Ie Venture Fund I v. Principal Commissioner Of Incometax Delhi 4 & Anr

$~91*IN THE HIGH COURT OF DELHI AT NEW DELHI %Date of Decision : 06.05.2025 +W.P.(C) 3866/2025 & CM APPL. 25729/2025 IE VENTURE FUND I .....PetitionerThrough:Mr Sachit Jolly, Sr Advocate with MsMansha Anand, Mr Aditya Rathore,Mr Abhyudaya Shankar Bajpai andMr Sohum Dua, Advocates. versus PRINCIPAL COMMISSIONER OF INCOMETAX DELHI 4 & ANR. .....RespondentsThrough:MrAbhishekMaratha,SSC,MrApoorv Agarwal, Mr Parth Samwal,JSCs, Ms Nupur Sharma, Mr GauravSingh,MsMuskaanGoel,MrBhanukaran Singh Jodha and MrHimanshuGaur,AdvocatesforRevenue. CORAM:HON'BLE MR. JUSTICE VIBHU BAKHRUHON'BLE MR. JUSTICE TEJAS KARIA VIBHU BAKHRU, J. (ORAL) INTRODUCTION 1.The petitioner has filed the present petition, inter alia, impugning thecommunications whereby the petitioner’s application under the Direct TaxVivad Se Vishwas Scheme, 2024 [DTVSV Scheme] enacted under Chapter 4 of the Finance (No.2) Act, 2024 [FA2 Act], was rejected on the premisethat the petitioner’s case did not fall under Rule 9 of the Direct Tax Vivad SeVishwas Rules, 2024 [DTVSV Rules]. 2.Mr. Maratha, the learned counsel appearing for the Revenuecontended that in terms of Rule 9 of the DTVSV Rules, the dispute inrelation to reduction in loss to be carried forward under the Act, could becomputed in two ways; first option would be to calculate the disputed taxpayable pertaining to the unabsorbed loss, ignoring the reduction and thesecond option would be to carry forward the reduced amount of loss. TheDTVSV Rules also indicate that the exercise of the option is up to thedeclarant. 3.He submits that in the present case, the petitioner cannot opt for thesecond option as he has already filed the returns for the subsequent yearswhere the loss has not been carried forward. Therefore, in any event, thepetitioner could not claim carry forward of losses. He submits that in thiscase, the petitioner would necessarily have to pay the entire tax, ascomputed on the amount of carry forward, which is being denied to thepetitioner. Since the said tax was not paid alongwith the declaration, thepetitioner’s dispute could not be admissible for the benefit of the DTVSVScheme. 4.Mr Jolly, the learned Senior Counsel appearing for the petitioner hasstoutly contested the submissions made on behalf of the Revenue. Hesubmits that the options, as specified in Rule 9 of the DTVSV Rules, cannot be examined on the basis of the actions taken in the subsequent assessmentyears. He submits that the fact that the petitioner may not claim carryforward of loss for the next year does not preclude the petitioner fromexercising his options under the DTVSV Rules. He submits that in anyevent, the benefit of carry forward of loss in the future years is contingentupon an assessee complying with further conditions necessary for claimingcarry forward of such losses. Exercising an option under the DTVSVScheme does not necessarily guarantee the grant of benefit of carry forwardif the assessee does not comply with further conditions. He submits thatsince the petitioner has not complied with the conditions of claiming the lossin the return filed in the years subsequent to the relevant assessment year,the same would result in the denial of benefit of carry forward to theassessee. But this would be for the reason of not claiming the carry forwardloss and not because the petitioner was not entitled to, under the DTVSVRules. 5.In view of the above, the limited question that is required to beaddressed in the present case is whether the petitioner’s declaration underthe DTVSV Scheme is to be rejected on the ground that the petitioner hasnot claimed the carry forward of loss by filing the appropriate return in theassessment year following the relevant assessment year . PREFATORY FACTS6.Briefly stated, the necessary facts relevant to address the controversyin the present petition are as under. 5.In view of the above, the limited question that is required to beaddressed in the present case is whether the petitioner’s declaration underthe DTVSV Scheme is to be rejected on the ground that the petitioner hasnot claimed the carry forward of loss by filing the appropriate return in theassessment year following the relevant assessment year . PREFATORY FACTS6.Briefly stated, the necessary facts relevant to address the controversyin the present petition are as under. 7.The petitioner had filed its return of income for the AY 2022-23,under Section 139 of the Income Tax Act, 1961 [the Act] on 29.07.2022,declaring a loss of ₹17,68,31,441/-. The said amount was also reflected in the return as a business loss to be carried forward by the petitioner.However, according to the petitioner, it did not intend to claim any suchloss. 8.The petitioner’s return was picked up for scrutiny and a notice dated01.06.2023 was issued under Section 143(2) of the Act. The petitioner wasthereafter directed to furnish relevant evidence in support of its return on orbefore 16.06.2023. The petitioner was also required to provide furtherdetails. The petitioner responded to the said notice claiming that it was notcarrying on any business or profession but was engaged in ‘investmentactivities’ and, therefore, was not required to maintain any books of accountunder Section 44AA of the Act. 9.Thereafter, the AO issued a show cause notice dated 15.03.2024calling upon the petitioner to show cause why an amount of ₹17,68,47,978/-, which was paid to an entity named Smart Web Internet Services Limitedshould not be disallowed and added to the petitioner’s income. 10.The record indicates that the petitioner readily accepted the saidaddition. It claimed that it had not in fact claimed any expenditure but thereturn had auto populated the said expense. 11.Thereafter, the AO passed an assessment order dated 21.03.2024 disallowing the said expenditure and consequently assessing the petitioner’sincome chargeable to tax at ₹16,537/-. The operative part of the assessment order setting out the computation of the petitioner’s income for AY 2022-23is set out below: “Computation of Assessed Income: Assessed under section 143(3) r. w. s. 144B of the Income-taxAct. Penalty proceeding u/s 270A is initiated separately asassessee has under reporting of income in consequence ofmisreporting. Computation of income and demand notice u/s 156of the Act is attached.” 12.It is apparent from the above that whereas the return filed by thepetitioner had reflected a loss of ₹17,68,31,441/- and also reflected the same as a loss to be carried forward, the additions made by the AO, reduced thesaid carried forward loss to the full extent and has further assessed theincome at an amount of ₹16,537/-. The AO also directed the issuance of proceedings for imposition of penalty. 13.The petitioner, being aggrieved by the impugned order, filed anappeal before the Commissioner of Income Tax (Appeals) [CIT(A)] on20.04.2024. In the meanwhile, the AO also commenced penalty proceedingsby issuance of notice dated 21.03.2024 under Section 274 read with Section270A of the Act. 14.The Parliament enacted the FA2 Act, inter alia, embodying theDTVSV Scheme under Chapter 4 of the said Act, which came into effectfrom 01.10.2024. 15.The petitioner, being desirous of settlement of disputes under theDTVSV Scheme, filed a declaration in terms of Section 91 of the FA2 Actin the prescribed form [Form 1]. The same was apparently rejected on28.10.2024 and thereafter, on 27.12.2024. The said orders are not on record.However, the rejection remarks, as uploaded on the portal on 17.02.2025,reflect that the petitioner’s declaration was rejected on 17.02.2025 and alsorefers to the earlier rejections dated 28.10.2024 and 27.12.2024. REASONS AND CONCLUSION 14.The Parliament enacted the FA2 Act, inter alia, embodying theDTVSV Scheme under Chapter 4 of the said Act, which came into effectfrom 01.10.2024. 15.The petitioner, being desirous of settlement of disputes under theDTVSV Scheme, filed a declaration in terms of Section 91 of the FA2 Actin the prescribed form [Form 1]. The same was apparently rejected on28.10.2024 and thereafter, on 27.12.2024. The said orders are not on record.However, the rejection remarks, as uploaded on the portal on 17.02.2025,reflect that the petitioner’s declaration was rejected on 17.02.2025 and alsorefers to the earlier rejections dated 28.10.2024 and 27.12.2024. REASONS AND CONCLUSION 16.At the outset, it will be relevant to refer to the rejection order[rejection remarks as uploaded on the portal] whereby the petitioner wasinformed that its application for settlement under the DTVSV Scheme wasrejected. The said order is reproduced below: “Rejection remarks: Form-1 of the VsVs application of the assessee was earlierrejected on 28.10.204 and 27.12.2024 by the Ld. DesignationAuthority with the observation that the case of the assessee is notfalling under Rule-9 of DTVSVS, 2024. Therefore, there is nochange in the facts and law with regard to the current declarationfiled by the assessee. Hence, the application filed is rejected. Rejection date :17-Feb-2025” 17.As is apparent from the above, the petitioner’s application wasrejected on the ground that it did not fall under Rule 9 of the DTVSV Rules.18.Before proceeding to examine the same, it is thus necessary to referto Rule 9 of the DTVSV Rules. The said Rule is set out below: “9. Manner of computing disputed tax in cases where loss orunabsorbed depreciation is reduced.- (1) Where the dispute inrelation to an assessment year relates to reduction in loss orunabsorbed depreciation to be carried forward under the Income-tax Act, 1961 (43 of 1961), the declarant shall have an option to - (i) include the tax, including surcharge and cess, payable on theamount by which loss or unabsorbed depreciation is reduced inthe disputed tax and carry forward the loss or unabsorbeddepreciation by ignoring such amount of reduction in loss orunabsorbed depreciation; or (ii) carry forward the reduced amount of loss or unabsorbeddepreciation. (2) Where the declarant exercises the option as provided in clause(ii) of sub-rule (I), he shall be liable to pay tax, includingsurcharge and cess, along with interest, if any, as a consequenceof carrying forward the reduced amount of loss or unabsorbeddepreciation in subsequent years: Provided that the written down value of the block of asset on thelast day of the year, in respect of which unabsorbed depreciationhas been reduced, shall not be increased by the amount ofreduction in unabsorbed depreciation: Provided further that in computing the reduced amount of loss orunabsorbed depreciation to be carried forward in clause (ii) ofsub-rule (I), one-half of the amount by which loss or un absorbeddepreciation is reduced shall be considered for reduction, if suchreduction is related to issues covered in favour of declarant.” 19.A plain reading of Rule 9 of the DTVSV Rules indicates that it relates to the manner of computing disputed tax in cases where the dispute is onaccount of a loss or unabsorbed depreciation as claimed by the Assesseebeing reduced. In such cases, the declarant is required to select one of thetwo options for settlement of the disputes. As is apparent, the first option[as specified in Clause (i) of Rule 9(1) of the DTVSV Rules] is for anAssessee to compute the disputed tax attributable to the extent that the losshas been reduced.In this case, the declarant would be entitled to carryforward the loss/depreciation as claimed. The second option available to adeclarant is to accept the reduction in the unabsorbed loss or depreciationand confine the carry forward loss or depreciation to the amount as reduced.This essentially implies that the declarant accepts the reduction of loss asassessed by the AO. 20.It is apparent from Sub-rule (2) of Rule 9 that the option as specifiedin Rule 9(1) of the DTVSV Rules is required to be exercised by thedeclarant and cannot be imposed by the AO. In cases where the declarantexercises second option he would be liable to pay the tax includingsurcharge and cess along with the interest, if any, as a consequence forcarrying forward the reduced amount of loss/unabsorbed depreciation. 21.Given that the scope of Rule 9 is to provide a manner for ascertainingthe disputed tax, we are unable to readily accept that the said Rule would bedispositive of whether the dispute is covered under the DTVSV Scheme. 22.It is settled law that where the machinery provisions for computingthe tax are inapplicable, the same would indicate that the event is outside the net of charge [See reference CIT v. B.C. Sriviniash Shetty]. This appears tobe the principle that is applied by the designated authority in the presentcase. Since the designated authority found that Rule 9(1) is not applicable, ithas concluded that the petitioner’s dispute would fall outside the scope ofDTVSV Scheme enacted by virtue of FA2 Act. 23.Before proceeding to address the question whether Rule 9 isinapplicable, it would be relevant to examine the scope of the DTVSVScheme under the FA2 Act. 24.It is relevant to refer to the definition of the term ‘appellant’ and‘disputed tax’ as set out in Clause (a) and (j) of sub-Section (1) of Section 89respectively. The said clauses are set out below: “89. (1) In this Scheme, unless the context otherwise requires,- (a) "appellant" means- (i) a person in whose case an appeal or a writ petition or specialleave petition has been filed either by him or by the income-taxauthority or by both, before an appellate forum and such appeal orpetition is pending as on the specified date; or (ii) a person who has filed his objections before the DisputeResolution Panel under section 144C of the Income-tax Act andthe Dispute Resolution Panel has not issued any direction on orbefore the specified date; or (iii) a person in whose case the Dispute Resolution Panel hasissued direction under sub-section (5) of section l44C of theIncome-tax Act and the Assessing Officer has not completed theassessment under sub-section (13) of that section on or before thespecified date; or (iv) a person who has filed an application for revision undersection 264 of the Income-tax Act and such application is pendingas on the specified date. **** **** (j) "disputed tax", in relation to an assessment year or financialyear, as the case may be, means the income-tax includingsurchargeand cess (hereafter in this Chapter referred to as theamount of tax) payable by the appellant under the provisions of'the Income-tax Act, as computed hereunder:- (A) in a case where any appeal, writ petition or special leavepetition is pending before the appellate forum as on the specifieddate, the amount of tax that is payable by the appellant if suchappeal or writ petition or special leave petition was to be decidedagainst him; (B) in a case where objection filed by the appellant is pendingbefore the Dispute Resolution Panel under section l44C of theIncome-tax Act, as on the specified date, the amount of taxpayable by the appellant if the Dispute Resolution Panel was toconfirm the variation proposed in the draft order; (C) in a case where Dispute Resolution Panel has issued anydirection under sub-section (5) of section 144C of the Income-taxAct, and the Assessing Officer has not completed the assessmentunder sub-section (13) of that section on or before the specifieddate, the amount of tax payable by the appellant as per theassessment order to be passed by the Assessing Officer inpursuance of the said assessment under sub-section (13) thereof; (D) in a case where an application for revision under section 264of the Income-tax Act, is pending as on the specified date, theamount of tax payable by the appellant if such application forrevision was not to be accepted: (C) in a case where Dispute Resolution Panel has issued anydirection under sub-section (5) of section 144C of the Income-taxAct, and the Assessing Officer has not completed the assessmentunder sub-section (13) of that section on or before the specifieddate, the amount of tax payable by the appellant as per theassessment order to be passed by the Assessing Officer inpursuance of the said assessment under sub-section (13) thereof; (D) in a case where an application for revision under section 264of the Income-tax Act, is pending as on the specified date, theamount of tax payable by the appellant if such application forrevision was not to be accepted: Provided that in a case where the dispute in relation to anassessment year relates to reduction of tax credit under section-115JAA or section 115JD of the Incometax Act, or any loss ordepreciation computed thereunder, the appellant shall have an option either to include the amount of tax related to such taxcredit or loss or depreciation in the amount of disputed tax, or tocany forward the reduced tax credit or loss or depreciation, in”such manner as may be prescribed. [emphasis added] 25.It is clear from the above that the petitioner falls within the definitionof the term ‘appellant’ within the meaning of sub-Clause (i) of Clause (a) ofSection 89(1) of the FA2 Act, as the petitioner has filed the appeal againstthe assessment order before the CIT(A) and, that appeal is pending. 26.The controversy essentially relates to whether the dispute falls withinthe meaning of the term ‘disputed tax.’ The learned counsel for the partiesare ad idem that the said question is required to be considered by referring tothe proviso to Clause (j) of Section 89(1) of the FA2 Act since in the presentcase the dispute relates to the reduction of a loss. The said proviso furtherexplains that in cases falling under the proviso ‘the appellant’ would have anoption to either include the amount of tax relating to the loss, which is indispute or to carry forward the reduced loss in the manner as prescribed.27.It is also relevant to refer to the term ‘tax arrears’ as defined in Clause(o) of Section 89(1) of the FA2 Act, which reads as under: “(o) “tax arrear” means— (i) the aggregate amount of disputed tax, interest chargeable orcharged on such disputed tax, and penalty leviable or levied onsuch disputed tax; or (ii) disputed interest; or (iii) disputed penalty; or (iv) disputed fee.” 28.We may also refer to Section 96 of the FA2 Act, which sets out thecircumstances that are not covered under the DTVSV Scheme. Section 96 ofthe FA2 Act is set out below: “96. The provisions of this Scheme shall not apply— (a) in respect of tax arrear,— (i) relating to an assessment year in respect of which anassessment has been made under sub-section (3) of section 143 orsection 144 or section 147 or section 153A or section 153C of theIncome-tax Act on the basis of search initiated under section 132or section 132A of the Income-tax Act; (ii) relating to an assessment year in respect of which prosecutionhas been instituted on or before the date of filing of declaration; (iii) relating to any undisclosed income from a source locatedoutside India or undisclosed asset located outside India; (iv) relating to an assessment or reassessment made on the basis ofinformation received under an agreement referred to in section 90or section 90A of the Income-tax Act, if it relates to any taxarrear; (b) to any person in respect of whom an order of detention hasbeen made under the provisions of the Conservation of ForeignExchange and Prevention of Smuggling Activities Act, 1974 on orbefore the date of filing of declaration: Provided that— (i) such order of detention, being an order to which the provisionsof section 9 or section 12A of the said Act do not apply, has notbeen revoked on the report of the Advisory Board under section 8of the said Act or before the receipt of the report of the Advisory Board; or (iv) relating to an assessment or reassessment made on the basis ofinformation received under an agreement referred to in section 90or section 90A of the Income-tax Act, if it relates to any taxarrear; (b) to any person in respect of whom an order of detention hasbeen made under the provisions of the Conservation of ForeignExchange and Prevention of Smuggling Activities Act, 1974 on orbefore the date of filing of declaration: Provided that— (i) such order of detention, being an order to which the provisionsof section 9 or section 12A of the said Act do not apply, has notbeen revoked on the report of the Advisory Board under section 8of the said Act or before the receipt of the report of the Advisory Board; or (ii) such order of detention, being an order to which the provisionsof section 9 of the said Act apply, has not been revoked before theexpiry of the time for, or on the basis of, the review under sub-section (3) of section 9, or on the report of the Advisory Boardunder section 8, read with sub-section (2) of section 9, of the saidAct; or (iii) such order of detention, being an order to which theprovisions of section 12A of the said Act apply, has not beenrevoked before the expiry of the time for, or on the basis of, thefirst review under sub-section (3) of that section, or on the basis ofthe report of the Advisory Board under section 8 read with sub-section (6) of section 12A, of the said Act; or (iv) such order of detention has not been set aside by a court ofcompetent jurisdiction; (c) to any person in respect of whom prosecution for any offencepunishable under the provisions of the Unlawful Activities(Prevention) Act, 1967, the Narcotic Drugs and PsychotropicSubstances Act, 1985, the Prohibition of Benami PropertyTransactions Act, 1988, the Prevention of Corruption Act, 1988,thePreventionofMoney-launderingAct,2002,hasbeeninstituted on or before the filing of the declaration or such personhas been convicted of any such offence punishable under any ofthose Acts; (d) to any person in respect of whom prosecution has beeninitiated by an income-tax authority for any offence punishableunder the provisions of the Bharatiya Nyaya Sanhita, 2023 or forthe purpose of enforcement of any civil liability under any law forthe time being in force, on or before the filing of the declaration orsuch person has been convicted of any such offence consequent tothe prosecution initiated by an income-tax authority; (e) to any person notified under section 3 of the Special Court(Trial of Offences Relating to Transactions in Securities) Act,1992 on or before the date of filing of declaration.” 29.It is clear from the above that in the present case the petitioner does not fall within the exclusionary provisions of Section 96 of the FA2 Act.Thus, it would be difficult for this court to accept that the dispute which ispending is incapable of settlement under the provisions of the DTVSVScheme. 30.There is no cavil that on the plain reading of the provisions of the FA2Act embodying the DTVSV Scheme, the subject dispute falls within itsscope. As noted hereinbefore, the Revenue’s case that the dispute isincapable of settlement under the DTVSV Scheme rests on its reading ofRule 9 of the DTVSV Rules coupled with the fact that the petitioner has notclaimed carry forward loss in its return for the subsequent assessment year. 31.It is necessary to bear in mind that the DTVSV Rules have beenframed under Section 99 of the FA2 Act for carrying out the provisions ofthe DTVSV Scheme. Clause (a) of Section 99(2) of the FA2 is relevant andis set out below: “(2) Without prejudice to the generality of the foregoing power,such rules may provide for all or any of the following matters,namely:— (a) determination of disputed tax including the manner of set-offin respect of brought forward or carry forward of tax credit undersection 115JAA or section 115JD of the Income-tax Act or set-offin respect of brought forward or carry forward of loss orallowance of depreciation under the provisions of the Income-taxAct.” 31.It is necessary to bear in mind that the DTVSV Rules have beenframed under Section 99 of the FA2 Act for carrying out the provisions ofthe DTVSV Scheme. Clause (a) of Section 99(2) of the FA2 is relevant andis set out below: “(2) Without prejudice to the generality of the foregoing power,such rules may provide for all or any of the following matters,namely:— (a) determination of disputed tax including the manner of set-offin respect of brought forward or carry forward of tax credit undersection 115JAA or section 115JD of the Income-tax Act or set-offin respect of brought forward or carry forward of loss orallowance of depreciation under the provisions of the Income-taxAct.” 32.Thus, Rule 9 has been framed in exercise of the aforesaid powerssolely for the purposes of providing the manner for computing the disputed tax.The import of Rule 9 neither is nor can be construed to control orcurtail scope of the main enactment. 33.In the facts of the present case the petitioner’s application has beenrejected solely on the ground that it has, in fact, not claimed carry forward ofloss in the subsequent assessment year, and therefore, none of the options asset out in Rule 9(1) are applicable. This reasoning is erroneous. The fact thatthe petitioner had not claimed carry forward loss in his return for thesubsequent assessment year does not preclude it from settlementof its dispute under the DTVSV Scheme for AY 2022-23. The onlyimplication of not claiming a carry forward loss in the next assessment yearis that the petitioner would not get the said benefit of the carry forward ofloss in the assessment of that year. In any event, benefit of carry forward oflosses from previous assessment year is contingent on the Assesseecomplying with the requisite conditions. Thus, notwithstanding that anAssessee may be entitled to carry forward losses relatable to priorassessment years, an assessee would not be granted the benefit if it does notspecifically claim the same in its return. This does not detract from the factthat the assessee could claim a loss in the prior assessment year, which it isentitled to carry forward. 34.There is a distinction between an assessee being entitled to a benefitand the assessee claiming the same.The question of whether a disputerelating to a particular assessment year can be settled, must be considered asconfined to the issues relating to that assessment year. The determination ofthe same cannot be made contingent on the assessee’s action in thesubsequent assessment years. The approach of the designated authority toeliminate the applicability of options available to the assessee under Rule 9(1) of the DTVSV Rules on the basis of an action of the assessee taken forAY 2023-24 is erroneous. Thus, under the second option [clause (ii) of Rule9(1) of DTVSV Rules], the Assessee would be entitled to carry forward NILlosses as the entire carry forward loss had been reduced by the AO. 35.The fact that the AO had in fact not claimed any carry forward of lossin the next assessment year would not be destructive of the petitioner’s rightto exercise its option in terms of Rule 9(1) of the DTVSV Rules. 36.In view of the above, the present petition is allowed and the impugnedrejection order is set aside. The designated authority is directed to processthe petitioner’s application in accordance with the DTVSV Scheme and theDTVSV Rules bearing in mind this order. 37.Pending application is also disposed of. VIBHU BAKHRU, J MAY 06, 2025/tr TEJAS KARIA, J Click here to check corrigendum, if any