DTVSV Scheme 2024 Inapplicable To Reassessments Arising From Search Proceedings: Gujarat High Court

The Gujarat High Court on 18 February held that taxpayers whose reassessment proceedings arise from incriminating material discovered during search operations under Sections 132 or 132A of the Income Tax Act are not eligible to avail the benefit of the Direct Tax Vivad Se Vishwas (DTVSV) Scheme, 2024.

A Division Bench of Justice A.S. Supehia and Justice Pranav Trivedi dismissed a batch of writ petitions led by Radha Madhav Eco-Industrial Park, which challenged the rejection of their applications under the scheme.

The judges held:

“the categories of the assessment emanating from the search under Sections 132/132A of the Act are sought to be clarified and correspondingly the circular clarifies that the assessment framed under Section 153A or Section 153C of the Act are clearly made on the basis of search initiated under Section 132/132A of the Act. Hence, such cases shall not be eligible for the DTVSV Scheme."

The lead petitioner, a partnership firm engaged in the development of an industrial park, had originally filed its income tax return for Assessment Year 2013–14, declaring nil income.

Later, based on information received from the Investigation Wing following a search conducted in 2018 in the case of certain individuals allegedly engaged in providing accommodation entries, the Assessing Officer reopened the assessment under Section 148.

During the reassessment proceedings, the Department concluded that the petitioner had received accommodation entries amounting to Rs. 57 lakh and passed a reassessment order under Section 147, making additions under Section 68 read with Section 115BBE, which resulted in a tax demand.

The petitioner challenged the reassessment before the appellate authority and subsequently sought settlement of the dispute under the DTVSV Scheme, 2024. However, the application was rejected on the ground that cases arising from search-based assessments were excluded under Section 96 of the scheme.

Before the High Court, the petitioners argued that since the reassessment orders were passed under Section 147 and not under Sections 153A or 153C, and because the search had been conducted in the case of third parties prior to 1 April 2021, they were entitled to the benefit of the scheme in view of clarifications issued through CBDT Circulars dated 15 October 2024 and 16 December 2024.

The Revenue, however, contended that Section 96 expressly bars the applicability of the scheme to tax arrears arising from assessments made under Sections 143(3), 144, 147, 153A or 153C when such assessments are based on search proceedings under Sections 132 or 132A.

The High Court agreed with the Revenue and held that a plain reading of Section 96 makes it clear that the DTVSV Scheme does not apply where tax arrears arise from assessments based on incriminating material discovered during search operations.

The Court observed that in the present batch of cases, the reassessment orders were clearly founded on such material recovered during search proceedings involving third parties and therefore the bar under Section 96 squarely applied.

Rejecting the petitioners' reliance on clarificatory circulars, the Court held that the circulars only explain the categories of assessments arising from search proceedings and cannot override the explicit statutory bar contained in Section 96.

The Bench stated:

"in the case of all the petitioners the re-assessment emanates from the incriminating materials found during search proceedings, and the reassessment order is passed under section 147 of the Act with respect of tax arrear. Hence, we cannot impose our wisdom in clarifying the provision of Section 96 of the DTVSV Scheme further, by holding that though the re-assessment is premised on incriminating material, the provision of Section 96 will not get attracted, and consequently, they are required to be treated as eligible under DTVSV Scheme."

The Court further held that the absence of a specific cut-off date for search in the statutory provision cannot be relied upon to read into the scheme an eligibility that the legislature has consciously excluded.

Holding that the reassessment proceedings in the petitioners' cases stemmed directly from incriminating material discovered during search operations and resulted in tax arrears, the Court concluded that the petitioners were not entitled to the benefit of the DTVSV Scheme, 2024.

Accordingly, the High Court dismissed all the writ petitions.

For Petitioner: Advocate, Hardik V Vora

For Respondent: Advocate, Karan G Sanghani for respondent no.1