Facts of the Case

The writ petition pertained to Assessment Year 2010–11. The petitioner, MUFG Bank Ltd., challenged the rejection of its declaration filed under Form-1 and undertaking under Form-2 of the Direct Tax Vivad Se Vishwas Rules, 2020. The Revenue rejected the application on the ground that the petitioner attempted to settle only one of the matters pending adjudication while other proceedings, including a Special Leave Petition filed by the Revenue, were still pending.

The petitioner had originally filed its return of income declaring substantial taxable income. After scrutiny under Section 143(2) of the Income-tax Act, 1961, the Assessing Officer passed a draft assessment order under Sections 143(3)/144C(1), making significant additions, including interest from External Commercial Borrowings. The Dispute Resolution Panel rejected most objections raised by the petitioner, following which a final assessment order was passed.

Both the assessee and the Revenue filed cross-appeals before the Income Tax Appellate Tribunal and subsequently before the High Court. The Revenue also filed a Special Leave Petition before the Supreme Court. During the pendency of these proceedings, the petitioner sought settlement under the Vivad Se Vishwas Scheme, which was rejected by the Revenue.

Issues Involved

1. Whether an assessee can settle only one or some of the pending appeals under the Direct Tax Vivad Se Vishwas Act, 2020 while continuing to contest others.
2. Whether the unit of settlement under the scheme is an assessment year or an individual appeal/writ/SLP.
3. Whether rejection of the petitioner’s declaration on the ground of partial settlement was legally sustainable.

Petitioner’s Arguments

The petitioner contended that the scheme permits settlement of individual disputes and does not mandate settlement of all pending matters for a particular assessment year. Each appeal constitutes a separate dispute under the statutory framework. Therefore, refusal to process the declaration merely because other proceedings were pending was arbitrary and contrary to the provisions of the Act and Rules.

The petitioner relied upon a prior judgment of a coordinate Bench of the High Court involving the same assessee, which had already interpreted the provisions of the scheme to allow settlement of individual appeals.

Respondent’s Arguments

The Revenue argued that the petitioner was not eligible for the benefits of the scheme because it attempted to settle only part of the dispute while ignoring other pending proceedings, including the Revenue’s Special Leave Petition before the Supreme Court. According to the Revenue, the scheme required comprehensive settlement of disputes relating to the assessment year.

Court Order / Findings

The Delhi High Court allowed the writ petition and set aside the order rejecting the declaration and the communication dated 17.02.2021. The Court held that the issue was already covered by an earlier decision of a coordinate Bench, which had clarified that the scheme treats each appeal, writ petition, or SLP as a separate dispute.

The Court concluded that an assessee is entitled to settle any one or more appeals under the scheme and is not obligated to settle all pending proceedings. The concerned authority was directed to process the petitioner’s forms in accordance with law.

Important Clarification

• The unit of settlement is not the assessment year.
• Each appeal, writ petition, or Special Leave Petition constitutes a separate dispute.
• The assessee has discretion to choose which dispute to settle.

Sections / Provisions Involved

• Direct Tax Vivad Se Vishwas Act, 2020 — Sections 2(1)(a), 2(1)(j)
• Direct Tax Vivad Se Vishwas Rules, 2020 — Rule 2(b)
• Income-tax Act, 1961 — Sections 143(2), 143(3), 144C(1), 144C(5)

Link to download the order -

https://delhihighcourt.nic.in/app/showFileJudgment/RAS22032024CW48712021_195915.pdf 

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