1. By this Petition filed under Article 226 of the Constitution of India, 1950, Petitioner challenges revocation of Form 3 issued by Respondent No.1, Designated Authority and rejection of the Petitioner’s application under the Direct Tax Vivad Se Vishwas Act, 2020 (the “DTVSV Act”) for assessment year 2011-2012 by Respondent No.1.

2. Petitioner had filed a Return of Income for Assessment Year 2011-2012 on 2nd October 2011 declaring nil income by treating a sum(s) of Rs. 135 Crores received/receivable from R. A. Reality LLP for settling pending claims in a property dispute as not being chargeable to tax. The said return was processed under Section 143(1) of the Income Tax Act (the “Act”). Thereafter, there was a search and seizure action under Section 132 and survey action under Section 133A in the case of Petitioner as well as Mrs. Pratibha Shah and Ms. Shirin Shah, both partners of Petitioner on 22nd March 2018 at various premises and subsequent to the said proceedings, a notice dated 30th March 2018 under Section 148 of thewas issued in response to which appellant had filed Return of Income on 18th May 2018 declaring an income of Rs. 59,49,370/- claiming that the compensation of Rs. 135 Crores was not taxable as the same was received to withdraw the suit i.e. against the assessee’s right to sue. On 18th July 2018 DDIT (Investigation) sought clarification as to why the sum of Rs. 135 Crores should not be treated as taxable capital gain. Petitioner filed reply on 20th July 2018 submitting that the said sum was received by it in lieu of its right to sue for damages and therefore not chargeable to tax. An order of reassessment was passed on 24th December 2018 assessing Rs. 135 Crores as long term capital gains. Aggrieved by the same, Petitioner filed an appeal before Commissioner of Income Tax (Appeals) (“CIT(A)”) on 23rd January 2019 and as on 31st January 2020, the appeal was pending for hearing.

3. On 17th March 2020, the DTVSV Act was enacted, the rules were notified on 18th March 2020 and circular number 9/2020 dated 22nd April 2020, clarifying certain aspects in the form of frequently asked questions was issued by CBDT under Sections 10 and 11 of the DTVSV Act.

4. On 9th November 2020, Petitioner filed an application with the Designated Authority being declaration in Form 1 and undertaking in Form 2 computing 100% of disputed tax worked out to Rs. 27,72,49,821/- and as the Petitioner had purportedly paid an amount of Rs. 10,70,28,372/-, which was purportedly adjusted towards amount payable under the DTVSV Act, balance amount payable was computed at Rs. 17,02,21,449/-. On 17th November 2020, the Designated Authority issued Form 3 determining the amount payable at Rs. 17,02,21,449/-.

5. Thereafter, on 4th December 2020 circular No.21/2020 and on 23rd March 2021 circular No.4/2021 was issued by CBDT. On 23rd March 2021 itself, Petitioner received an email from Respondent No.2 to show cause as to why Petitioner’s case should not be treated as a Search Case and to explain the applicability of Section 9 of the DTVSV Act purportedly stating that the disputed tax purportedly exceeded Rs. 5 Crores. The said email reads thus:-

“From:

Mumbai.dcit.cen8.4<mumbai.dcit.cen8.4@incometax.gov.in>

Date: Tue, Mar 23, 2021 at 4.40 PM

Subject: VSV in the case of Mahendra Corporation 2011-12 To: Nidhi Shah <nidhi.shah@mgbco.com>

With regard to VSV filed in the case of Mahendra Corporation for AY 2011-12, it is seen that the assessment was completed on the basis of information received from Investigation Wing in relation to search conducted in the case of Mahendra Corporation and others. In this regard, you are requested to explain the applicability of Section9 of the Direct Tax vivad Se Vishwas Act 2020 in your case as the disputed tax exceeds Rs. 5 Cr. Your reply must reach this office with 3 days.

Regards,

DEBANJALI AMBULY

DCIT(CC)-8(4), MUMBAI”

6. Soon thereafter, Petitioner’s application came to be rejected as per posting on the e-filing portal of the Income Tax Department showing the date of Rejection as 26th March 2021,with the following remarks:-

“In view of the clarification issued by Board in response to FAQ No. 71, vide circular No. 4/2021, read with Circular No. 21 of 2020, the case of the declarant is treated as Search case. Since the disputed tax is more than Rs. 5 Crore, the declarant is ineligible to opt for DTVSV.”

7. Petitioner submits that to the notice dated 23rd March 2021, it filed reply dated 30th March 2021.

8. On behalf of Petitioner, Mr. Pardiwalla, learned Senior Counsel submits that there has been a breach of principles of natural justice as no opportunity of hearing was granted prior to revocation of Form 3 and rejection of Petitioner’s application. Learned Senior Counsel submits that the email dated 23rd March 2021 to show cause as to why Petitioner’s case should not be treated as a Search Case by referring to two circulars No.21/2020 and 4/2021 for the first time granted three days’ time to file reply to Petitioner, but on the third day itself viz. on 26th March 2021, Designated Authority has rejected Petitioner’s application without even waiting for a reply which eventually came to be filed on 30th March 2021 and even though the time of the DTVSV scheme was extended till 30th June 2021. Mr. Pardiwalla submits that even in the said submission, it was requested on behalf of Petitioner for opportunity of personal hearing to make further submissions on merits, which has been denied to Petitioner till date.

9. He submits that revocation of Form 3 and the rejection of Petitioner’s application has been done without granting opportunity of hearing to Petitioner and that the same is also without considering Petitioner’s request as contained in reply dated 30th March 2021 and therefore the said action deserves to be set aside as being in violation of the principles of natural justice. Learned Senior Counsel therefore, urges interference of this Court.

10. He further submits that revocation of Form 3 is not permissible under the DTVSV Act. It is submitted that under the provisions of the DTVSV Act, an eligible assessee must make an application in Form 1 and 2 under Section 4 to the Designated Authority. Thereafter, if the Designated Authority has, as in the instant case, found the application to be valid, he is required to determine the amount payable and issue Form 3 as prescribed under the rules under Section 5(1) of the DTVSV Act within a period of 15 days. Learned Senior Counsel submits that in this case in terms of the DTVSV Act, Petitioner has received Form 3 determining the amount to be paid by Petitioner. Petitioner has made payments of Rs. 10,70,28,372/- on 22nd February 2019 and 25th March 2019 which have been treated as payments under the DTVSV Act pursuant to declaration made, which according to him, are not refundable in view of Section 7 of DTVSV Act. Mr. Pardiwalla, learned Senior Counsel submits that Petitioner has, in view of the issuance of Form 3 by the Designated Authority, sought to withdraw the appeal pending before CIT(A). He submits that none of the sections nor the Circulars empower the Designated Authority to review and/or revoke Form 3 issued by it or to reject the application after issuance of Form 3 except in the cases mentioned in Section 4(6) of the DTVSV Act, which section, he submits is not attracted.

11. He also submits that Section 9 of the DTVSV Act is not applicable to the case of Petitioner. It is submitted that Section 9 of the DTVSV Act excludes cases from availing the scheme under the DTVSV Act, where assessment has been made under Sub-section (3) of Section 143 or Section 144 or Section 153A or Section153C of the Income Tax Act on the basis of search initiated under Section 132 or Section 132A of the Income Tax Act, if the amount of disputed tax exceeds five crore rupees. Learned Senior Counsel submits that Petitioner’s case is not a Search Case as alleged in the Show Cause Notice dated 23rd March 2021, as Petitioner’s assessment does not have any direct connection with the undisclosed income found in the search proceedings.

12. The Revenue on the other hand, has filed its affidavit in reply dated 23rd June 2021 submitting that Form 3 issued by Respondent No.1 was lawfully rejected based on application of CBDT circular No.21 of 2021 dated 4th December 2020 read with circular No. 4 of 2021 dated 23rd March 2021 and that Respondent No.2 sent e-mail dated 23rd March 2021 as a means of providing opportunity to Petitioner to present its case.

13. It is also submitted on behalf of the Respondents-Revenue in paragraph 4.5 of its reply that though initially Form 3 was issued by Respondent No.1 on 17th October 2020, subsequently in view of FAQ No. 70 of CBDT circular No. 21 of 2020 dated 4th December 2020 it was clarified that if the assessment order has been framed in the case of a taxpayer under Section 143(3)/144 of the Income Tax Act, 1961 based on the search executed in some other taxpayer’s case then it is to be considered as a Search Case. Circular No. 4 of 2021 dated 23rd March 2021 has further made it clear that a Search Case means an assessment or reassessment made under Sections 143(3), 144, 147, 153A, 153C and 158 BC of the.

14. It is submitted that in view of the said circular, Form 3 issued earlier to the Petitioner was revoked on 25th February 2021. It was also referred to that a search and seizure action was conducted on Petitioner, under Section 132 of theon 22nd March 2018 and subsequently reassessment of the assessee’s income was made by passing order under Section 147 on the basis of the incriminating material as received from the Investigation wing, assessing the income at more than Rs. 5 Crores. It is submitted that Petitioner’s application was rejected as it was in contravention of the provisions Section 9 of the DTVSV Act, 2020 as purportedly clarified by CBDT circular No. 21 of 2020 dated 4th December 2020 and further by circular No. 4 of 2021 dated 23rd March 2021.

15. Mr. Suresh Kumar, learned Counsel for Revenue, while vehemently reiterating the aforesaid aspects and submissions, draws our attention to the assessment order dated 24th December 2018 (at page 76 of the Petition) in the case of Petitioner to submit that in fact a search and seizure action under Section 132 was carried out in the case of Petitioner as well as its partners, viz., Pratibha Shah and Shirin Shah on 22nd March, 2018. He submits that Petitioner’s case is, therefore, a Search Case.

16. Mr. Suresh Kumar also takes us to the provisions of Section 4(6) (a) of the DTVSV Act to submit that despite Petitioner’s case being a Search Case, as seen from the Assessment Order, Petitioner has declared its case to be a non-search case and, therefore, Petitioner’s declaration is false in material particulars making it non-est under the said Section.

17. On 7th July 2021, learned Counsel for Revenue has also filed an additional affidavit dated 6th July 2021 bringing on record the communication dated 25th February 2021 referred to in Paragraph 4.5 of the affidavit in reply. He submits that as stated it was by this communication that Form 3 issued earlier, was cancelled in view of the corrections that needed to be done. In support of his contention that the Designated Authority has power to rectify apparent errors, he refers to Circular No.9/2020 dated 22nd April 2020. He draws our attention to Question No.46 with reference to the competence of the Designated Authority to rectify errors. The said question and answer are quoted as under :-

“Question No.46 : Whether DA can amend his order to rectify any patent errors

Answer : Yes, the DA shall be able to amend his order under section 5 to rectify any apparent errors.”

18. Mr. Suresh Kumar submits that in view of the said clarification issued under Sections 10 and 11 of the DTVSV Act, the Designated Authority is competent to amend his order under Section 5 to rectify any apparent errors. In this view of the matter, the cancellation of the earlier Form 3 as well as rejection of the application, according to him, is legitimate.

19. He submits that, therefore, the revocation of Form 3 and rejection of Petitioner’s application under the DTVSV Act was justified and completely within the purview of provisions of the DTVSV Act, the same being done after giving the Petitioner opportunity to present its case by adhering to principles of natural justice. He urges that therefore this Petition ought to be dismissed.

20. We have heard Mr. Pardiwalla, learned Senior Counsel for Petitioner and Mr. Suresh Kumar, learned Counsel for Respondents and have given our anxious consideration to their submissions.

21. What stares stark in the face is the brazen betrayal of the principles of natural justice that appears to have taken place in this case. An email by Revenue dated 23rd March 2021 to explain applicability of Section 9 of the DTVSV Act on the ground of information regarding search conducted on Petitioner gave three days to respond. The period of three days would end on 26th March 2021. But without even waiting for the day of 26th of March to end, the application of Petitioner is shown to be rejected on 26th March 2021 itself, treating Petitioner’s case as a Search Case and Petitioner ineligible to opt for DTVSV, as disputed tax is more than 5 crores. The Revenue, in short, had sought to withdraw the benefit granted to Petitioner under the DTVSV Scheme entailing adverse consequences. And all this done without affording Petitioner sufficient opportunity of hearing or making submissions. In our view, considering that Form 3 had already been issued, on the declarations and undertaking filed by Petitioner, any action on the same entailing adverse consequences, ought to have been afforded with a fair and reasonable opportunity to explain its case, which the Revenue has ex-facie failed to offer. We are unable to comprehend the tearing hurry with which the Revenue has acted without even waiting for the three days period to elapse. In our view, such an action is liable to be set aside because it strikes to the root of the matter. We are also left with no option, but to remand the matter back to the Designated Authority to take decision in the matter after giving a fair and reasonable opportunity of hearing to Petitioner and after considering the submissions by following the principles of natural justice.

22. In the circumstances, we set aside the order of rejection dated 26th March 2021 and direct the Respondent No.1 Designated Authority, after giving a proper opportunity of hearing to Petitioner and after considering the submissions made/to be made by Petitioner, to pass an appropriate reasoned speaking order within two weeks from the date of pronouncement of this order.

23. In view of the aforesaid, it would not be necessary for us to deal with the contentions of the parties on the other grounds raised on their behalf. All contentions of the parties are kept open. This order shall not come in the way of contentions sought to be canvassed by the parties.

24. Petition is disposed of in the above terms. No order as to costs.

25. Parties to act on an authenticated copy of this order.