Sec 9(a)(ii) VSV Act excludes taxpayers against whom prosecution was filed on or before date of filing of declaration of ‘tax arrears’

While Directing the Revenue to decide the application filed by the Assessee in conformity with the VsV Act, 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 AY.

A Division Judge Bench 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.”

“The exclusionary clause i.e., Section 9(a)(ii) of VsV 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”, added the Bench. 

Advocate V. Sridharan appeared for the Assessee/Petitioner whereas Advocate Suresh Kumar appeared for the Revenue/Respondent.

The brief facts of the case were that the Assessee was subjected to reassessment proceedings for AY 2010-11 and 2011-12 wherein Revenue raised the demand of Rs.6.77 Cr and Rs.7.37 Cr against which the Assessee filed an appeal before the Commissioner of Income Tax and also paid 20% of the demand in terms of CBDT Office Memorandum dt. Feb 29, 2016. Subsequently, Revenue initiated prosecution for willfully attempting to evade the payment of taxes in respect of a demand that arose pursuant to reassessment. During the pendency of the prosecution, the Assessee filed a declaration under the 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. Hence, the Petitioner approached to seek relief. 

After considering the submission, the Bench noted that the DTVSV Act shall apply to the petitioner.

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

The Bench stated by a plain reading of Section 2(1) of the VsV Act that the term ‘tax arrears’ includes disputed tax, disputed interest, disputed penalty, and disputed fee as determined under the Income Tax Act. 

By referring to the case Macrotech Developers Ltd. V/s. Principal Commissioner of Income Tax, the Court stated that the intention of the legislature was that 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 arrears which naturally is relatable to an AY.

The Court expressed 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.

Therefore, on finding that the Assessee could not be treated as ‘Assessee in default’. the High Court directs Revenue to decide the application filed by the Assessee in conformity with the VsV Act.

Cause Title: Pragati Pre Fab India Pvt. Ltd. Vs. Principal Commissioner of Income Tax, Mumbai [WP No. 1558 OF 2022 / 2023-Enterslice-29-HC-Bom-IT]

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