Section 9(a)(i) Bars Vivad Se Vishwas Scheme Relief in Search Cases Exceeding ₹5 Crore Disputed Tax: Madras HC [Read Order]

Future Plus Enterprise and Divyajyoti Distributors, the petitioners had filed declarations under the Vivad Se Vishwas scheme seeking to settle penalties imposed after assessments were completed under Section 143(3) read with Section153A of the Income Tax Act, following a search operation conducted in September 2015. Although the original tax demands were settled and penalties were reduced in appeal, the petitioners applied under the scheme to resolve the remaining disputed penalties by paying 25% of the amount. 

The declarations were rejected by the Principal Commissioner of Income Tax (Central-2) on the ground that the disputed tax in the original assessments exceeded Rs. 5 crore and the case was related to a search proceeding, which disqualifies it under Section 9(a)(i) of the Act.

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The petitioners’ counsel argued that their declarations only concerned disputed penalties, not disputed tax. They claimed that since the tax had already been paid, the Rs. 5 crore limit should not apply. They relied on the definition of “tax arrear” under Section 2(1)(o), which treats disputed tax, penalty, and interest as separate categories. They also submitted that the Vivad Se Vishwas scheme is a beneficial legislation and should be interpreted liberally to grant relief.

The department’s counsel argued that the disputed tax amount in the original search-based assessments exceeded Rs. 5 crore, and under Section 9(a)(i), such cases are not eligible under the scheme. They also cited CBDT Circulars which clarified that search-related cases involving tax demands above Rs. 5 crore are excluded from the scheme.

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A single bench led by Justice Krishnan Ramasamy agreed with the revenue’s position and held that Section 9(a)(i) clearly excludes search-based assessments involving disputed tax above Rs. 5 crore from the scope of the scheme. The court rejected the argument that this exclusion does not apply when only the penalty is under dispute, holding that the nature of the original assessment and the amount of tax assessed remain relevant.

The court ruled that the rejection of the declarations by the Principal Commissioner was valid and in line with the statutory provisions and clarifications issued by the tax authority. The writ petitions were dismissed.

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