Assessee Entitled To The Benefit Of VsV Act During The Pendency Of Prosecution Not Involving 'Tax Arrears': Bombay High Court

The Bombay High Court has directed the department to decide the application filed by the assessee in conformity with the Direct Tax Vivad Se Vishwas Act 2020.

The bench of Justice K. R. Shriram and Justice N. K. Gokhale has observed that the assessee had paid self-assessment tax but has not paid the demand made due to reassessment or reopening of the assessment and has challenged the order now pending before ITAT. As permissible under the Office Memorandum dated July 31, 2017, the petitioner had even deposited 20% of the demand and, hence, is not an assessee in default.

The petitioner/assessee submitted that Section 9(a)(ii) of the DTVSV Act disentitles a person to be eligible under the Act “in respect of tax arrears relating to an assessment year in respect of which prosecution has been instituted.".

The appellant/assessee was subjected to reassessment proceedings. The department raised the demand of Rs.6.77 Cr and Rs.7.37 Cr against which the Assessee filed an appeal before CIT(A) and also paid 20% of the demand in terms of the CBDT Office Memorandum dated Feb 29, 2016.

The department initiated prosecution for willfully attempting to evade the payment of taxes in respect of a demand that arose pursuant to reassessment. During the pendency of the prosecution, the Assessee filed a declaration under the VsV Act which was rejected on the grounds that Section 9(a)(ii) debars the Assessee against whom prosecution has been instituted on or before the date of filing the declaration.

The petitioner contended that the bar against the applicability of the DTVSV Act is when prosecution is initiated relating to tax arrears. Whereas the respondent department, in the circular, clarified that whether or not the prosecution relates to tax arrears, the taxpayer is disentitled to apply for settlement of a pending appeal in relation to the tax arrears under the DTVSV Act. It was alleged in the petition that the purported clarification is ultra vires and contrary to the provisions of the DTVSV Act and the Direct Tax Vivad Se Vishwas Rules 2020, is beyond the powers and authority conferred upon the respondent under Section 11 of the DTVSV Act, is arbitrary, and is violative of Article 14 of the Constitution of India.

The department contended that, admittedly, on the date of filing the declaration, prosecution had already been initiated against the petitioner on account of tax arrears and, therefore, the respondent had rightly rejected the declaration. In view of the sanction given by PCIT to prosecute the petitioner and its directors, where it is mentioned that there was a willful attempt to evade payment of tax, it would be covered under the definition of tax arrears. The sanction letter clearly states the assessee has paid only Rs. 45 lakhs against the outstanding demand of Rs. 6.78 crores for Assessment Year 2010–2011, and for Assessment Year 2011–2012, nothing has been paid against the outstanding demand of Rs. 7 lakhs.

The court noted that tax arrears 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, disputed interest, disputed penalty, or disputed fee as determined under the provisions of the Act.

The court held that under Section 9(a)(ii) of the DTVSV Act, the only exclusion visualised is a pendency of prosecution in respect of tax arrears relatable to an assessment year as on the date of filing the declaration and not a pendency of prosecution in respect of an assessment year on any issue.

The court found that the assessee has paid self-assessment tax but has not paid the demand due to reassessment and has challenged the order which is now pending before ITAT and consequently, paid the entire amount, accordingly, could not be treated as ‘Assessee in default’.

The court directed the department to decide the application filed by the Assessee in conformity with the DTVSV Act.

Counsel For Appellant: V. Sridharan

Counsel For Respondent: Suresh Kumar

Case Title: Pragati Pre Fab India Pvt. Ltd. Versus PCIT

Case No.: Writ Petition No.1558 Of 2022

Click Here To Read The Order