Court’s Decision
The Patna High Court allowed the writ petition, quashed the reopening of settled tax proceedings under Section 154 of the Income Tax Act, and directed the refund of Rs. 4,81,087 along with statutory interest within four weeks. The Court held that once a dispute is settled under the Direct Tax Vivad se Vishwas Act, 2020, the assessment cannot be reopened by the Assessing Officer using Section 154 of the Income Tax Act.
Facts
Cash amounting to Rs. 19.10 lakh was seized from the petitioner’s collection agent in 2016, leading to assessment proceedings under the Income Tax Act, culminating in an assessment order on 19 December 2018 with a demand of Rs. 5,88,457. The petitioner challenged this and opted for settlement under the Direct Tax Vivad se Vishwas Act, 2020. A certificate in Form 5 under Section 5 of the Act was issued on 5 November 2021, settling the dispute, and the petitioner became entitled to a refund of Rs. 4,81,087.
Despite repeated requests, the refund was not released, and instead, the department reopened the matter under Section 154 on 22 December 2022, claiming additional demand of Rs. 14,77,200, arguing that tax should have been calculated at 60% under Section 115BBE for unexplained income, leading to a fresh demand, prompting the petitioner to approach the High Court.
Issues
Whether the Income Tax Department can reopen an assessment settled under the Direct Tax Vivad se Vishwas Act, 2020 using Section 154 of the Income Tax Act.
Whether the issuance of a certificate under Section 5 of the Act of 2020 conclusively settles the dispute, preventing reopening of the assessment.
Whether the petitioner is entitled to a refund with statutory interest despite reopening by the department.
Petitioner’s Arguments
The petitioner argued that the legislative intent of the Direct Tax Vivad se Vishwas Act was to settle disputes conclusively. Once a certificate under Section 5 of the Act is issued, the matter attains finality and cannot be reopened under Section 154 of the Income Tax Act. It was contended that the scope of Section 154 is limited to rectifying mistakes apparent on the face of the record, and it cannot be invoked to amend or override a settlement order under the Vivad se Vishwas Act.
Reliance was placed on SAN Garments Manufacturing Pvt Ltd v. PCIT (2024 SCC OnLine Del 9066), where the Delhi High Court held that once a final certificate is issued under Section 5(1) of the Act, the dispute stands concluded, and even the designated authority cannot reopen the case.
Respondent’s Arguments
The department argued that under CBDT Circular No. 9 of 2020, specifically FAQ 46, authorities have the power to rectify apparent mistakes under Section 154, even in cases settled under the Vivad se Vishwas Act. It was contended that the original assessment did not calculate the tax at 60% on unexplained income under Section 115BBE, constituting an error apparent on record, justifying reopening under Section 154 and raising an additional demand.
Analysis of the Law
The Court analysed:
Section 154 of the Income Tax Act, which allows rectification of mistakes apparent from the record but is limited to orders passed by the Assessing Officer under the Act, and cannot override conclusive settlements under special statutes.
Sections 4, 5, and 6 of the Direct Tax Vivad se Vishwas Act, 2020, which conclusively settle disputes upon issuance of Form 5, preventing reopening under any other law.
The legislative intent to resolve disputes conclusively under the Vivad se Vishwas Act to reduce litigation.
Precedent Analysis
SAN Garments Manufacturing Pvt Ltd v. PCIT (2024 SCC OnLine Del 9066): Held that once a certificate under Section 5(1) of the Act of 2020 is issued, disputes stand conclusively settled, and even the designated authority cannot reopen the proceedings.
State of Haryana v. Bhajan Lal (1992): Laid down guidelines on when proceedings can be quashed to prevent abuse of process.
These cases reinforced the position that reopening settled disputes under the Vivad se Vishwas Act is impermissible, ensuring finality in tax dispute settlements.
Court’s Reasoning
The Court held that:
- Section 154 cannot be used to reopen or amend orders passed under the Direct Tax Vivad se Vishwas Act.
- The scope of Section 154 is limited to orders under the Income Tax Act, not settlements under the Vivad se Vishwas Act.
- CBDT FAQs cannot override statutory provisions, and the circular cannot expand the scope of Section 154.
- The legislative objective of the Vivad se Vishwas Act is to conclusively settle disputes, and reopening settled cases would defeat this objective.
The Court stated, “If the designated authority itself cannot reopen its own order, the Assessing Officer cannot unsettle a settled order in the garb of Section 154.”
Conclusion
The High Court:
Quashed the reopening order under Section 154 and the consequential demand notice.
Directed the Income Tax Department to refund Rs. 4,81,087 to the petitioner within four weeks, along with statutory interest.
Clarified that settlement under the Vivad se Vishwas Act is final and cannot be reopened using Section 154.
Implications
This judgment:
- Strengthens the Vivad se Vishwas Act’s finality in tax dispute resolution.
- Prevents misuse of Section 154 to reopen settled tax disputes.
- Clarifies that CBDT FAQs cannot override statutory provisions.
- Ensures taxpayer confidence in government settlement schemes.
Short Notes on Referred Cases
- SAN Garments Manufacturing Pvt Ltd v. PCIT: Held that post-certification under the Vivad se Vishwas Act, the matter cannot be reopened by the department or the designated authority.
- Bhajan Lal (1992): Established parameters for quashing proceedings to prevent abuse of process.
- These cases were cited to emphasise finality in tax settlement disputes.
FAQs
1. Can the Income Tax Department reopen a settled dispute under the Vivad se Vishwas Act using Section 154?
No, once a settlement certificate is issued under Section 5, the dispute attains finality and cannot be reopened under Section 154.
2. Is a taxpayer entitled to a refund after a settlement under the Vivad se Vishwas Act?
Yes, if the taxpayer has paid excess tax, they are entitled to a refund with statutory interest.
3. Can CBDT circulars override the Vivad se Vishwas Act?
No, circulars cannot override statutory provisions or expand the scope of Section 154.
