Survey-Based Reassessment Not Excluded From Settlement Under Vivad Se Vishwas Scheme: Gujarat High Court

The Gujarat High Court has recently held that reassessment proceedings based on survey material are not excluded from the Direct Tax Vivad Se Vishwas Scheme, 2024. The court observed that the revenue cannot import a restriction that does not appear in the statute.

The Direct Tax Vivad Se Vishwas Scheme, 2024, was introduced by the Centre to reduce pending income-tax litigation by allowing eligible taxpayers to settle disputes and bring appeals to an end.

A division bench of Justice A.S. Supehia and Justice Vaibhavi D. Nanavati allowed petitions filed by Vasundhara Builders and Developers and directed the tax authorities to accept its declarations under the Scheme for Assessment Years 2015-16 and 2016-17.

“When the question/ issue of applicability of the Scheme arises, the same has to be strictly considered in light of the provisions of the Scheme, more particularly, when the assessment falls under the categories and contingency mentioned under Section 96(a)(i) of the Scheme. The Revenue cannot read restrictions into a statute that the legislature never intended to include,” the court observed.

The dispute traces back to search and survey operations carried out at the residential and office premises of Sadhani Brothers. During those proceedings, tax authorities found material that allegedly connected Vasundhara Builders and Developers with accommodation entries.

Based on that material, proceedings were initially initiated against the developer under Section 153C of the Income Tax Act. The company objected to the action, following which the department dropped those proceedings in December 2019.

The department subsequently reopened the assessment and proceeded against the developer under Section 147. The developer challenged that action before the appellate authority, where the appeal remained pending.

While the appeal was pending, the company sought to settle the dispute under the Direct Tax Vivad Se Vishwas Scheme and filed the prescribed declaration.

The tax authorities rejected the declaration, taking the view that the case was connected to a search action and therefore fell within the exclusion contained in the Scheme.

Before the High Court counsel appearing for the developer, argued that the exclusion could not apply because the department had itself dropped the earlier proceedings linked to the search and had instead proceeded on the basis of survey material.

The Revenue, represented by senior standing counsel K.G. Sanghani, contended that the survey was integrally linked to the search conducted on Sadhani Brothers and that the material gathered during those proceedings connected the developer to accommodation entries. It argued that the case therefore stood excluded from the benefit of the Scheme.

After examining the record, the bench noted that the department had expressly recorded while reopening the assessment that the earlier proceedings had been wrongly initiated because they were founded on material gathered during a survey rather than material seized during a search.

The court found that the department had thereafter proceeded against the developer on the basis of survey material and that the appeal pending before the appellate authority arose from those proceedings.

Turning to the exclusion clause relied upon by the Revenue, the bench noted that it applies to assessments made on the basis of searches initiated under the Income Tax Act. The provision does not refer to survey proceedings.

The court observed that once the department had dropped the earlier proceedings and treated the matter as one arising from a survey, it could not subsequently combine the two sets of proceedings to deny the benefit of the Scheme.

“Had the legislature intended to exclude or restrict assessees subjected to a 'survey action' under Section 133A of the Act, such a restriction would have been explicitly articulated in Section 96 of the Scheme,” the court observed.

The court further observed,“the two cannot be treated as legally equivalent in the absence of express statutory language.”

Holding that the exclusion under the Scheme is confined to search-based assessments and does not extend to assessments founded on survey material, the court quashed the orders rejecting the developer's declarations.

The bench directed the tax authorities to accept the declarations filed for Assessment Years 2015-16 and 2016-17 and issue the requisite statutory forms within six weeks.