Subsequent proceeding after – DTDRS certificate granting immunity had been issued

The Rajasthan High Court has delivered a significant ruling clarifying that once an assessee is granted immunity under the Direct Tax Dispute Resolution Scheme, 2016 (DTDRS), the Revenue cannot reopen or revise penalty proceedings by invoking Section 263 of the Income-tax Act, 1961, even on the ground that penalty was imposed under an incorrect provision. The judgment underscores the principle that amnesty schemes are intended to bring finality and quietus to tax disputes and that statutory immunity cannot be diluted through audit objections or revisional proceedings.

A search was conducted on the Nuwal Group, Jaipur, on 18 July 2012, of which the assessee was a member. Pursuant to the search, the assessee filed a return declaring income of ₹15.04 crore. The assessment was completed on 13 March 2015, and penalty proceedings were initiated under Section 271AAB, culminating in a penalty order dated 20 August 2015.

While the assessee’s appeal against the penalty was pending before the Commissioner (Appeals), the assessee opted for the Direct Tax Dispute Resolution Scheme, 2016 and was issued a certificate dated 9 November 2016 granting immunity from penalty and prosecution. Consequent thereto, the appeal was withdrawn.

Subsequently, based on an audit objection alleging that the penalty ought to have been imposed under Section 271AB instead of Section 271AAB, the Principal Commissioner invoked Section 263, set aside the penalty order, and directed a fresh decision. The Income Tax Appellate Tribunal quashed the revisional order, leading to the present appeal before the High Court under Section 260A.

The Revenue raised, inter alia, the following substantial questions of law:

1.Whether the Tribunal was justified in holding that Section 263 could not be invoked once a DTDRS certificate granting immunity had been issued.

2.Whether the assessee was ineligible for DTDRS benefits due to the search proceedings.

3.Whether an erroneous assumption of law in imposing penalty under the “wrong” section rendered the original order prejudicial to the interests of the Revenue.

4.Whether the Tribunal ignored the principles laid down by the Supreme Court in Malabar Industrial Co. Ltd. v. CIT (243 ITR 831).

Under Section 204(3) of the Finance Act, 2016, any order passed under the DTDRS is declared conclusive, and the matters covered by such order “shall not be reopened in any proceeding under the Income-tax Act.” Further, the immunity granted under Section 205(b)(ii) extends to protection from penalty and prosecution under the Act in respect of the disputed tax.

The High Court dismissed the Revenue’s appeal, affirming the Tribunal’s order. The Court’s reasoning rests on four critical pillars:

First, the DTDRS certificate granting immunity was never challenged by the Department. As on the date of hearing, the certificate continued to “hold the field” and had attained finality. Any attempt to indirectly question its validity through Section 263 proceedings was impermissible.

Second, the immunity granted under the Scheme is general in nature, extending to “imposition of penalty under the Income-tax Act” and is not confined to a specific penalty provision. Consequently, the debate as to whether penalty should have been imposed under Section 271AAB or Section 271AB was rendered wholly academic.

Third, the Court rejected the Revenue’s argument that the assessee was ineligible for the Scheme due to the search. It noted that the assessment was framed under Section 143(3) read with Section 153B, and in any event, eligibility could not be questioned collaterally after issuance of the certificate.

Fourth, the Court held that revisional jurisdiction under Section 263 cannot be exercised to override or nullify statutory immunity granted under an amnesty scheme. An audit objection, by itself, does not confer jurisdiction where the law expressly bars reopening.

The Court concluded that none of the substantial questions of law framed by the Revenue arose from the Tribunal’s order.

Once immunity is granted under the Direct Tax Dispute Resolution Scheme, 2016, and the certificate issued thereunder attains finality, no further penalty proceedings, revision under Section 263, or reopening on the ground of incorrect application of a penalty provision can be sustained.

This ruling reinforces the foundational objective of tax amnesty schemes – certainty and closure. It sends a clear signal that the Revenue cannot perpetuate litigation by recharacterising issues already settled under such schemes. The judgment is particularly relevant in the context of ongoing and future disputes under Vivad se Vishwas–type schemes, where similar attempts to revisit concluded matters may arise.

For taxpayers, the decision provides reassurance that opting for an amnesty scheme, once accepted by the Department, results in comprehensive immunity and legal finality. For the administration, it serves as a reminder that statutory promises of closure must be honoured in both letter and spirit.

The Rajasthan High Court’s decision decisively answers the question: there can be no “Vivad after Vivad.” Amnesty, once granted and unchallenged, brings an end to the dispute, leaving no scope for revisional or penalty proceedings to survive thereafter.

This article is intended for academic and professional discussion only and does not constitute legal advice.