ITAT Quashes PCIT's Revision Order, Holds VSV Scheme Settlement Cannot Be Disturbed Through Section 263:

The ITAT Chandigarh Bench has quashed a revisionary order passed by the Pr. Commissioner of Income Tax, Chandigarh-1 (Pr. CIT) under Section 263 of the Income Tax Act, holding that an assessment settled under the Vivad Se Vishwas (VSV) Scheme cannot subsequently be reopened through revision proceedings. The said order had revised the assessment framed by the Assessing Officer (AO) under 143(3) r.w.s. 144B of the Act.

Shri Narinder Singh (assessee) is a proprietor of a firm named M/s Ankit Alloys, engaged in the business of iron and steel trading. The Assessing Officer (AO) had noted that during the Assessment Year 2021-22, the assessee had declared an aggregate income amounting to Rs 4.98 lakh; however, when he was sent notices under Section 142(1) of the Income Tax Act during the course of the assessment proceedings, he failed to furnish any response to the notices, which led the Assessing Officer (AO) to doubt the purchases.

It was observed that the net profit rate was 0.24% of turnover, as declared by the assessee. This was considered low. It was further noted that the assessee had not furnished all the relevant documents in support of the purchases made by him.

Considering the aforementioned findings, the AO concluded to make an addition amounting to Rs 838.46 lakh, treating the purchases in question as bogus. Although the AO initially proposed an addition of Rs 838.46 lakh towards bogus purchases, he ultimately made an addition of Rs 10.26 lakh by estimating profit at 0.5% of the assessee’s turnover under Section 144 of the Act.

Later, the Principal Commissioner of Income Tax (Pr. CIT) invoked the provisions of Section 263 and treated the entire turnover of Rs 20.52 crore as unexplained income under Section 69A read with Section 115BBE on the assessee's failure to establish the genuineness of the purchases. Further, the AO was instructed to conduct a fresh assessment.

Before the ITAT, the assessee submitted that the dispute had already been settled under the VSV Scheme. He had filed Form 1 on December 20, 2024, and paid the required taxes before the Section 263 show-cause notice was issued on December 23, 2024. Form 4 confirming full and final settlement of tax arrears was subsequently issued on June 24, 2025.

The ITAT held that once the dispute was conclusively settled under the VSV Scheme, the assessment could not subsequently be disturbed through Section 263 proceedings. To announce the final decision, the tribunal relied on earlier decisions of the Gujarat High Court in the case of MRs Swatiben Biharilal Parekh and the Madras High Court in the case of Gopalakrishnan Rajkumar vs. Pr. CIT. The Gujarat High Court in its ruling had held that "opting VSV Scheme and finalizing thereof is nothing but closure of disputes in respect of tax arrears which could not subsequently reopened by issuing notice u/s 263 for revising assessment order."

Consequently, the Tribunal quashed the revisionary order and restored the original assessment. The appeal was accordingly allowed.