Income Tax Act, 1961 - Sections 115JAA, 115JB - Direct Tax Vivad Se Vishwas Scheme (DTVSV) - The assessee filed its return of income for AY 2013-14, which was later revised after an assessment order. The company participated in the DTVSV, opting to settle disputes by adjusting Minimum Alternate Tax (MAT) credit against its tax liabilities. The petitioner sought to carry forward reduced MAT credit under the scheme, but the tax authorities rejected the rectification request, calculating a tax payable of Rs.4,36,6801 without properly considering the carry forward of MAT credit allowed by the AO in a prior order under Section 154 - Whether the rectification under Form 3 for carrying forward reduced MAT credit under the DTVSV scheme was validly rejected by the tax authorities – HELD - The rejection of the rectification request by the respondent was improper as the tax authorities failed to consider the correct MAT credit carry forward, which had been granted by the Assessing Officer in a prior order under Section 154. The court referred to Rule 10 of the DTVSV Rules, which allows the option to carry forward reduced MAT credit and further noted that the Frequently Asked Question (FAQ) No. 53 of the CBDT Circular No. 9/2020 supported the petitioner’s entitlement to carry forward MAT credit. The tax authorities' failure to include the correct MAT credit led to an erroneous determination of the amount payable under the scheme - The court quashed Form 3 and the rectification order, remanding the matter back to the tax authorities to recalculate the tax liability and refund entitlement by properly applying Rule 10 of the DTVSV Rules and considering the prior Section 154 order. The recalculation was directed to be completed within 12 weeks

 

2024-VIL-178-GUJ-DT

 

IN THE HIGH COURT OF GUJARAT

AHMEDABAD

 

R/SPECIAL CIVIL APPLICATION NO 18620 of 2021

 

Date: 17.09.2024

 

VAPI CARE PHARMA PRIVATE LIMITED

 

Vs

 

PRINCIPAL COMMISSIONER OF INCOME TAX

 

Petitioner: MR. HARDIK V VORA (7123)

Respondent: MRS KALPANA K RAVAL (1046)

 

CORAM

HONOURABLE MR. JUSTICE BHARGAV D. KARIA

HONOURABLE MR. JUSTICE NIRAL R. MEHTA

 

ORAL JUDGMENT

 

PER: HONOURABLE MR. JUSTICE BHARGAV D. KARIA

 

1. Heard learned advocate Mr. Hardik Vora for the petitioner and learned Senior Standing Counsel Mr. Karan Sanghani for learned advocate Mrs. Kalpana K. Raval for the respondent.

 

2. By this petition under Article 226 of the Constitution of India, the petitioner has prayed for the following reliefs:

 

“a. A Writ of Certiorari or any other Writ, order or direction in the nature of Certiorari quashing Form 3 determining amount payable of Rs. 43,66,801/- under the Direct Tax Vivad se Vishwas (DTVSV) Scheme on or before 30.04.2021 and the consequent order dated 28.10.2021 rejecting the application to rectify Form 3 issued in response to the application made by the petitioner under Scheme;

 

b. Instructing respondent to accept Form No.1 and 2 under the scheme on 30.01.2021 as is filed by the petitioner and allow opted option of not to pay the tax and allow reduction of MAT credit and consequent refund.”

 

3. Brief facts of the case are that the petitioner-Company had filed its return of income declaring total income at Rs. 2,80,85,420/- for the Assessment Year 2013-14.

 

4. Thereafter, consequent to a search initiated on 18.06.2013, assessment order dated 28.03.2016 under section 143(3) read with section 153A of the Income Tax Act, 1961 [for short ‘the Act’] was passed determining the assessed income at Rs. 11,18,62,234/-.

 

5. Being aggrieved, the petitioner filed appeal before the CIT(A), who, by order dated 12.07.2016 confirmed the addition of Rs. 1,07,67,270/- on account of unaccounted sale proceeds received in cash and deleted all other additions/allowances made by the Assessing Officer.

 

6. The order giving effect was passed on 01.09.2016 revising the total income at Rs. 3,88,52,690/-. Thereafter, the rectification order under section 154 of the Act was passed on 29.01.2021 ascertaining the tax liability after giving credit under section 115JAA of the Act towards MAT Credit of Rs. 35,11,241/- being difference between the tax payable under normal provision and tax of Rs. 90,94,514/- payable under section 115JB of the Act and thereafter, the tax liability of Rs. 1,26,05,755/- was ascertained.

 

7. Being aggrieved, the petitioner filed appeal before the Income Tax Appellate Tribunal against the addition of Rs. 1,07,67,270/-.

 

8. The Assessing Officer, by order dated 28.03.2017, levied penalty of Rs. 32,80,181/- under section 271AAB(1)(c) of the Act. The petitioner, being aggrieved by the penalty order, preferred appeal before the CIT(A) and also deposited Rs. 6,46,100/- being 20% of the penalty.

 

9. Thereafter, the Direct Tax Vivad Se Vishwas Scheme was introduced by the respondent and the petitioner decided to settle its pending appeals by taking benefit of the same and filed Form No. 1 and 2 under the Scheme on 30.01.2021. In Part A of the said Form 1, the petitioner opted not to pay the tax and filled necessary details about the reduction of Rs. 43,66,801/- in the MAT Credit in the Schedule D of the said Form 1 and claimed refund of Rs. 40,34,078/- on account of pre-payment of taxes.

 

10. The respondent, by issuing Form No.3 dated 17.04.2021 determined tax payable before 30.04.2021 amounting to Rs. 4,06,211/- under the Scheme with following remarks:

 

“The assessee claimed refund of Rs. 29,76,720/- in the return of income filed for A.Y. 2013-14. While finalized the assessment, the said refund reduced to NIL. The assessee went in appeal and the Ld. CIT(A) has given partial relief to the assessee. While giving effect to the order of Ld. CIT(A), refund of Rs. 19,80,820/- was granted to the assessee. Hence, as assessee’s claim of refund remains at Rs. 9,95,900/- [29,76,720- 19,80,820). However, in Form No.1, the assessee has incorrectly claimed refund of Rs. 10,69,388/- reduced in assessment. After giving credit of tax payment of Rs. 29,64,690/- and refund of Rs. 9,95,900/- reduced in assessment, balance tax payable comes to Rs. 4,06,211/-. The AO has reported that the addition has resulted into increasing income under MAT. The assessee has filed Schedule D of Form No.1. The AO has reported that the reduced MAT credit has been allowed to be carried forward.”

 

11. As per the respondent, the only tax payable of Rs. 43,66,801/- was prior to 30.04.2021 under the Scheme as the respondent did not allow the reduced MAT Credit to be carried forward and after allowing the credit for the tax already paid, calculated amount of Rs. 4,06,211/- as balance tax payable before 30.04.2021.

 

12. It also appears from the record that the petitioner preferred an application for rectification of the Form No.3 which was rejected by the respondent by order dated 28.10.2021 and being aggrieved, the petitioner preferred this petition.

 

13. Learned advocate Mr. Hardik Vora for the petitioner submitted that on perusal of the remarks given in Form No.3, the respondent has not taken into consideration the effect of the order dated 29.01.2021 passed under section 154 of the Act by not reducing the MAT Credit of Rs. 35,11,241/- though it was submitted that the AO has reported that reduced MAT Credit has been allowed to be carried forward. However, no such effect is given in the calculation of the tax payable under the Scheme.

 

14. It was submitted that the petitioner has rightly stated that the petitioner is not liable to pay any tax under the Scheme after taking into consideration the MAT Credit and on calculation of the amount payable being paid on 06.04.2016 of Rs. 23,18,590/- and on 22.05.2018 of Rs. 6,46,100/- and reducing the total amount of Rs. 29,64,690/- by the refund claim reduced in assessment by Rs. 10,69,388/- the petitioner was entitled to the refund of Rs. 40,34,078/-.

 

15. Learned advocate Mr. Vora has referred to the calculation made by the petitioner in Form 1 which is reproduced in the petition in para 3.1 as under:

 

 

1. It was submitted that the respondent has erroneously considered that Rule 10 of the Direct Tax Vivad Se Vishwas Rules, 2020 [for short ‘the Rules’] would not be applicable in the facts of the case as the petitioner has opted the option as per Clause (ii) of Rule 10(1) of the Rules not to pay tax on account of carry forward by reducing MAT Credit from the carried forward MAT Credit amount.

 

16. Learned advocate Mr. Vora placed reliance on the Frequently Asked Question (FAQ) No. 53 issued by the Board’s Circular No. 9/2020 dated 22.04.2020 which has recognized the option of the assessee to utilize carry forward of the reduced tax credit or loss or depreciation. FAQ and answer thereto reads as under:

 

“FAQ 53 reads as under:

 

Question No. 53 If loss is not allowed to be adjusted while calculating disputed tax, will that loss be allowed to be carried forward?

 

Answer: As per the amendment proposed in Vivad se Vishwas, in a case where the dispute in relation to an assessment year relates to reduction of Minimum Alternate Tax (MAT) credit or reduction of loss or depreciation, the appellant shall have an option either to (i) include the amount of tax related to such MAT creditor loss or depreciation in the amount of disputed tax and carry forward the MAT credit or loss or deprecation or (ii) to carry forward the reduced tax credit or loss or depreciation. CBDT will prescribe the of calculation in suck cases.”

 

17. It was pointed out that the petitioner had a total carry forward of MAT Credit of Rs. 5,16,28,503/- for the Assessment Year 2013-14 out of which, Rs. 17,800/- was carried forward by the petitioner as stated in the return of income and from the balance Rs. 5,16,10,703/- petitioner availed the reduction of Rs. 43,66,801/-.

 

18. Accordingly, it was submitted that the petitioner was therefore not liable to pay tax by utilizing the MAT Credit and accordingly, the petitioner is entitled to the refund the claim in the Form No.1.

 

19. On the other hand, learned advocate Mr. Sangani submitted that the petitioner has reduced reduction in MAT Credit of Rs. 17,800/- in the return of income which was considered by the respondent for the purpose of calculation of the tax payable under the Scheme and accordingly, the petitioner was supposed to pay tax of Rs. 43,66,801/- and after the considering pre-payment of taxes, the petitioner was entitled to further pay Rs. 4,06,211/- before 30.04.2021. It was submitted that as the petitioner did not pay the said amount before the date or before the extended date, the petitioner is not entitled to the Scheme.

 

20. It was submitted by learned advocate Mr. Sangani that the respondent has rightly rejected the rectification application Form No.3 filed by the petitioner as the reliance placed by the petitioner on Rule 10 of the Rules is not applicable in the facts of the case as the petitioner has not carried forward any MAT Credit at the time of filing of return. It was submitted that as the petitioner has paid advance tax of Rs. 85 lakhs and claimed the reduced MAT Credit to Rs. 17,800/-, the petitioner is not entitled to the benefit of Rule 10 of the Rules.

 

21. Having heard learned advocate for the respective parties and considering the facts of the case, it would be germane to refer to Rule 10 of the Rules which is resorted to by the petitioner for utilizing the MAT Credit by reducing the same and not paying tax under the Scheme:

 

“10. (1) Where the dispute in relation to an assessment year relates to reduction m Minimum Alternate Tax (MAT) credit to be carried forward, the declarant shall have an option to

 

(i) include the amount by which MAT credit to be carried forward is reduced disputed tax and carry forward the MAT credit by ignoring such amount of reduction, or

 

(ii) carry forward the reduced MAT credit.

 

(2) Where the declarant exercises the option as per clause (ii) of sub-rule (1), he shall be liable to pay tax, including surcharge and cess, along with interest, if any, as a consequence of carrying forward reduced MAT credit in subsequent years:

 

Provided that in cases other than the eligible search cases, In computing the reduced amount of MAT credit to be carried forward in clause (ii) of subrule (1), one-half of the amount by which MAT credit is reduced shall be considered for reduction, If such reduction is related to issues covered in favour of declarant:

 

Provided further that in case of eligible search cases, in computing the reduced amount of MAT credit to be carried forward in clause (i/) of subrule (1), one and one-fourth times of the amount by which MAT credit is reduced shall be considered for reduction and where the one and one fourth times the amount by which MAT credit is reduced exceeds the amount of MAT credit to be carried forward before it's reduction, such excess shall be ignored:

 

Provided also that in case of eligible search cases in computing the reduced amount of MAT credit to be carried forward in clause (ii) of sub-rule (1), five-eighth of amount by which MAT credit is reduced s shall be considered for reduction, if such reduction Is related to issues covered in favour of declarant.

 

Explanation.—For the purpose of this rule MAT credit means tax “credit as per the provisions of section VISUAA or or 115JD of of the Income-tax Act.

 

Explanation:- For the purpose of this rule MAT credit means tax credit was per the provisions of section 115JAA or 115JD of the Income tax Act.

 

In view of the above facts, the Rectification application for correction in form 3 of the assessee is not found correct. Therefore, the rectification application of assessee is rejected and disposed off.”

 

22. On perusal of the above Rule, it is clear that the petitioner is entitled to carry forward the reduced MAT Credit for payment of the taxes under the Scheme as the petitioner has the option which is further fortified by the answer to Question 53 of the FAQ as per Circular No.9/2020 issued by the CBDT.

 

23. On perusal of the remarks made by the respondent in the Form 3 it is apparent that the respondent though has taken into consideration that the AO has permitted the carry forward of the MAT Credit but while calculating the amount payable by the petitioner in Form 3 with regard to tax arrears and amount payable under DTVSV on or before 30.04.2021, the respondent has not taken into consideration order dated 29.01.2021 passed by the Assessing Officer for permitting petitioner to carry forward the MAT Credit of Rs. 35,11,241/- being the difference between tax payable under the normal provision of tax of Rs. 90,94,541/- payable under section 115JB and therefore the petitioner was entitled to reduce the MAT Credit for not paying any amount otherwise payable as calculated in Form No.3.

 

24. In view of the above facts, we are of the opinion that impugned Form No.3 and the rectification order are required to be quashed and set aside by remanding the matter back to the respondent to recalculate the entitlement of the refund in accordance with the Scheme and the Rules there under by applying Rule 10 of the Rules after taking into consideration order dated 29.01.2021 passed by the Assessing Officer under section 154 of the Act with regard to order dated 01.09.2016 giving effect to the CIT(A).

 

25. Such exercise shall be completed within Twelve weeks from the date on receipt of copy of this order. Rule is made absolute to the aforesaid extent. No order as to costs.

 

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