Facts of the Case

The petitioner, Shyam Sunder Sethi, filed his income tax return for AY 2011–12 declaring income of ₹49,32,900 and claimed exemption under Section 54 of the Income Tax Act, 1961, resulting in nil capital gains.

Subsequently, reassessment proceedings were initiated under Section 148, and the exemption claim was disallowed. The total income was reassessed at ₹3,08,94,767 via order dated 26.12.2018.

Aggrieved, the petitioner filed an appeal before CIT(A) on 11.07.2019 along with an application for condonation of delay.

After the introduction of the Direct Tax Vivad Se Vishwas Act, 2020, the petitioner filed Forms 1 and 2 on 12.06.2020 to settle the dispute. However, the application was rejected on 28.01.2021 without assigning any reasons 

Issues Involved

  1. Whether an appeal filed with a condonation of delay application can be treated as “pending” under Section 2(1)(a) of the Vivad Se Vishwas Act, 2020.
  2. Whether rejection of a declaration under the Act without assigning reasons is legally sustainable.
  3. Whether FAQs/circulars can override statutory provisions of the Act.

Petitioner’s Arguments

  • The petitioner contended that the appeal filed on 11.07.2019 (along with condonation application) was pending as on the specified date (31.01.2020).
  • It was argued that the Act only requires pendency of appeal and does not mandate admission of appeal.
  • The reliance placed by the department on FAQ 59 (CBDT Circular dated 04.12.2020) was beyond the scope of the Act.
  • The rejection without providing reasons violated principles of natural justice.

Respondent’s Arguments

  • The revenue argued that since the appeal was filed beyond limitation (after 03.02.2019), it could not be treated as pending.
  • It was contended that unless the delay was condoned and the appeal admitted before filing of declaration, the benefit under the Act could not be granted.
  • Reliance was placed on FAQ 59 to justify rejection of the petitioner’s application. 

Court’s Findings / Judgment

  • The Court held that pendency of appeal begins from the date of filing and continues until disposal, irrespective of admission.
  • It clarified that Section 2(1)(a) of the Act does not require admission of appeal, only its pendency.
  • The Court observed that FAQ 59 travels beyond the statutory provisions and cannot restrict the scope of the Act.
  • The rejection of the petitioner’s application without assigning reasons was held arbitrary and unsustainable in law.
  • Accordingly, the order dated 28.01.2021 was set aside, and the authorities were directed to process Forms 1 and 2.

Important Clarification

  • An appeal is considered “pending” once filed, even if accompanied by a condonation of delay application.
  • Admission of appeal is not a pre-condition under the Vivad Se Vishwas Act.
  • Administrative FAQs or circulars cannot override statutory provisions.
  • Authorities must provide reasoned orders while rejecting applications.

Sections Involved

  • Section 2(1)(a) – Definition of “pending appeal”
  • Section 2(1)(n) – Specified date (31.01.2020)
  • Section 3 & Section 4 – Filing of declaration (Forms 1 & 2)
  • Section 54 – Income Tax Act, 1961 (Capital gains exemption)
  • Section 148 – Reassessment proceedings

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:830-DB/TWS03032021CW22912021_114233.pdf

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