Facts of the Case

The petitioner, M/s Fresh Pet Private Limited, approached the Delhi High Court challenging an order dated 30 September 2021 whereby the Designated Authority rejected its request for rectification of Form 3 issued under the Direct Tax Vivad Se Vishwas Act, 2020.

The dispute pertained to Assessment Year 2012–13. The original assessment under Section 143(3) of the Income Tax Act, 1961, resulted in an addition of ₹3 crore under Section 68. While confirming the addition, the assessment order expressly allowed set-off and carry forward of unabsorbed depreciation and business losses. The appellate proceedings were pending when the petitioner opted for settlement under the VSV Act.

While filing the declaration under the VSV Act, Schedule D was inadvertently left blank, though Form 3 itself recorded that carry forward and set-off could be allowed as per law. The petitioner sought rectification of Form 3 to reflect the relief already granted in assessment, which request was rejected by the Designated Authority.

 Issues Involved

Whether, under the Direct Tax Vivad Se Vishwas Act, 2020, the Designated Authority can deny the benefit of set-off and carry forward of unabsorbed depreciation and business losses already allowed in the assessment order, on account of an inadvertent omission in Schedule D of the declaration.

 Petitioner’s Arguments

The petitioner contended that the assessment order itself had expressly allowed carry forward of unabsorbed depreciation and business losses, and such relief was never in dispute. The VSV Act is concerned only with settlement of “disputed tax” and cannot deprive an assessee of benefits already granted.

It was submitted that the failure to fill Schedule D was a bona fide and inadvertent mistake, constituting an error apparent on the face of the record, rectifiable by the Designated Authority. Denial of rectification would place the petitioner in a worse position than under the original assessment, which is contrary to the object and spirit of the VSV Act. Reliance was also placed on CBDT clarifications permitting rectification of patent errors.

 

Respondent’s Arguments

The Revenue argued that the petitioner had failed to claim set-off and carry forward in the declaration and, therefore, Form 3 suffered from no apparent error. It was contended that once a certificate under Section 5(1) of the VSV Act is issued, the determination attains finality and no rectification or modification is permissible.

The respondents relied upon statutory finality under Section 5(3) and CBDT circulars clarifying that declarations cannot be revised after issuance of Form 3.

 Court Order / Findings

The Delhi High Court allowed the writ petition and quashed the impugned order rejecting rectification. The Court held that the VSV Act is a beneficial and remedial legislation intended to settle pending disputes and not to impose liabilities greater than those arising from the assessment itself.

The Court observed that the concept of “disputed tax” under the VSV Act is confined to issues under contest and does not extend to reliefs already granted in favour of the assessee. Once the assessment order had allowed set-off and carry forward of unabsorbed depreciation and business losses, the same could not be denied while issuing Form 3.

The failure to fill Schedule D was held to be an inadvertent omission, and the Designated Authority ought to have rectified Form 3 to reflect the assessment order correctly. Denial of such rectification would defeat the very object of the VSV Act and unjustly burden the assessee.

Accordingly, the Court directed the Designated Authority to issue a fresh Form 3 in accordance with law.

 Important Clarification

The Court clarified that settlement under the Vivad Se Vishwas Act cannot place an assessee in a more disadvantageous position than under the original assessment. Only disputed components of tax can form the subject of settlement. Benefits such as carry forward and set-off of losses and unabsorbed depreciation, already allowed in assessment and not under dispute, must be preserved and reflected in Form 3. The VSV Act must be interpreted in a manner consistent with its remedial and beneficial purpose.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770194052_MSFRESHPETPRIVATELIMITEDVsPRINCIPALCOMMISSIONEROFINCOMETAXDELHI1.pdf

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