Tribunal’s Dismissal of Revenue’s Appeal Was a Mistake—Appeal Deemed Pending for Vivad Se Vishwas Scheme

Get the full picture - access the original judgement of the court order here

Case Name

Bharat Bhushan Jindal vs Principal Commissioner of Income Tax & Anr. (High Court of Delhi)

W.P.(C) 3921/2021

Date: 26th April 2021

Key Takeaways

• Mistaken Dismissal: The Tribunal dismissed the revenue’s appeal based on a factual error, believing earlier decisions favored the taxpayer when they actually favored the revenue.
• Rectification and “Relation Back”: The Tribunal later corrected this mistake under Section 254(2) (of Income Tax Act, 1961), restoring the appeal. The court applied the “doctrine of relation back,” treating the appeal as pending on the relevant date.
• Eligibility for VSV Scheme: The court held that the taxpayer was eligible to apply under the Vivad Se Vishwas Act, as the appeal was deemed pending on 31 January 2020.
• Practical Impact: The revenue must now reconsider the taxpayer’s application under the VSV Scheme, potentially allowing the dispute to be settled under this beneficial scheme.

Issue

Was the revenue’s appeal “pending” before the Tribunal on 31 January 2020, making the taxpayer eligible for the Vivad Se Vishwas Scheme, even though the appeal had been dismissed earlier due to a factual mistake but later restored?

Facts

• The Assessing Officer (AO) increased the taxpayer’s income for AY 2011-12, disallowing a large deduction under Section 80IC (of Income Tax Act, 1961) and adding agricultural income.
• The taxpayer appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who ruled in their favor.
• The revenue then appealed to the Income Tax Appellate Tribunal (ITAT), which dismissed the appeal on 22 June 2018, mistakenly believing earlier years’ decisions favored the taxpayer.
• The revenue filed a Miscellaneous Application (MA) under Section 254(2) (of Income Tax Act, 1961), pointing out the error.
• The Tribunal agreed, rectified its order on 11 May 2020, and restored the appeal for fresh hearing.
• The taxpayer applied under the Vivad Se Vishwas Act, 2020, to settle the dispute, but the revenue rejected the application, arguing the appeal was not pending on 31 January 2020.

Arguments

Petitioner-Assessee (Taxpayer)

• The appeal was dismissed “in limine” (at the threshold) due to a factual mistake, not on merits.
• The MA was filed before 31 January 2020 and was pending on that date.
• Once the Tribunal restored the appeal, it should be considered pending as of the specified date, making the taxpayer eligible for the VSV Scheme.

Revenue (Income Tax Department)

• The VSV Act does not mention Miscellaneous Applications.
• The appeal was dismissed on merits, not “in limine.”
• Since the appeal was not pending on 31 January 2020, the taxpayer is not eligible for the VSV Scheme.

Key Legal Precedents

• Section 254(2) (of Income Tax Act, 1961): Allows the Tribunal to rectify mistakes apparent from the record.
• Doctrine of Relation Back: An act done later (like restoring an appeal) can be treated as if it occurred earlier, relevant for determining if an appeal was “pending” on a specific date.
• Circular No. 21 of 2020, FAQ 61: Clarifies that if a Miscellaneous Application (MA) is pending on 31 January 2020 regarding an appeal dismissed “in limine,” the case is eligible for the VSV Scheme.
• Commissioner of Income Tax vs. Haryana Sheet Glass Ltd., 2009 SCC OnLine Del 4226: Cited for the doctrine of relation back.
• Honda Siel Power Products Ltd. vs. Commissioner of Income-tax, [2007] 165 TAXMAN 307 (SC): Cited for the Tribunal’s duty to correct its own mistakes.

Judgement

• The High Court found that the Tribunal’s original dismissal was not on merits but “in limine,” based on a factual mistake.
• The MA was pending on 31 January 2020, and the Tribunal’s later rectification order restored the appeal, which should be treated as pending on the specified date.
• The court applied the doctrine of relation back, holding that the appeal was effectively pending on 31 January 2020.
• The court set aside the revenue’s rejection of the taxpayer’s VSV application and directed the revenue to reconsider it in light of the judgment and the timelines under the VSV Act.

FAQs

Q1: Why was the revenue’s appeal dismissed in the first place?

A: The Tribunal dismissed it based on a mistaken belief that earlier decisions favored the taxpayer, when in fact they favored the revenue.

Q2: What is a Miscellaneous Application (MA) under Section 254(2) (of Income Tax Act, 1961)?

A: It’s a request to the Tribunal to correct a mistake apparent from the record in its earlier order.

Q3: What does “in limine” mean?

A: It means dismissed at the threshold, without a detailed hearing on the merits.

Q4: What is the doctrine of relation back?

A: It’s a legal principle that treats an act done later (like restoring an appeal) as if it happened at an earlier relevant time.

Q5: What is the Vivad Se Vishwas Scheme?

A: It’s a government scheme to resolve direct tax disputes by allowing taxpayers to settle cases by paying a specified amount.

Q6: What happens next for the taxpayer?

A: The revenue must now reconsider the taxpayer’s application under the VSV Scheme, potentially allowing the dispute to be settled.

1. Via this writ petition, the petitioner-assessee seeks to lay a challenge

to the orders dated 27.01.2021 and 11.02.2021, whereby, Forms 1 and 2 filed by it under the Direct Tax Vivad Se Vishwas Act, 2020 (in short „the 2020 Act‟) were rejected by the designated authority.

Background facts:

2. The impugned orders came to be passed in the background of the following board facts and circumstances:

2.1. The Assessing Officer [in short „AO‟] vide order dated 21.03.2014, concerning the assessment year („AY‟) 2011-2012, pegged the petitioner-

assessee‟s taxable income at Rs.2,19,50,020/-. as against the declared

income of Rs.21,21,160/-.

2.2. In arriving at the assessed income, the AO, inter alia, added to the

petitioner-assessee‟s declared income, agricultural income, amounting to

Rs.7,06,145/- and also disallowed the deduction of Rs.1,91, 22,723 claimed

by the petitioner-assessee under Section 80IC (of Income Tax Act, 1961) (in

short „the Act‟).

2.3. Aggrieved, by the decision rendered by the AO, the petitioner-

assessee preferred an appeal with the Commissioner of Income Tax

(Appeals) [in short “CIT(A)”]. The CIT(A) allowed the petitioner‟s-

assessee‟s appeal vide order dated 29.01.2016.

2.4. This time around, the revenue escalated the matter and preferred an

appeal with the Income Tax Appellate Tribunal (in short 'the Tribunal'). The

Tribunal dismissed the appeal of the revenue vide order dated 22.06.2018.

While dismissing the appeal, in the operative part of its order, the Tribunal made the following observations:

“7. We have heard the Ld. DR and it is a matter of record that

CIT(A) has proceeded on the footing that in A.Ys. 2008-09, 09-10

and 2010-11 identical issue was decided in favour of the

assessee. The CIT (A) held as under:

“10.7 Facts of the case during the year are identical to

AY 2008-09, 09-10 and 2010-11. Therefore, respectfully

following the order of CIT (A) dated 16.09.2011 for AY

2008-09 and for AY 2009-10 and 2010-11, it is held that

deduction u/s 80IC (of Income Tax Act, 1961) is allowable to the assessee of

Rs.1,88,63,283/- on the net profit arising in 1st, 2nd and

3rd category and, therefore, addition to the extent of

which made by the Assessing Officer is deleted and

deduction u/s 80IC (of Income Tax Act, 1961) is not allowable on the profit on sale

of ALP reagent kit, ALT reagent kit and AST reagent kit

(4th Category) amounting to Rs. 2,60,117/- and addition

made by the Assessing Officer is upheld to that extent.”

Thus, the Ld. DR could not controvert the findings given by the

CIT(A) that the Tribunal in earlier assessment years dismissed

the appeal of the Revenue. Therefore, the issue is squarely

covered by the decision of the Tribunal and there is no need to

interfere with the finding of the CIT(A). The Revenue’s appeal

is dismissed.”

[Emphasis is ours]

2.5. The revenue, thereafter, moved a miscellaneous application [in short

„MA‟], under Section 254(2) (of Income Tax Act, 1961), seeking to bring to the notice of the Tribunal, the error, which, according to it, was apparent on the face of the record. The revenue pointed out, in its application, that, as a matter of fact, the Tribunal had reversed the view, taken by the CIT(A) in the earlier years, i.e., AYs 2008-2009, 2009-2010 and 2010-2011, contrary to what was noted in the Tribunals order dated 22.06.2018.

2.6. It would be relevant to note that, when the Tribunal passed the order

dated 22.06.2018, the petitioner-assessee was not represented.

2.7. The Tribunal, having realised, that a mistake [which was apparent on

the face of the record], had been made, exercised the power vested in it

under Section 254(2) (of Income Tax Act, 1961), and accordingly, allowed the MA filed by

the revenue, vide order dated 11.05.2020 and went on to restore the

revenue‟s appeal, with a direction that the appeal would be heard afresh. The appeal was fixed for hearing by the Tribunal on 06.07.2020.

2.8. Being crucial to the outcome in the matter, it would be appropriate, at

this juncture, to record the observations made by the Tribunal in paragraphs

2, 3, and 4 of its order dated 11.05.2020.

“2. The Ld. DR submitted as under:-

“The ITAT has dismissed the appeal of the Revenue

relying on its own order for earlier years. The fact is that the

order of the Ld. ITAT in earlier years (AY 20089-09 & 2009-

10) was in favour of the Revenue. It has upheld the action of

the AO and reversed the decision of the Ld. CIT(A). Relying

on the order in previous years, the Ld. ITAT should have

confirmed the action of the AO and allowed the appeal of the

Revenue. However, in the impugned order dated 22.06.2018 for

A.Y.2011-12 while rejecting the appeal of revenue, on the basis

of earlier orders of Ld. CIT(A) for A.Yrs 2008-09 and 2009-10.

Ld ITAT ignored its own orders in the case of the assessee for

A.Y.2008-09 & 2009-10 where it has upheld the action of the

AO and reversed the order of the Ld. CIT(A) and had decided in

favor of Revenue. Thus, a mistake has been crept into said

order dated 22.06.2018 passed by the Ld. ITAT which requires

rectification.”

3. The Ld. AR agreed to the contentions of the Ld. DR and

requested that the matter may be restored for hearing.

4. We have heard both the parties and perused the

material available on record. From the perusal of the order, the

contentions taken by the Revenue appears to be correct. The

Ld. AR also agrees with the same. Therefore, the Miscellaneous

Application filed by the Revenue is allowed and the appeal is

restored for fresh hearing before the Tribunal on 06.07.2020.

The registry is directed to place the ITA No. 1347/Del/2016 for

hearing on 06.07.2020. Both the parties be informed

accordingly. The Misc. Application is allowed.”

[Emphasis is ours]

3. We are informed that the appeal preferred by the revenue, which was

restored by the Tribunal, is pending adjudication.

4. Given this scenario, the petitioner-assessee filed Forms 1 and 2 with

the designated authority, under the 2020 Act, in the first instance, on

21.03.2020. This exercise was repeated by the petitioner-assessee, by filing

revised Forms 1 and 2, on 27.01.2021, and thereafter, on 20.03.2021. [See

Annexure P-12].

4.1. In the interregnum, the impugned orders came to be passed. Via the

impugned orders, both sets of Forms 1 and 2, which were filed on

21.03.2020 and 27.01.2021, were rejected.

5. Thus, the question that arises for our consideration is: whether, in the

given facts and circumstances, it could be said that the revenue's appeal was pending on the specified date (i.e., 31.01.2020) as noticed under the 2020 Act?

Submissions on behalf of the petitioner/assessee:

6. Mr. Salil Kapoor, who appears on behalf of the petitioner-assessee,

says that the appeal was pending. He contends that the MA under Section

254(2) of the Act was filed by the revenue on 13.11.2018. This application,

as noticed above, was allowed on 11.05.2020. Therefore, Mr. Kapoor

submits that since the order dated 11.05.2020 passed by the Tribunal

restored the revenue's appeal, which was dismissed on 22.06.2018, the

revenue cannot take the stand that the appeal was not pending on the

specified date, i.e., 31.01.2020.

6.1. Furthermore, Mr. Kapoor says that a perusal of the order dated

22.06.2018, whereby the revenue‟s appeal was dismissed, shows that the

dismissal was based on a mistake of fact, which was that, in its order for

earlier AYs, where identical issues were involved, the Tribunal had ruled in

the favour of the assessee and against the revenue. In other words, according to him, the dismissal of the Tribunal was “in limine” and not on merits as sought to be portrayed on behalf of the revenue.

Submissions on behalf of the revenue:

7. Mr. Zoheb Hossain, who appears on behalf of the revenue, on the

other hand, says that there is no mention of an MA, in the 2020 Act. For this purpose, he has referred us, to the definition of the “appellant”, as provided in Section 2(1)(a) of the 2020 Act.

7.1. Furthermore, it is also Mr. Hossain‟s contention, that the dismissal of

the revenue‟s appeal, via order dated 22.06.2018, was not in limine, and that the said order has been passed, taking into account all the facts and

circumstances of the case.

Analysis and Reasons:

8. We have heard the learned counsel for the parties and also perused the

record. What emerges, and qua which there can be no dispute, is the

following:

(i) The AO passed the assessment order on 21.03.2014 for the AY 2011-

2012. Via this order, there was an appreciable enhancement, as noticed

above, in the taxable income of the petitioner-assessee.

(ii) The petitioner-assessee preferred an appeal, for the said AY, before

the CIT(A), which was allowed on 29.01.2016. The revenue filed an appeal

on 10.03.2016 before the Tribunal. The appeal was, however, dismissed by

the Tribunal on 22.06.2018, based on a mistake of fact. Revenue‟s appeal

was dismissed by the Tribunal under the mistaken belief that in the earlier

AYs, it had taken a view against the revenue and in the favour of the

assessee.

(iii) This obvious mistake, once brought to the notice of the Tribunal, via a MA preferred by the revenue, was rectified vide order dated 11.05.2020.

(iv) The MA was filed before the specified date, i.e., 31.01.2020. As per

the information available on the Tribunal‟s portal, the MA was filed on

13.11.2018.

(v) The Tribunal, realising the mistake that had been made, recalled its

order dated 22.06.2018 and restored the revenue‟s appeal and directed that

the appeal be heard afresh. As a matter of fact, the Tribunal fixed the date of hearing, via the very same order, in the appeal, on 06.07.2020.

(vi) The appeal preferred by the revenue is pending disposal.

9. Given these undisputed facts, the argument advanced by Mr. Hossain,

that the order dated 22.06.2018 was an order on merits, does not find favour

with us. The expression "in limine”, which is, very often used as a part of

Court lingo by judges and lawyers, simply, means “preliminarily”. [See:

Black‟s Law Dictionary, 9th edition, Bryan A. Garner, page 85.]

9.1. A careful perusal of the order dated 22.06.2018 would show that the

revenue's appeal was dismissed, at the threshold, based on a mistaken

impression, perhaps, given by the departmental representative, that the

Tribunal had taken a view against the revenue. As noticed hereinabove by

us, on 22.06.2018, on the date, the revenue's appeal was dismissed. the

petitioner-assessee was not represented.

9.2. This obvious error, which was apparent from the record, was

corrected by the Tribunal, on 11.05.2020. Therefore, if we were to apply the

response given to FAQ no. 61, as contained in the revenue's Circular No. 21

of 2020, dated 04.12.2020, in our opinion, the petitioner-assessee should

succeed. For the sake of convenience, FAQ 61 and the response given, qua

the same is set forth hereafter:

“Q.No.61. Whether Miscellaneous Application (MA) pending as

on 31 January 2020 will also be covered by the scheme?

Answer: If the MA pending on 31" Jan 2020 is in respect of an

appeal which was dismissed in limine (before 31" Jan 2020),

such MA is eligible. Disputed tax will be computed with

reference to the appeal which was dismissed.”

[Emphasis is ours]

9.3. A plain reading of the response to FAQ no. 61 would show that it

requires fulfilment of two prerequisites for an appeal to be construed as

pending on the specified date [i.e., 31.01.2020] as per the provisions of the 2020 Act.

i. First, the MA should be pending on the specified date, i.e.,

31.01.2020.

ii. Second, the said MA should relate to an appeal, which had been

dismissed "in limine" before 31.01.2020.

9.4. Insofar as the first aspect is concerned, there is no dispute that the MA was filed, and was pending on the specified date, i.e., 31.01.2020. As

regards the second aspect, in our view, the order of the Tribunal dated

22.06.2020 can only be construed as an order that dismissed the revenue‟s

appeal in limine. In our opinion, the decision taken to dismiss the revenue‟s appeal was based on a preliminary assessment of the facts, i.e., the outcome of the revenue‟s appeal preferred with the Tribunal qua the same issues in earlier AYs. There was no discussion on the merits of the case. Therefore, in our view, the petitioner-assessee should succeed on this ground alone.

9.5. Besides this, we are also of the view, that in the given facts and

circumstances, the order dated 11.05.2020 would have to be construed,

metaphorically, as one breathing life into a dead appeal, in the light of the doctrine of relation back1 [See: Commissioner of Income-Tax vs. Haryana

Sheet Glass Ltd., 2009 SCC OnLine Del 4226]. As alluded to above, the

order dated 11.05.2020 rectified the Tribunal‟s earlier order dated

22.06.2018, as according to the Tribunal, a mistake, apparent on the face of

the record, had occurred. The Tribunal, in its operative directions, while

[See: Black‟s Law Dictionary, 9th edition, Bryan A. Garner] “relation back, n. (18 c), 1. The doctrine that an act done at a later time is, under certain circumstances, treated as though, it occurred at an earlier time. In federal civil procedure, an amended pleading may relate back, for purposes of the statute of limitations, to the time when the original pleading was filed. Fed.r.civ.p.15(c). [Cases Limitation of actions 127.] 2. A judicial application of that doctrine. – Also termed doctrine of relation back.

Cf. NUNC PRO TUNC. – relate back, vb.”

See: Honda Siel Power Products Ltd. vs. Commissioner of Income-tax, [2007] 165 TAXMAN 307 (SC).

“13. "Rule of precedent" is an important aspect of legal certainty in rule of law. That principle is not obliterated by section 254(2) (of Income Tax Act, 1961). When prejudice results from an order attributable to the Tribunals mistake, error or omission, then it is the duty of the Tribunal to set it right. Atonement to the wronged party by the Court or Tribunal for the wrong committed by it has nothing to do with the concept of inherent power to review. In the present case, the Tribunal was justified in exercising its powers under section 254(2) (of Income Tax Act, 1961) when it was pointed out to the Tribunal that the judgment of the co-ordinate Bench was placed before the Tribunal when the original order came to be passed but it had committed a mistake in not considering the material, which was already on record. The Tribunal has acknowledged its mistake; it has accordingly rectified its

order. In our view, the High Court was not justified in interfering with the said order. We are not going by the doctrine or concept of inherent power. We are simply proceeding on the basis that if prejudice had resulted to the party, which recalling the order dated 22.06.2018, not only restored the revenue's appeal but also posted it for a fresh hearing. Therefore, if the doctrine of "relation back" were to be applied, and given its logical application, it would have to be said that the revenue's appeal was pending on the specified date, i.e., 31.01.2020.

Conclusion: -

10. Given the foregoing, we are inclined to allow the prayer made in the

writ petition. The impugned orders are set aside.

11. The revenue will accord due consideration to Form no. 1 and 2, filed

by the petitioner-assessee, and thereafter take the next steps in the matter, as per the provisions of the 2020 Act, keeping in mind the timelines given therein.