Facts of the Case

The Petitioners filed declarations under the Direct Tax Vivad Se Vishwas Act, 2020 (DTVSV Act) through Forms 1 and 2 on 26th March 2021. However, while making the declarations, the Petitioners inadvertently excluded the interest component while declaring amounts paid through various challans.

Subsequently, the Respondents issued Forms 3 on 22nd April 2021, but did not grant credit for taxes deposited, citing “mismatch” issues. In certain cases, no reasons were provided for denying such credit.

The Petitioners made representations seeking rectification of Form 3 and attempted to file Form 4. However, the system rejected the filing due to technical errors relating to the date of deposit. Later, the Respondents rejected the request for rectification on the ground that taxes were deposited under an incorrect minor head (“200” instead of “400”).

Issues Involved

  1. Whether tax credit can be denied under the DTVSV Act due to incorrect classification of challans under the wrong minor head.
  2. Whether technical/system errors can override substantive rights of taxpayers.
  3. Whether authorities are obligated to rectify Form 3 to reflect correct tax payments.

Petitioner’s Arguments

  • The Petitioners had duly deposited the taxes, and denial of credit was unjustified.
  • The error in mentioning the minor head (200 instead of 400) was inadvertent and technical in nature.
  • The rejection of Form 4 and failure to rectify Form 3 was arbitrary and contrary to the objective of the DTVSV Act.
  • The system-generated errors should not deprive taxpayers of legitimate benefits.

Respondent’s Arguments

  • The Assessing Officer was attempting to correct the challan code but faced technical limitations in the system.
  • It was argued that if the software does not permit such correction, granting relief may not be feasible.

Court’s Findings / Order

  • The Court observed that there was no dispute regarding actual payment of taxes by the Petitioners.
  • Denial of credit merely due to wrong minor head classification was held to be hyper-technical, unfair, and illegal.
  • The Court emphasized that such rejection defeats the purpose of the DTVSV Act, 2020.
  • It was held that technology cannot override legal rights, and software limitations cannot be a ground to deny relief.

Direction:

  • Respondents were directed to:
    • Correct the payment heads;
    • Grant credit of taxes deposited;
    • Issue revised Forms 3 within four weeks;
  • Petitioners were permitted to file Forms 4 thereafter within two weeks.

Important Clarification

The Court clarified that:

  • Substantive compliance (actual tax payment) prevails over procedural/technical defects.
  • Government systems and software must be aligned with legal rights, not vice versa.
  • Tax authorities cannot deny legitimate benefits due to technical glitches or minor clerical errors.

Sections / Law Involved

  • Direct Tax Vivad Se Vishwas Act, 2020 (DTVSV Act)
  • Relevant provisions concerning Forms 1, 2, 3, 4, and 5 under the Scheme

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:2743-DB/MMH19072022CW85902022_175937.pdf

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