The Income Tax Appellate Tribunal’s ruling in Vikas Agarwal’s case delivers a critical clarification on the scope of the Direct Tax Vivad Se Vishwas Scheme, 2020. It affirms that settlement under the Scheme applies only to the specific dispute for which Form 1 is filed, and cannot be presumed to extend to unrelated assessment appeals. This decision reinforces procedural integrity in tax litigation and protects taxpayers from unintended waiver of substantive rights.
Background & Facts
The Dispute
The appellant, Vikas Agarwal, was subject to a search and seizure operation on 05.02.2017 conducted by the Ghaziabad investigation wing. His name appeared in the search warrant, and his joint family residence was also searched. He filed his income tax return for AY 2017-18 on 26.03.2018, declaring an income of Rs. 8,05,140. The Assessing Officer, under Section 143(3) of the Income Tax Act, 1961, made substantial additions of Rs. 3,24,80,200, raising the assessed income to Rs. 3,32,85,140. The appellant filed an appeal against this assessment order on 29.01.2019.
Procedural History
- 26.03.2019: The Addl. DIT levied a penalty of Rs. 39,700 under Section 272A(2)(c) for non-compliance with a notice under Section 133(6).
- 17.04.2019: The appellant filed a separate appeal against the penalty order.
- 25.06.2020: The appellant filed Form 1 under the Direct Tax Vivad Se Vishwas Scheme, 2020, specifically to settle the penalty appeal.
- 22.03.2021: Form 5 was issued, finalizing the settlement of the penalty appeal.
- 25.05.2021: The penalty appeal was formally withdrawn and disposed of by the CIT(A).
- 22.05.2023: The CIT(A), erroneously, also disposed of the assessment appeal, assuming the VSV Form 1 applied to both matters.
- 02.09.2025: The appellant learned of the erroneous disposal when other search-related appeals were decided.
- 2026: The present appeal was filed before the ITAT Delhi, with a delay of 811 days.
Relief Sought
The appellant sought condonation of delay and restoration of his assessment appeal for fresh adjudication on merits, arguing that the VSV Scheme did not cover the assessment dispute.
The Legal Issue
The central question was whether filing Form 1 under the Direct Tax Vivad Se Vishwas Scheme, 2020 to settle a penalty appeal under Section 272A(2)(c) automatically results in the disposal of a pending assessment appeal under Section 143(3), even in the absence of explicit intent or Form 1 covering the assessment dispute.
Arguments Presented
For the Petitioner
The appellant contended that the VSV Scheme is dispute-specific and requires clear, separate election for each contested item. He relied on the Scheme’s guidelines, which mandate that Form 1 must specify the disputed tax, interest, or penalty. Since his Form 1 explicitly referenced only the penalty appeal, the CIT(A) had no legal basis to extend the settlement to the assessment appeal. He cited the Scheme’s objective of reducing litigation burden without compromising taxpayer rights.
For the Respondent
The Revenue argued that the appellant’s conduct - filing Form 1 during pendency of both appeals - implied a general intent to settle all outstanding tax disputes. It contended that the CIT(A) acted in good faith to resolve pending matters and that the appellant’s silence on the assessment appeal constituted acquiescence.
The Court's Analysis
The Tribunal rejected the Revenue’s argument, emphasizing that the VSV Scheme is not a blanket settlement mechanism. It held that the Scheme’s structure, as outlined in the Direct Tax Vivad Se Vishwas Act, 2020, requires precise identification of the disputed tax liability in Form 1. The Court noted that the penalty appeal and the assessment appeal are distinct legal proceedings governed by different provisions: one under Section 272A(2)(c) for procedural default, the other under Section 143(3) for substantive income determination.
"The Scheme does not contemplate automatic extension of settlement to unrelated disputes merely because the assessee has filed Form 1 in respect of one.
The Tribunal further observed that the CIT(A)’s order was based on a misreading of the appellant’s intent. The fact that the penalty appeal was withdrawn does not imply waiver of rights in the assessment appeal. The Court stressed that procedural fairness under Article 14 and natural justice demands that taxpayers be given a clear opportunity to opt in or out of settlement for each dispute.
The Tribunal also noted that the appellant’s delay in filing the appeal was due to a reasonable misconception - believing all search-related appeals would be disposed collectively. This justified condonation of delay under Section 249 of the Income Tax Act.
The Verdict
The appellant won. The ITAT held that filing Form 1 under the VSV Scheme for a penalty appeal does not automatically dispose of a separate assessment appeal. The case was remanded to the CIT(A) for fresh adjudication on merits, with a fresh opportunity to be given to the assessee.
What This Means For Similar Cases
Settlement Under VSV Scheme Is Dispute-Specific
- Practitioners must ensure Form 1 explicitly identifies each disputed item - assessment, penalty, interest - separately.
- Taxpayers cannot assume that settling one dispute under VSV resolves others; each requires a distinct election.
- Revenue authorities must not presume consent to settle unmentioned disputes.
Procedural Errors by Authorities Must Be Corrected
- When CIT(A) or AO erroneously dispose of an appeal based on misinterpretation, the ITAT will condone delay and restore the matter for fresh hearing.
- Taxpayers should immediately challenge any order that appears to dispose of unmentioned disputes.
- Documentation of Form 1 submissions must be meticulously maintained to prove scope of settlement.
No Implied Waiver of Rights
- Silence or inaction by a taxpayer does not constitute consent to settlement of an unmentioned dispute.
- The burden lies on the Revenue to prove explicit intent to settle a particular dispute under VSV.
- This reinforces the principle that taxpayer rights cannot be extinguished by administrative oversight.
