The Direct Tax Vivad Se Vishwas Act, 2020 (DTVSV Act) was enacted to expedite the resolution of pending tax disputes, offering taxpayers a simplified path to settle matters concerning disputed tax liabilities. The case of Rose Wood Buildwell Pvt. Ltd. serves as a critical example of how the provisions of this Act apply, particularly when it comes to limiting the scope of disputes that can be settled.
Background of the Case:
The petitioner, Rose Wood Buildwell Pvt. Ltd. (the Assessee), challenged a certificate issued by the Commissioner of Income Tax (CIT) under Section 5(1) of the DTVSV Act. This certificate was contested because it expanded the scope of the Assessee's original declaration under Section 3, which pertained to the settlement of certain tax disputes for the Assessment Year (AY) 2011-12. The Assessee had initially filed a declaration to settle a specific issue concerning the disallowance of a loss claimed on commodity derivatives trading, which was a subject of its appeal before the Income Tax Appellate Tribunal (ITAT). However, the certificate issued by the CIT included other unresolved issues, which were not part of the Assessee's declaration.
Legal Question at Hand:
The primary legal question for consideration was whether the Assessee could limit the scope of the dispute settlement to just one issue, i.e., the loss from derivative trading, or if it was required to settle all the disputes for the AY 2011-12. Specifically, the Revenue contended that the Assessee needed to settle not just its own appeal, but also the Revenue's appeal related to the same assessment year.
Factual Context:
The Assessee, a company involved in real estate, faced a scrutiny assessment for AY 2008-09, leading to significant additions to its declared income. Among these, the dispute over a loss of ?50,12,337 from commodity derivatives trading was of particular concern. The Assessing Officer (AO) had disallowed this loss on the grounds of insufficient evidence. Similarly, other issues, such as unexplained credits under Section 68 and a claim for stamp duty, were also contested.
The Assessee appealed the AO's decision, with the CIT(A) partly upholding the disallowance of the derivative loss while granting relief on the unexplained credit. Both the Assessee and the Revenue filed separate appeals before the ITAT, resulting in mixed outcomes. The Assessee's appeal on the derivative loss was remanded for further enquiry, while the Revenue's appeal against the deletion of ?3,50,00,000 under Section 68 was rejected.
Following the enactment of the DTVSV Act in 2020, the Assessee filed a declaration to settle the dispute concerning the loss from derivatives trading, which was the subject matter of its ITAT appeal. However, the Revenue's subsequent filing of an appeal against both the Assessee's and its own disputes raised the question of whether the Assessee was required to settle the entire assessment year's disputes.
The Court's Analysis and Conclusion:
The court examined the provisions of the DTVSV Act, particularly the definitions of "disputed tax" and "appellant." Section 2(1)(j) defines "disputed tax" as the amount of tax payable in relation to an assessment year or financial year, based on the outcome of any pending appeals. The court clarified that the DTVSV Act treats each appeal, writ petition, or special leave petition (SLP) as a separate dispute. Therefore, the settlement unit under the DTVSV Act is the appeal itself, not the entire assessment year.
The court further noted that under Section 2(1)(a), a declarant can choose to settle any one of the pending appeals or disputes, even if there are multiple appeals concerning the same assessment year. This aligns with the DTVSV Act’s purpose of offering taxpayers flexibility in settling specific disputes without being compelled to resolve unrelated issues.
The court also cited previous rulings, such as in MUFG Bank Ltd. v. Commissioner of Income Tax, which reinforced the understanding that each appeal is treated as a separate dispute under the DTVSV Act. This was further supported by clarifications in Circular No. 9/2020 issued by the Central Board of Direct Taxes (CBDT), which stated that taxpayers could opt to settle only specific issues in their appeal or the Revenue's appeal.
In the case at hand, the Assessee had filed a declaration only for the issue it had contested in its appeal before the ITAT, and the Revenue's appeal on separate issues did not need to be included. As such, the court ruled that the Assessee’s declaration could be confined to the disputed issue regarding derivative losses, without extending to the Revenue's appeal on the unexplained credit.
Implications of the Ruling:
The court’s decision clarifies the scope of the DTVSV Act, confirming that the Act allows taxpayers to settle specific disputes and does not compel them to settle all disputes within a given assessment year. This flexibility is essential for ensuring that taxpayers can resolve their issues efficiently without being overwhelmed by unrelated disputes. The ruling underscores the principle that the unit for settlement under the DTVSV Act is an appeal, not the entire assessment year, which has significant implications for both taxpayers and the Revenue.
In conclusion, the Rose Wood Buildwell Pvt. Ltd. case reinforces the flexibility provided by the DTVSV Act for taxpayers, allowing them to choose which disputes to settle while leaving other matters to be dealt with separately. This interpretation ensures a fairer and more manageable process for resolving tax disputes.
