Tax Liability Already Attaining Finality Under VSV Can't Be Altered By Invoking Rectification Action U/s 154: Delhi High Court
The Delhi High Court held that when the determination as carried out by the Designated Authority has finality, it cannot possibly be reopened or revised by any authority under the Income Tax Act by taking recourse to a power u/s 154 which may otherwise be available to be exercised.
The High Court held so after finding that the Revenue initiated the rectification action after the Assessee had already obtained a settlement of all disputes pertaining to Income Tax for the relevant AY by virtue of Direct Tax Vivad Se Vishwas Act, 2020 (VsV Act).
A rectification request under Section 154(1) of the Income tax Act is allowed by the income tax department for correcting mistakes when there is an apparent mistake in your Income Tax Return.
The Division Bench of Justice Yashwant Varma and Justice Ravinder Dudeja observed that “Section 4(6) of the VsV Act provides for a salutary safeguard with regard to the conclusiveness and finality which otherwise stands attached to a determination under the enactment by virtue of Section 5(3), however the rectification power under Section 154 would clearly not fall within the ambit of Section 4(6) of the VsV Act”.
The Bench emphasizes that the provisions of Section 5 of the VsV Act clearly injuncts the Revenue thereafter from reopening any matter covered by an order of determination made by the Designated Authority in any other proceedings under the Income Tax Act or, for that matter, any other law for the time being in force.
Facts of the case
The Assessee-Individual, filed return declaring income of Rs. 50.31 Lacs and the same was processed u/s 143(1). Same was later subject to scrutiny whereby additions of Rs. 54.50 lacs were made, which were confirmed by the CIT(A). During the pendency of Assessee's appeal before ITAT, the Assessee opted for settlement of the dispute by virtue of an application under the Direct Tax Vivad Se Vishwas Act, 2020 (VsV) and after due process the amount as payable by the Assessee was determined by the Designated Authority and the disputed tax payable in terms thereof was ultimately deposited by the Assessee, after which, Form 5 came to be issued and the total liability determined and conferred finality. Subsequently, after about a year, the AO invoked the rectification power and the Assessee was served with notice u/s 154, resulting in an order dismissing Assessee's objection against the proposed action of rectification.
Observation of the High Court
The Bench noted that the AO while computing the additions in the original assessment order, had referred to and applied an incorrect tax rate.
Further, the Bench noted that the original order of assessment was passed on Dec 22, 2017, and although the appeal against it travelled to the CIT(A), the issue of a wrong tax rate having been applied does not appear to have been either raised or alluded to before the CIT(A).
The Bench pointed out that even if it were to assume that the power comprised in Section 154 were available to be exercised or wielded notwithstanding the conclusion of proceedings under the VsV Act and the issuance of Form 5, the same would clearly not be sustainable in light of the statutory period of limitation.
The Bench also noted that in the present case, the assessment order dated Dec 22, 2017 could have been rectified only up-to Mar 31,
2022, however, the rectification order u/s 154 which, even though dated Mar 30, 2022, was signed and communicated only on Apr 22, 2022.
Thus, the Bench opined that, “the validity of the notice would necessarily have to be evaluated basis the date of its issuance as opposed to when the same may have be drawn”.
After analysing Section 4 and 5 of the VsV Act, the Bench observed that the Designated Authority upon receipt of a declaration made u/s 4 is obliged to determine the amount payable by the declarant in accordance with the provisions of the VsV Act and to facilitate the same, the designated authority is required to grant a certificate which would encapsulate particulars of the tax arrears and the amount payable upon such determination.
The only contingency where a determination made may be liable to be revisited or recalled would be where it is subsequently found that the application made by the declarant is found to suffer from an incorrect declaration or the suppression of a material fact, and in absence of such a contingency the declaration and the determination is conferred finality under the VsV Act, added the Bench.
The Bench pointed out that the VsV legislature constructed in Section 4(6) a salutary safeguard regarding conclusiveness and finality which otherwise stands attached to a determination under the enactment by virtue of Section 5(3), however the rectification power u/s 154 would clearly not fall within the ambit of Section 4(6) of the VsV Act.
While pointing so, the Bench noted that it is not the AO's case that the Assessee failed to make a disclosure with respect to any material particular or any disclosure so made subsequently being found to be false.
The High Court therefore quashed the rectification order passed u/s 154 along with notices of demand, holding the same to be unsustainable, and allowed Assessee's petition.
Counsel for Petitioner/ Assessee: Nischay Kantoor, Ved Jain and Soniya Dodeja
Counsel for Respondent/ Revenue: Vipul Agrawal
Case Title: Satish Kumar Dhingra versus Assistant/Deputy Commissioner of Income Tax
Case Number: W.P.(C) 17323/2022