Introduction

The case of Sri. Pavan Kandkur, Hubballi v. Principal Commissioner Of Income Tax, Hubballi adjudicated by the Income Tax Appellate Tribunal (ITAT) Bengaluru "C" Bench on November 17, 2022, marks a significant development in the interpretation and application of the Direct Tax Vivad Se Vishwas (DTVSV) Scheme. The dispute centers around whether the initiation of revision proceedings under Section 263 of the Income Tax Act, 1961, is permissible when an assessee opts for the DTVSV Scheme to settle existing tax disputes.

The appellant, Shri Pavan Kandkur, proprietor of HVK Agencies, engaged in the wholesale business of oils, contested the decision of the Principal Commissioner of Income Tax (PCIT) which invoked Section 263 against him, alleging unaccounted cash deposits during the demonetization period.

Summary of the Judgment

The ITAT, after thorough consideration, quashed the order passed by the PCIT under Section 263 of the Income Tax Act. The Tribunal held that once an assessee opts for the DTVSV Scheme, subsequent revision proceedings under Section 263 concerning the same subject matter are impermissible. The decision underscored the protective scope of the DTVSV Scheme, emphasizing that it provides immunity only within the confines of the declarations made under the scheme, as stipulated by Section 8 of the DTVSV Act.

Analysis

Precedents Cited

The Tribunal referenced the decision of the Hon'ble Madras High Court in Gopalakrishnan Rajkumar v. Principal Commissioner of Income Tax (2022) 445 ITR 557 (Mad). In this precedent, the High Court held that tax disputes settled under the DTVSV Scheme could not be reopened through Section 263 proceedings. This citation was pivotal in guiding the Tribunal's interpretation that the DTVSV Scheme's protective provisions extend to preclude overlapping or subsequent tax reviews on the same issues.

Legal Reasoning

The Tribunal dissected the statutory framework governing the DTVSV Scheme and Section 263 of the Income Tax Act. It emphasized that:

• Section 8 of the DTVSV Act explicitly states that no immunity is granted beyond the specific declarations made under the scheme.
• Section 5(3) of the DTVSV Act prohibits reopening of matters already settled under the scheme in any other Income Tax Act proceedings.
• The PCIT's invocation of Section 263 pertained to the same issues addressed under the DTVSV Scheme, thereby conflicting with the immunity intended by the Act.

Consequently, the Tribunal concluded that the PCIT's actions were legally untenable as they contravened the protective scope of the DTVSV Scheme, rendering the Section 263 proceedings invalid in this context.

Impact

This judgment reinforces the sanctity and finality of the DTVSV Scheme in resolving tax disputes. It establishes a clear boundary that once an assessee opts for and complies with the DTVSV Scheme, the tax authorities cannot reopen the same issues through revision under Section 263. This not only provides taxpayers with assurance and certainty but also aids in reducing litigation and promoting a swift resolution of tax disputes.

Future cases involving the DTVSV Scheme can rely on this precedent to prevent tax authorities from overstepping by initiating redundant or overlapping proceedings, thereby streamlining tax dispute resolution.

Complex Concepts Simplified

Direct Tax Vivad Se Vishwas (DTVSV) Scheme

The DTVSV Scheme, introduced in 2020, is a voluntary settlement initiative by the Indian Government aimed at resolving pending income tax disputes. Taxpayers can declare their disputed tax liabilities and settle them at discounted rates, thereby avoiding prolonged litigation.

Section 263 of the Income Tax Act, 1961

Section 263 empowers tax authorities to revise any assessment order if they discover any omission or sanction granted by mistake or excess of jurisdiction. It essentially allows the re-examination of the original assessment to correct errors.

Section 115BBE of the Income Tax Act, 1961

This section pertains to the taxation of unexplained cash credits. It allows the tax authorities to add certain amounts to the taxable income if they suspect that cash has been held without adequate explanation.

Section 68 of the Income Tax Act, 1961

This section deals with the consequences when an assessee does not provide any explanation for certain cash credits. It authorizes the authorities to presume that the amount is income and charge tax accordingly.

Conclusion

The ITAT’s decision in Sri. Pavan Kandkur v. Principal Commissioner of Income Tax serves as a crucial affirmation of the protective measures embedded within the DTVSV Scheme. By disallowing the initiation of Section 263 proceedings on matters already settled under the scheme, the Tribunal has fortified the legal assurance for taxpayers seeking closure of their tax disputes. This ensures that the intentions behind the DTVSV Scheme—to streamline dispute resolution and minimize litigations—are upheld, fostering a more predictable and fair tax environment.

Taxpayers and practitioners must take heed of this precedent to effectively navigate the interplay between tax settlement schemes and traditional assessment revisions, ensuring compliance and safeguarding against potential overreach by tax authorities.