Facts of the Case

The petitioner, Rose Wood Buildwell Private Limited, filed a writ petition challenging a certificate dated 23.04.2021 issued under Section 5(1) of the Direct Tax Vivad Se Vishwas Act, 2020, whereby the designated authority modified the petitioner’s declaration to include disputes which were not the subject matter of the declaration filed by the assessee.

For Assessment Year 2011-12, the Assessing Officer made additions aggregating to ₹4,05,51,837, including disallowance of loss in derivative trading amounting to ₹50,12,337 and addition under Section 68 of ₹3,50,00,000. The CIT(A) deleted the Section 68 addition but sustained the disallowance of derivative loss. Consequently, both the assessee and the Revenue filed appeals before the ITAT.

By order dated 09.12.2019, the ITAT remanded the issue of derivative loss for fresh examination while dismissing the Revenue’s appeal on the Section 68 issue. The assessee thereafter opted to settle only its own appeal relating to derivative loss under the Vivad Se Vishwas Act by filing Forms 1 and 2 on 08.03.2021.

However, the designated authority issued Form 3 modifying the declaration, asserting that the assessee was required to settle all disputes for the assessment year, including those forming part of the Revenue’s appeal. Aggrieved, the assessee approached the High Court.

Issues Involved

Whether under the Direct Tax Vivad Se Vishwas Act, 2020, an assessee can confine settlement to disputes arising from its own appeal without being compelled to also settle disputes arising from the Revenue’s appeal for the same assessment year.

Petitioner’s Arguments

The assessee contended that the statutory scheme of the Vivad Se Vishwas Act treats each appeal as a separate unit of settlement. It was argued that the Act does not mandate settlement of all disputes for an assessment year and that compelling settlement of the Revenue’s appeal was contrary to Sections 2, 3 and 4 of the Act as well as CBDT Circular No. 9/2020.

Respondent’s Arguments

The Revenue argued that settlement under the Vivad Se Vishwas Act must be assessment-year-centric and that the assessee could not selectively settle only some issues while leaving others unresolved for the same assessment year.

Court Order / Findings

The Delhi High Court examined the statutory provisions of the Vivad Se Vishwas Act, particularly the definitions of “appellant”, “disputed tax” and “tax arrears”. The Court held that the Act clearly contemplates the unit of settlement to be an appeal, writ petition or SLP, and not the assessment year.

The Court relied upon earlier judicial precedent including MUFG Bank Ltd. v. CIT and CBDT Circular No. 9/2020, which clarify that each appeal constitutes a separate dispute and that an assessee has the option to settle only its own appeal, only the departmental appeal, or both.

The Court found that the dispute raised by the assessee in its appeal relating to derivative loss was independent and unconnected with the dispute raised by the Revenue in its appeal under Section 68. Accordingly, the designated authority erred in modifying the declaration to compulsorily include the Revenue’s appeal.

Important Clarification

The High Court clarified that under the Vivad Se Vishwas Act, the unit of settlement is an appeal and not an assessment year. An assessee cannot be compelled to settle disputes arising from the Revenue’s appeal merely because they pertain to the same assessment year, if such disputes are not the subject matter of the assessee’s declaration.

Final Outcome

The writ petition was allowed. The Delhi High Court directed that the certificate issued under Section 5(1) of the Vivad Se Vishwas Act be confined strictly to the declaration filed by the assessee and directed the Revenue to issue a modified certificate accordingly. The pending application was also disposed of.

Link to download order - https://www.mytaxexpert.co.in/uploads/1769857136_ROSEWOODBUILDWELLPRIVATELIMITEDVsPR.COMMISSIONEROFINCOMETAX7ORS..pdf

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