The Rajasthan High Court has held that a clarification issued by the Central Board of Direct Taxes (CBDT), being declaratory in nature, cannot introduce a cut off date for its applicability.
A two-judge bench of the High Court consisting of Chief Justice Akil Kureshi and Justice Sudesh Bansal further held that since the primary intention of the Vivad Se Vishwas Act, 2020 was the resolution of disputed taxes, the courts must adopt an interpretation that furthers this intention and not restrict its scope.
In the instant case, proceedings for penalty under the Act were initiated against the Assessee for failing to file an audit report under Section 44AB of the Income Tax Act, 1961. Against the order of the Assessing Officer imposing penalty on the Assessee, an appeal to the Commissioner of Income Tax (Appeals) (CIT (A)) was filed which was dismissed by it. The Assessee thereby filed an appeal before the Income Tax Appellate Tribunal (ITAT) along with an application for condonation of delay. In the meantime, the Direct Tax Vivad Se Vishwas Act, 2020 was passed by the Parliament, with effect from 17th March, 2020, for resolution of disputed tax.
The Assessee, thereafter, made an application before the designated authority under the Vivad Se Vishwas Act, 2020 in September 2020. This application was rejected by the authorities. After the application for condonation of delay was allowed by the ITAT, the Assessee again filed an application before the designated authority under the 2020 Act in February 2021, which was rejected by the authorities on the ground that since the appeal in this case was filed by the Assessee after the issuance of the CBDT clarificatory circular dated 04.12.2020, the appeal pending before the ITAT was not eligible to be covered under the Vivad Se Vishwas Scheme. The Assessee filed a writ petition before the court against the order of revenue authorities rejecting his application under the 2020 Act.
The CBDT vide its clarificatory circular dated 04.12.2020 provided that if the time limit for filing an appeal has expired during the specified period, and the application for condonation of delay is filed before the date of issue of the circular, and the appeal is admitted by the appellate authority before the date of filing of the declaration, such appeal will be deemed to be pending for availing the benefit under the Vivad Se Vishwas Act, 2020.
The bench observed that the Assessee fulfilled all the conditions for attaining the benefit under the Scheme except the requirement contained in the CBDT clarificatory circular of filing the application for condonation of delay before the date of issuance of the circular.
“Since the primary intention of the Vivad Se Vishwas Act, 2020 was the resolution of disputed taxes, the courts must adopt an interpretation which would further this intention and not restrict its scope. To begin with the act was framed for resolution of the disputed taxes and the matters connected therewith and thereto. The resolution of disputed taxes is thus prime purpose of enactment of the act. We would therefore adopt an interpretation which would further this intention instead of restricting its scope.” The court raised the issue of whether the requirement of filing the application for condonation before the date of issuance of circular sacrosanct so as to destroy the right of assessee to apply for settlement on fulfilling all other conditions. The court observed that a clarificatory circular being declaratory in nature, the introduction of a cut off date for the applicability of a clarification runs counter to the very concept of a clarification. The court ruled that the introduction of a cut off date in the circular renders it arbitrary. Therefore, the court read down the CBDT clarificatory circular, removing the requirement of filing the application for condonation before the date of issuance of circular, holding that the same cannot be termed sacrosanct,” the bench said.
Allowing the writ petition, the bench concluded that “A clarification by its very nature is declaratory. If for applicability of such clarification a cut off date is introduced it would run counter to the very concept of a clarification. If the CBDT circular is not read-down as to remove the rigors of the cut off date by holding that the same is not sacrosanct the same may suffer from vice of arbitrariness.”
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