The petitioner sought a declaration that the clarification given by CBDT to question No.73 vide circular No. 21 of 2020 dated December 04, 2020 is violative of Article 14 of the Constitution of India and thus is arbitrary and ultra vires to the provisions of the Direct Tax Vivad se Vishwas Act, 2020 (VSVA) and the Direct Tax Vivad se Vishwas Rules, 2020.
For the assessment year 2015-16, petitioner/ its subsidiary (before merger) had filed return of income under section 139(1) of the Act. The balance of self-assessment tax after deduction of TDS was paid by the petitioner after the due date for filing of the return.
The department issued notice to the petitioner on to show cause as to why prosecution should not be initiated against the petitioner under section 276-C(2) of the Act for alleged wilful attempt to evade tax on account of delayed payment of the balance amount of the self-assessment tax. Subsequently After the due process of law, instituted a case in the 38th Metropolitan Magistrate’s Court at Ballard Pier.
The Ld. AO made certain disallowances towards workmen’s compensation and other related expenses for the AY 2015-16 vide order under section 143(3) of the Act. The disallowances were upheld by the CIT(A). The Petitioner preferred an appeal before the ITAT and the matter was pending before the ITAT.
The CBDT issued impugned circular No.21/2020 dated 04.12.2020 giving further clarifications in respect of the VSVA. Question No.73 contained therein is when in the case of a tax payer prosecution has been initiated for a particular assessment year, with 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.
The Petitioner is prosecuted for delay in payment of self-assessment tax however is ineligible to settle a matter under VSVA for another issue.
Court held that from a reading of the statement of objects and reasons what is deducible is that the purpose for introduction of the Vivad se Vishwas Bill was to reduce tax disputes pertaining to direct taxes.
The exclusion referred to in section 9(a)(ii) of VSVA is 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. Thus, what section 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.
The interpretation given by respondent No.2/CBDT in the answer to question No.73 is not in alignment with the legislative intent which has got manifested in the form of section 9(a)(ii) of VSVA.
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.
Therefore, Q. 73 of CBDT Circular 21 of 2020 dated 4/12/2020 would stand set aside and quashed. ( AY. 2015 -16 ) (WP No. 79 of 2021 dated March 25, 2021)