBDT Circular No.21/2020 dated 04.12.2020. We have already extracted the question and the answer given thereto. The question posed is, if prosecution has been instituted in the case of a taxpayer, for an assessment year in respect to an issue which is not in appeal, would he be eligible to file declaration for issues which are in appeal for the said assessment year and in respect of which prosecution has not been launched. Clarification given by CBDT in the form of answer thereto is that, ineligibility to file declaration relates to an assessment year in respect of which prosecution has been instituted on or befor....
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....ct. To hold that an assessee would not be eligible to file a declaration because there is a pending prosecution for the assessment year in question on an issue unrelated to tax arrear would defeat the very purport and object of the Vivad se Vishwas Act. Such an interpretation which abridges the scope of settlement as contemplated under the Vivad se Vishwas Act cannot therefore be accepted. 59. We agree with the views expressed by the Bombay High Court and hold that an assessee would be ineligible to file declaration in the event of pendency of prosecution in respect of the tax arrear relatable to the assessment year in question as on the date of filing of the declaration; and not on account of pendency of prosecution in respect of the assessment year on any issue unrelated to the tax arrear. Bombay High Court has rightly held that the debarment must be in respect of the tax arrear as defined under Section 2 (1) (o) of the Vivad se Vishwas Act. We reiterate the view of the Bombay High Court that to hold that an assessee would not be eligible to file a declaration because there is pending prosecution for the assessment year in question on an issue unrelated to tax arrear would defea....