Rectification Order Passed After Vivad Se Vishwas Settlement Invalid: ITAT Quashes ₹1.13 Cr Additional Demand [Read Order]

Shetkari Shikshan Prasarak Mandal (assessee), a trust registered under Sections 12A and 80G of the Income Tax Act, filed its return of income for Assessment Year (AY) 2017-18 declaring nil income.

The return was processed under Section 143(1), and the case was selected for scrutiny under CASS. The Assessing Officer (AO) completed the assessment by making an ad hoc addition of Rs. 6,29,38,630 as anonymous donations under Section 115BBC, due to the trust’s inability to provide complete donor details.

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The assessee opted for the Vivad Se Vishwas Scheme, 2020, to settle the dispute. The assessee filed Form No. 1 and Form No. 2 and the designated authority issued Form No. 3, determining the payable amount as Rs. 1,94,48,037, which the assessee paid on the same day and intimated via Form No. 4. The designated authority issued Form No. 5 confirming full and final settlement.

However, the AO issued a notice under Section 154 for rectification of the original assessment order, followed by a rectification order by raising an additional demand of Rs. 1,13,05,449. The assessee challenged this before the Commissioner of Income Tax (Appeals) [CIT(A)].

The CIT(A) dismissed the appeal citing a Delhi ITAT ruling that allowed rectification post-VSV Scheme settlement. Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the ITAT.

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The counsel for the assessee argued that once the VSV settlement was finalized with payment and issuance of Form No. 5, no further rectification under Section 154 was permissible, as the settlement was conclusive under the Direct Tax Vivad Se Vishwas (DTVSV) Act.

The counsel relied on the Delhi High Court’s ruling in Satish Kumar Dhingra vs. Assistant/Deputy Commissioner of Income Tax, which quashed a similar rectification order, emphasizing the finality of VSV settlements under Section 5(3) of the DTVSV Act.

The two-member bench, comprising R.K. Panda (Vice President) and Vinay Bhamore (Judicial Member), observed that the VSV Scheme’s provisions under Sections 4 and 5 confer finality to the determination of the amount payable.

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The bench observed that subsequent rectification cannot be possible under the Income Tax Act unless the declaration contained false particulars or suppressed material facts, which was not the case here. It noted that the rectification order was issued after the assessee complied with all VSV requirements, rendering it invalid.

The tribunal set aside the CIT(A)’s order and directed the AO to cancel the additional demand raised through the Section 154 rectification order. The appeal of the assessee was allowed.

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