RAJPAL LAKHMICHAND ARYA vs. THE PRINCIPAL COMMISSIONER OF INCOME TAX-3, PUNE AND ORS

The present petition is fled challenging the orders dated 20th September 2021 and 29th October 2021 (‘impugned orders’) passed by the Principal Commissioner of Income tax-3, Pune revising the petitioner’s declaration for the assessment year 2014-15 by issuing a revised Form 3 seeking additional demand.

The petitioner fled his return of income for assessment year 2014-15 declaring a total income of Rs.64,47,850/-. The case was selected for scrutiny, and an order of assessment came to be passed under section 143(3) of the Income Tax Act, 1961 (‘the Act’) on 16th December 2016. An amount of Rs.98,75,513/- was added to the income of the petitioner.

An appeal was preferred by the petitioner before the Commissioner of Income Tax (Appeals). Rectifcation application also came to be fled by the petitioner before the Assessing Offcer seeking rectifcation of the computation of the tax payable. Shraddha Talekar, PS 2/9

The petitioner, during the pendency of the appeal proceedings, applied and fled the declaration under the Direct Tax Vivad Se Vishwas Act, 2020 (‘the Act of 2020’) and the Rules framed thereunder, after the order of rectifcation had been passed. Forms 1 and 2 fled by the petitioner were accepted and Form 3 was issued which refected the amount payable as Rs.11,18,896/-, after giving credit of the taxes already paid, the balance amount payable by the petitioner was determined at Rs.3,48,692/-.

Based upon the aforesaid Form 3, the petitioner claims that he had deposited an amount of Rs.3,48,692/- on 12th February 2021. The petitioner further claimed that having taken all the Shraddha Talekar, PS 3/9

It is stated that vide order dated 20th September 2021, respondent No.1 issued revised Form 3, by treating Rs.98,75,513/- as liable to be taxed at 30% ignoring the order of rectifcation passed by the AO that the income had to be taxed as long term capital gain at a lower rate of 20%.

Objections raised by the petitioner were rejected by virtue of communication, dated 29th October 2021. What is stated in the communication, dated 29th October 2021 which is impugned in the present petition justifying the issuance of the revised Form 3 is the fact that during the assessment proceedings under section 143(3), as against the returned income of Rs.46,67,850/- by the petitioner an addition of Rs.98,75,513/- was made determining the total income at Rs.1,63,23,363/- and the same was taxed at the rate of 30% denying the claim of exemption of Long Term Capital Gain (LTCG) under section 10(38) of the Act and taxed the Shraddha Talekar, PS 4/9

Reliance was placed upon the defnition of ‘Disputed Tax’ under section 2(1)(j)A, which envisages as under : “Disputed Tax, in relation to an assessment year or financial year, as the case may be, means the income Tax, including surcharge and cess payable by the appellant under the provisions of Income Tax Act, 1961 (43 of 1961), as computed hereunder :

With reference to the provisions of the Act of 2020, it was held that in case an appellant has fled an appeal before the Commissioner of Income Tax (Appeals) and in case the assessee lost in such an appeal, the tax payable by the assessee would be Rs.33,56,687/- and for that reason, it was sought to be justifed that the revised Form 3 was issued refecting the correct tax liability.

Counsel for the petitioner urged that the application under Act of 2020 had been fled only after the order of rectifcation has Shraddha Talekar, PS 5/9

We have heard learned counsel for the parties.

Admittedly, post the order of assessment under section 143(3) of the Act, the Assessing Offcer passed an order on the application seeking rectifcation in terms of section 154 of the Act, which reads as under : Shraddha Talekar, PS 6/9

The order having been passed on the application for rectifcation under section 154 assuming that the same was erroneous, as alleged, cannot simply be brushed aside. It would have been open to the authorities to take remedial measures to question the legality and correctness of the order. In so far as the claim under the Act of 2021 is concerned, a clarifcation issued by the Central Board of Direct Taxes clearly envisages that if there is a reduction or increase in the income and tax liability of the assessee as a result of rectifcation, the disputed tax in such cases would be calculated after giving effect to the rectifcation Shraddha Talekar, PS 7/9

Reference in this regard can be made to the clarifcation issued by the Central Board of Direct Taxes (“CBDT”) vide circular No.9 of 2020 dated 22 April 2020 and in particular Question No.25 thereof, which reads as under : Question No.25 Answer In a case appeal or arbitration is pending on the specifed date, but a rectifcation is also pending with the AO which is accepted will reduce the total assessed income. Will the calculation of disputed tax be circulated on rectifed total assessed income ? The rectifcation

It thus becomes clear that the respondents ought to have taken into consideration the aforementioned Circular, as also considered the rectifcation order passed, which the respondents clearly missed to do in the present case.

In our opinion, issuance of revised Form 3 is clearly not sustainable. Be that as it may, we allow this petition. The orders impugned dated 20th September 2021 and 29th October 2021 are Shraddha Talekar, PS 8/9