While observing that the exclusionary clause i.e., Section 9(a)(ii) of Vivad se Vishwas Act only excludes the Assessee against whom the prosecution was filed on or before the date of filing of declaration in respect of 'tax arrears' and not those Assessee against whom prosecution is respect of any other issue is pending for the relevant AY per se, the Bombay High Court held that the Assessee shall be entitled to the benefit of VsV Act during the pendency of prosecution which does not involve 'tax arrears' for relevant Assessment year.

The Division Bench comprising of Justice K.R. Shriram and Justice Dr. N.K. Gokhale observed that “under Section 9(a)(ii) of DTVSV Act, the only exclusion visualized is a pendency of prosecution in respect of tax arrears relatable to an assessment year as on the date of filing the declaration and not pendency of a prosecution in respect of an assessment year on any issue”.

Senior Advocate V. Sridharan appeared for the Assessee while Revenue was represented by Advocate Suresh Kumar.

On the validity of FAQ 73 of CBDT Circular No. 21/2020 dated Dec 4, 2020, the Bench relied on coordinate bench ruling in Macrotech Developers wherein FAQ 73 was struck down on the premise that it disentitles the Assessee undergoing prosecution from applying for VsV and observes that the issue is no more res integra.

As per the brief facts, the Assessee was subjected to reassessment proceedings for Assessment year 2010-11 and 2011-12 wherein the AO raised the demand of Rs.6.77 crore & Rs.7.37 crore against which the Assessee filed an appeal before CIT(A) and also paid 20% of the demand in terms of CBDT Office Memorandum dated Feb 29, 2016. Subsequently, the AO initiated prosecution for willfully attempting to evade the payment of taxes in respect of demand that arose pursuant to reassessment; During the pendency of the prosecution. The Assessee therefore filed declaration under VsV Act which was rejected on the premise that Section 9(a)(ii) debars the Assessee against whom prosecution has been instituted on or before the date of filing the declaration.

After considering the submission, the Bench observed that the object of VsV Act is to reduce litigation in direct taxes wherein taxpayer would be required to pay the disputed tax and would get complete waiver of interest and penalty subject to payment by the specified date.

Referring to Section 2(1) of VsV Act wherein the term 'tax arrears' includes: (i) disputed tax, (ii) disputed interest, (iii) disputed penalty and (iv) disputed fee as determined under the Income-tax Act, the Bench observed that the plain reading of Section 9(a)(ii) clearly stipulates that the prosecution must be in respect of 'tax arrears' relating to an Assessment Year.

The Bench also relied on the Coordinate bench in Macrotech Developers Ltd. V/s. Principal Commissioner of Income Tax [(2021) 126 taxmann.com 1 (Bombay)] wherein it was held that the intention of the legislature was that the Section 9(a)(ii) of VsV Act shall not apply in the case of a declarant in whose case a prosecution has been instituted in respect of tax arrears relating to an AY on or before the date of filing of declaration and the prosecution has to be in respect to tax arrear which naturally is relatable to an AY.

Finally, observing that Assessee has paid self-assessment tax but has not paid the demand due to reassessment and has challenged the order which is now pending before ITAT and consequently, paid the entire amount, accordingly, could not be treated as ‘Assessee in default’, the High Court directed the Revenue Department to decide the application filed by the Assessee in conformity with VsV Act.

Cause Title: Pragati Pre Fab India v. CIT [Neutral Citation: 2023: BHC-OS:10054-DB]

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Delhi High CourtJustice K.R. ShriramJustice Dr. N.K Gokhale

Pankaj Bajpai