Admission of Appeals As A Condition Precedent To Be Eligible For Settlement Under Vivad Se Vishwas Scheme Is Contrary To Law: Delhi High Court

The Delhi High Court has ruled that the Central Board of Direct Taxes (CBDT) FAQ No. 59 of Circular No.21/2020 dated December 4, 2020, which contemplates admission of appeal before the filing of declaration as a condition precedent for the appeal to be treated as pending and eligible for settlement under the Vivad Se Vishwas Scheme (VSV Act) is contrary to law.

The division bench of Justice Manmohan and Justice Manmeet Pritam Singh Arora has observed that Section 10 of the VSV Act gives power to the CBDT to issue directions, yet Section 10 is similar to Section 119 of the Act, 1961. Consequently, the CBDT under Section 10 of the VSV Act cannot issue circulars adverse to the assessee.

The petitioner/assessee has challenged the action of the respondent/department in partially settling a dispute relating to the penalty for Assessment Year 2014–15 pending before the ITAT under the VSV Scheme without settling the dispute relating to the quantum appeal for Assessment Year 2014–15 pending before the Commissioner of Income Tax (Appeals).

The petitioner stated that the respondent erred in holding that the petitioner was ineligible to settle the quantum appeal for Assessment Year 2014-15 pending before CIT(A).

The department held that an appeal had been filed before CIT(A) after the limitation period for filing the appeal had expired. FAQ-59 did not cover the case of the petitioner. An order under Section 249(3) condoning delay was necessary for eligibility under the VSV Act.

The petitioner contended that in terms of Section 2(1)(a)(i) read with Section 2(1)(b) read with Section 2(1)(n) of the VSV Act, the only requirement for being eligible to settle a dispute under the VSV Scheme was that the appeal should be "pending" before an appellate forum which includes CIT(A) and ITAT. There was no requirement that the appeal should be filed on time or that the appeal should have been "admitted" before the specified date. There was no requirement that there had to be a formal order of condonation of delay before the assessee could avail the benefit of the VSV Scheme.

The petitioner contended that whenever the condonation of delay is accepted by the appellate authority, the same would relate back to the original date of filing of the appeal as if the appeal had been filed within the time prescribed under the Statute.

The department submitted that the assessment order dated December 22, 2016, was served upon the petitioner on June 23, 2017. The limitation of 30 days prescribed in the Income Tax Act, 1961, for filing an appeal before the CIT(A) under Section 246A of the Act, 1961, expired on July 22, 2017.

The department contended that the designated authority, in view of the VSV Act, 2020, allowed the settlement of the penalty as the penalty appeal was pending on the prescribed date. However, the designated authority, in view of FAQ-59 issued by CBDT vide Circular No.21/2020 dated December 4, 2020, rejected the declaration of the petitioner qua the quantum appeal.

According to FAQ-59, if the time limit for filing an appeal expires between April 1, 2019, and January 31, 2020, and the application for condonation is filed before December 4, 2020, and the appeal is admitted by the appellate authority before the date of filing of the declaration, the appeal will be deemed pending as of January 31, 2020.

The court held that when a section contemplates the pendency of an appeal, what is required is that an appeal should be pending and, in such a case, there is no need to introduce the qualification that it should be valid or competent.

The court quashed FAQ No.59 of Circular No.21/2020 dated December 4, 2020, issued by CBDT.

The court directed the department to treat the appeal filed against the assessment order under Section 143(3) for the assessment year 2014-15 before CIT(A) on 24th May 2019 as pending as on January 31, 2020.

Case Title: Medeor Hospital Ltd. Versus PCIT

Citation: 2022 LiveLaw (Del) 1027

Date: 28.10.2022

Counsel For Petitioner: Advocates Ved Jain, Nishchay Kantoor

Counsel For Respondent: Senior Standing Counsel Abhishek Maratha

Click Here To Read Order