The Income Tax Appellate Tribunal (ITAT), Jaipur Bench, has delivered a significant ruling on the interplay between the Direct Tax Vivad Se Vishwas Scheme, 2020 (DTVSV Act) and penalty provisions under the Income Tax Act, 1961. In a case involving Rajendra Daga, the Tribunal held that once an assessee settles their tax dispute under the DTVSV Scheme, they are entitled to immunity from penalty under Section 271(1)(c) of the Act. The decision underscores the legislative intent behind the Scheme to provide a hassle-free resolution mechanism for tax disputes while protecting taxpayers from punitive actions post-settlement.
Background & Facts
The Dispute
The assessee, Rajendra Daga, filed an appeal before the ITAT, Jaipur Bench against an order passed by the National Faceless Appeal Centre (NFAC), Delhi, dated 26.11.2025. The dispute centered on the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961, amounting to Rs. 11,55,103 for the assessment year 2015-16. The assessee had previously settled the quantum dispute under the Direct Tax Vivad Se Vishwas Scheme, 2020 (DTVSV Act).
Key Facts
The assessee's dispute in quantum proceedings was resolved under the DTVSV Scheme, 2020, as evidenced by Form No. 5 (order of full and final settlement) issued under Section 5(2) read with Section 6 of the DTVSV Act.
The assessee claimed immunity from penalty under Section 5 of the DTVSV Act, which explicitly bars the imposition of penalties for tax arrears settled under the Scheme.
The assessee filed an appeal before the NFAC against the penalty order but faced a delay in filing. The NFAC dismissed the appeal on technical grounds of delay, despite the assessee's contention that the penalty order was invalid due to the immunity granted under the DTVSV Act.
The assessee argued that the penalty order under Section 271(1)(c) did not survive after the settlement under the DTVSV Scheme, as the Scheme provides immunity from penalties.
Procedural History
Assessment Year: 2015-16
PAN: GIR No. AELPD 0669 M
Date of Order by AO: Penalty order passed under Section 271(1)(c) (exact date not specified in the judgment)
Date of Settlement under DTVSV Scheme: Assessee settled the quantum dispute under the DTVSV Scheme (evidenced by Form No. 5)
Date of NFAC Order: 26.11.2025 (dismissing the appeal on grounds of delay)
Date of Hearing before ITAT: 14.07.2026
Date of Pronouncement of ITAT Order: 16.07.2026
Relief Sought
The assessee sought:
Quashing of the NFAC's order dated 26.11.2025 dismissing the appeal on grounds of delay.
Deletion of the penalty of Rs. 11,55,103 levied under Section 271(1)(c) of the Income Tax Act, 1961.
The Legal Issue
The central question was whether the assessee is entitled to immunity from penalty under Section 5 of the DTVSV Act, 2020, after settling their tax dispute under the Scheme, and whether the penalty order under Section 271(1)(c) of the Income Tax Act, 1961, survives post-settlement.
Arguments Presented
For the Appellant
The assessee argued:
The dispute in quantum proceedings was settled under the DTVSV Scheme, 2020, as evidenced by Form No. 5.
Section 5 of the DTVSV Act provides immunity from the imposition of penalties for tax arrears settled under the Scheme.
The penalty order under Section 271(1)(c) is invalid as the assessee is entitled to immunity under the DTVSV Act.
The NFAC erred in dismissing the appeal on grounds of delay, as the penalty order itself was unsustainable.
For the Respondent
The respondent (IT Department) did not present substantive counter-arguments in the judgment. The NFAC's order dismissing the appeal was based solely on the ground of delay in filing the appeal, without addressing the merits of the penalty order.
The Court's Analysis
The ITAT, Jaipur Bench, analyzed the provisions of the DTVSV Act, 2020, and the Income Tax Act, 1961, to determine whether the assessee was entitled to immunity from penalty post-settlement.
The Tribunal noted that Section 5 of the DTVSV Act explicitly provides:
"Subject to the provisions of section 5, the designated authority shall not institute any proceeding in respect of an offence; or impose or levy any penalty; or charge any interest under the Income-tax Act in respect of tax arrear."
The Tribunal observed that the assessee had settled their dispute under the DTVSV Scheme, and the Scheme's provisions grant immunity from penalties. The Tribunal held:
"The assessee having settled the dispute in quantum proceedings under the DTVSVS, 2020 and the said Act providing immunity to the settlors of dispute from the levy of penalty, I hold, that there was no case at all for levying penalty on the assessee for the impugned year."
The Tribunal further criticized the NFAC for dismissing the appeal on technical grounds of delay, despite the assessee's contention that the penalty order was invalid due to the immunity granted under the DTVSV Act. The Tribunal emphasized that the authorities tasked with enforcing the DTVSV Scheme are duty-bound to uphold its provisions and protect taxpayers from punitive actions post-settlement.
The Verdict
The ITAT, Jaipur Bench, allowed the assessee's appeal in its entirety. The Tribunal:
Quashed the penalty order passed under Section 271(1)(c) of the Income Tax Act, 1961, amounting to Rs. 11,55,103.
Set aside the NFAC's order dated 26.11.2025 dismissing the appeal on grounds of delay.
Directed the quashing of the penalty order, holding that the assessee is entitled to immunity under Section 5 of the DTVSV Act, 2020.
What This Means For Similar Cases
Immunity Under DTVSV Act Is Absolute
Section 5 of the DTVSV Act provides unconditional immunity from penalties for tax arrears settled under the Scheme.
Tax authorities cannot levy penalties post-settlement, even if the penalty order was passed before the settlement.
Appeals against penalty orders post-settlement must be admitted on merits, not dismissed on technical grounds.
Authorities Must Uphold Legislative Intent
The DTVSV Scheme was enacted to provide a speedy and hassle-free resolution mechanism for tax disputes.
Authorities tasked with enforcing the Scheme must ensure that taxpayers are not subjected to punitive actions post-settlement.
Delays in filing appeals should not be used to deny taxpayers the benefits of the Scheme.
Precedent for Future Disputes
This ruling sets a clear precedent that Section 5 of the DTVSV Act overrides penalty provisions under the Income Tax Act.
Taxpayers settling disputes under the DTVSV Scheme can rely on this judgment to challenge penalty orders.
Authorities must ensure that penalty orders are withdrawn or quashed post-settlement to avoid litigation.
