Bombay High Court Grants Vivad Se Vishwas Relief Despite Absence of Assessment Appeal – Section 5A Applicability Examined
Introduction
The Bombay High Court delivered a significant judgment in Smt Sharen Nitin Naik Vs PCIT addressing the scope and applicability of the Direct Tax Vivad Se Vishwas Scheme, 2020. This ruling clarifies critical aspects regarding eligibility under the scheme, particularly for assessees governed by special statutory provisions such as Section 5A of the Income Tax Act, 1961. The Court emphasized that the scheme must be interpreted liberally to fulfill its objective of resolving tax disputes rather than restricting its benefits on technical grounds.
The case involved the rejection of the assessee's application under the scheme on the basis that she had not filed an appeal against the assessment order. However, the assessee contended that an appeal against the penalty order was pending, which should qualify as a pending dispute under the scheme. Additionally, the unique circumstances arising from Section 5A provisions applicable to spouses married under the Portuguese Civil Code added another dimension to the matter.
Factual Matrix of the Case
Background of Assessment Proceedings
The assessee and her spouse both filed their income tax returns on 15.03.2014. Both returns underwent processing under Section 143(1) of the Income Tax Act, 1961. Subsequently, on 05.03.2015, survey proceedings under Section 133(A)(1) were conducted at the business premises operated by the assessee's spouse. Following the survey, an assessment order was passed on 27.03.2015 concerning the spouse's assessment.
Subsequently, the assessment for both the assessee and her husband was reopened under Section 147 of the Income Tax Act, 1961. Assessment orders were passed under Section 143(3) read with Section 147 on 30.12.2016 for both individuals. Additionally, penalty proceedings were initiated, and penalty orders under Section 271(1)(c) read with Section 274 were issued on 16.06.2017 against both the assessee and her spouse.
Appeal Filing Strategy
The assessee's husband filed appeals against both the assessment order passed under Section 143(3) read with Section 147 and the penalty order under Section 271(1)(c) read with Section 274. The assessee, however, adopted a different approach. Since her husband's appeal already challenged the entire additions made in both their returns, she did not file a separate appeal against the assessment order. Instead, she only filed an appeal against the penalty order imposed on her.
Application Under the Vivad Se Vishwas Scheme
When the Direct Tax Vivad Se Vishwas Scheme, 2020 was introduced, both the assessee and her husband filed Forms 1 and 2 on 17.03.2021 to avail benefits under the scheme. The application filed by the assessee's husband was accepted by the authorities. He was issued Form 3 on 28.08.2021 and subsequently Form 5 on 29.10.2021. The appeals filed by him were later dismissed as infructuous through orders dated 08.09.2022 and 26.10.2022.
However, the assessee's application faced rejection. The designated authority passed an order on 17.03.2021 rejecting her Forms 1 and 2 with the following reason:
"Assessee has not filed Appeal before CIT (A) against the order of AO. As there is no appeal pending, hence the application filed under DTVSV is hereby rejected."
This rejection formed the basis of the writ petition filed before the Bombay High Court.
Contentions Raised by the Assessee
Procedural Irregularities in Rejection Order
The assessee challenged the rejection order on multiple grounds. Firstly, she contended that the order was passed without affording any opportunity of hearing, violating principles of natural justice. Secondly, the order contained no detailed reasoning and merely provided an online status update stating the reason for rejection. Such a summary rejection, according to the assessee, was arbitrary and perverse.
Existence of Pending Appeal Against Penalty
The primary substantive contention raised was that the rejection was factually incorrect. The assessee emphasized that although she had not filed an appeal against the assessment order, she had indeed filed an appeal against the penalty order under Section 271(1)(c), which remained pending. This pending appeal, she argued, constituted a "dispute" as defined under the scheme, thereby entitling her to the scheme's benefits.
Application of Section 5A Provisions
The assessee further highlighted the applicability of Section 5A of the Income Tax Act, 1961. This provision applies to spouses married under the Portuguese Civil Code, which is applicable in the State of Goa. Under this statutory provision, income earned by either spouse is treated as community income and is mechanically apportioned between the two spouses in equal proportions.
The assessee argued that since the income in question was community income and her husband had already settled the dispute by availing the scheme, denying her the same benefit would result in splitting a single community income dispute into two artificial segments. This, she contended, was contrary to both the provisions of Section 5A and the object of the Vivad Se Vishwas Scheme.