Facts of the Case

The petitioners, including Celerity Infrastructure Pvt. Ltd. and other connected entities, filed declarations under the Direct Tax Vivad se Vishwas Act, 2020 (DTVSV Act) through Forms 1 and 2 on 26 March 2021. However, while filing these forms, the petitioners inadvertently declared tax amounts excluding the interest component.

Subsequently, the Income Tax Department issued Forms 3 on 22 April 2021, but denied credit of taxes already deposited on the ground of mismatch. In certain cases, no reasons were provided for denial.

The petitioners submitted representations seeking rectification and attempted to file Form 4, but the system rejected the same citing technical errors, including incorrect deposit date issues. Later, the authorities rejected their request on the ground that tax had been deposited under the incorrect minor head “200” instead of “400.”

Issues Involved

  1. Whether tax credit can be denied under the DTVSV Act due to technical errors in challan classification (minor head mismatch).
  2. Whether the Income Tax Department can refuse rectification of Form 3 despite actual payment of taxes.
  3. Whether technical limitations of software can override substantive legal rights of taxpayers.

Petitioner’s Arguments

  • The petitioners contended that taxes had been duly deposited, and denial of credit was purely on technical grounds.
  • The mismatch in challan head (200 instead of 400) was an inadvertent error and should not defeat substantive rights.
  • 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 prejudice taxpayers who have complied in substance.

Respondent’s Arguments

  • The Revenue argued that correction of challan codes was not feasible at the Assessing Officer level due to software limitations.
  • It was contended that unless the system permitted correction, relief could not be granted.
  • The Department relied on technical constraints to justify denial of credit.

Court’s Findings / Order

The Delhi High Court held that:

  • There was no dispute that the petitioners had actually paid the taxes.
  • Denial of credit on the ground that the tax was deposited under minor head “200” instead of “400” is hyper-technical, unfair, and illegal.
  • Such denial defeats the very objective of the DTVSV Act, 2020.
  • Technical limitations of software cannot override legal rights of taxpayers.

Direction Issued:

  • The respondents were directed to correct the payment heads.
  • Grant credit of taxes deposited.
  • Issue revised Form 3 within four weeks.
  • Petitioners were allowed to file Form 4 thereafter.

Important Clarification

The Court emphasized a significant principle:

Technology is meant to facilitate compliance and cannot be used to defeat legal rights of taxpayers.

The Court further clarified that systems and software must be adapted to legal requirements, and not vice versa.

Sections  Involved

  • Direct Tax Vivad se Vishwas Act, 2020
  • Forms 1, 2, 3, and 4 under DTVSV Scheme
  • Principles of administrative fairness and non-arbitrariness

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

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