Introduction
The Hon’ble Delhi High Court, in the recent case of SAN Garments Manufacturing Private Limited v. Principal Commissioner of Income Tax[i], examined the finality of tax settlements under the Direct Tax Vivad Se Vishwas Act, 2020 (‘DTVSV Act’). The Court scrutinised a critical question regarding the legal authority of the tax department to reopen a concluded settlement under the DTVSV Act, raising concerns about statutory interpretation, administrative overreach, and the binding nature of settlement certificates.
In this judgment, the Court clarified the binding scope of tax dispute resolutions and final settlements under the DTVSV Act, which was enacted to provide a one-time settlement window for pending tax litigation. The ruling establishes an important precedent, ensuring taxpayers who have settled their disputes under this Act are not subjected to further assessments or modifications beyond the prescribed limits.
Brief Facts
The Petitioner, a private limited company, filed a writ petition impugning Form No. 3 dated 29.01.2021, issued by the Principal Commissioner of Income Tax-7 (‘PCIT’). The Petitioner had originally filed its income tax return for the assessment year (‘AY’) 2012-13, declaring an income of Rs. 13,57,73,250. However, the Department issued a notice under s. 148 of the Income-tax Act, 1961 (‘Act’) on 29.03.2019, reopening the assessment under s. 147 of the Act.
On 17.12.2019, the Assessing Officer (‘AO’) passed a reassessment order under s. 147 read with s. 143(3) of the Act, determining the Petitioner’s income as Rs. 16,73,57,840, including an addition of Rs. 3,07,39,590 as undisclosed expenditure under s. 69C of the Act.
Aggrieved by the reassessment order, the Petitioner filed an appeal before the Commissioner of Income Tax (Appeals) (‘CIT(A)’) under s. 246A of the Act. While the appeal was pending, the DTVSV Act was enacted, providing a mechanism to settle pending tax disputes. The Petitioner, qualifying as an ‘appellant’ under s. 2(1)(a) of the DTVSV Act, made a declaration under s. 4(1) seeking settlement of its ‘tax arrear’[ii].
Per the DTVSV Act, the Designated Authority issued a certificate in Form No. 3 on 16.10.2020, determining a balance payable of Rs. 69,56,571. Upon payment of Rs. 59,73,812, a Form No. 5 certificate was issued, confirming the full and final settlement of the tax arrears.
Notably, s. 6 of the DTVSV Act provides that once a settlement is completed, the Designated Authority cannot reopen proceedings or impose penalties regarding the tax arrears. Despite this, a new Form No. 3, dated 29.01.2021, was issued, modifying the previously settled Form No. 3. The Petitioner challenged this unauthorized reopening of a concluded tax settlement before the High Court.
Held
The Court allowed the petition in favour of the Petitioner, holding that once a final certificate (Form No. 5) is issued under s. 5(1) of the DTVSV Act, all disputes concerning the ‘tax arrear’ stand conclusively settled. Therefore, the Designated Authority lacked the statutory power to reopen the settlement or issue a fresh Form No. 3. Consequently, the impugned certificate dated 29.01.2021 was set aside.
The Court emphasized that ss. 5 and 6 of the DTVSV Act bar any further proceedings concerning settled tax arrears. S. 6 specifically prohibits the Designated Authority from initiating new actions, imposing penalties, or reopening cases once the settlement is finalized under Form No. 5.
The Court reiterated that the legislative intent behind the DTVSV Act is to provide certainty and finality in tax dispute resolution. The issuance of fresh Form No. 3 violated this statutory finality and undermined the purpose of the scheme.
The Court noted that the DTVSV Act does not contain any provision that empowers the Designated Authority to reopen or modify a settlement once a final certificate is issued under s. 5(1). The Respondent’s counsel also conceded that there was no statutory basis for reopening the case.
Our Analysis
This judgement reaffirms the statutory finality of settlements under the provisions of the DTVSV Act, preventing tax authorities from reopening concluded tax settlements and ensuring certainty and predictability for taxpayers. The decision upholds the legal principle of ‘Res Judicata’[iii], reinforcing the statutory framework that bars arbitrary interference with settled disputes and enhances taxpayer confidence in the dispute resolution mechanism.
The ruling underlines the legislative intent of the DTVSV Act, which aims to reduce tax litigation and provide an efficient alternative method to resolve disputes. By setting aside the unauthorised issuance of a fresh Form No. 3, the Court has safeguarded the integrity of the settlement process under the DTVSV Act and ensured that tax authorities adhere strictly to statutory limits.
Taxpayers and legal professionals can rely on this judgment to prevent unauthorised modifications to settled cases. The Court’s decision ensures fairness in tax dispute resolution and prevents tax authorities from arbitrarily reopening concluded settlements, thereby confirming that a Form No. 5 certificate grants full and irrevocable immunity from further proceedings related to settled tax arrears.
End Notes
[i] [2025] 170 taxmann.com 242 (Delhi) [12-12-2024].
[ii] ‘Tax arrear’ is defined under s. 2(1)(o) of the DTVSV Act, to mean — (i) the aggregate amount of disputed tax, interest chargeable or charged on such disputed tax, and penalty leviable or levied on such disputed tax; or (ii) disputed interest; or (iii) disputed penalty; or (iv) disputed fee, as determined under the provisions of the Income-tax Act, 1961.].
[iii] Res Judicata - The principle of res judicata is a legal doctrine that prevents the same case from being tried again by the same parties. It is based on the idea that no one should be forced to go through the same legal process twice for the same issue.
Authored by Dhruv Goel at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.