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Vivad se Vishwas: Settlement of Disputes under Income Tax Laws

Karan Khanchandani 
on 11 August 2020

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Recently, measures have been taken by the government to reduce and settle the pending income tax litigations by introduction of Vivad se Vishwas (VsV) scheme through budget announcement, notifying it as an Act on 17th March, 2020 and thereafter rules regarding the scheme were also notified.

This scheme aims to benefit both, the Government by generating timely revenue and the taxpayers who shall after opting for the scheme shall be relieved from the burden of various dues like interest or penalties depending upon case to case basis.

I. ABOUT THE ACT

The Scheme revolves around discharging the pending cases of Income Tax, pending in various litigation forums and thereby offering an opportunity to the taxpayers to pay disputed tax to the government and be relieved from all other consequences.

The provisions of the Act are applicable to disputes which are pending in the following cases as on specified date i.e., 31st January, 2020 irrespective of whether demand in such cases has been paid or not :

(A) in a case where any appeal, writ petition or special leave petition is pending before the appellate forum i.e. Commissioner (Appeals), Income tax Appellate Tribunal, High Court or Supreme Court.

(B) in a case where an order in an appeal or in writ petition has been passed by the appellate forum, and the time for filing appeal or special leave petition against such order has not expired as on 31/01/2020,

(C) in a case where the order has been passed by the Assessing Officer on or before the specified date, and the time for filing appeal against such order has not expired as on that date

(D) in a case where objection filed by the appellant is pending before the Dispute Resolution Panel under section 144C of the Income-tax Act as on the specified date,

(E) in a case where Dispute Resolution Panel has issued any direction under sub-section (5) of section 144C of the Income-tax Act and the Assessing Officer has not passed the order under sub-section (13) of that section on or before the specified date,

(F) in a case where an application for revision under section 264 of the Income-tax Act is pending as on the specified date, the amount of tax payable by the appellant if such application for revision was not to be accepted.

Further, the pending appeal may be:

  • against disputed tax, interest or penalty in relation to an assessment or reassessment order or,
  • against disputed interest, disputed penalties where there is no disputed tax or,
  • against the tax determined on defaults in respect of tax deducted at source or tax collected at source.
Vivad se Vishwas: Settlement of Disputes under Income Tax Laws

The amount payable by the declarant as per Section 3 under this Act shall be as under:

S.No.

Nature of tax arrear

Amount payable under this Act if declaration made till 31/03/2020 (Extended to 31/12/2020 due to COVID-19 lockdown)

Amount payable under this Act if declaration made after 31/03/2020 (Extended to 31/12/2020 due to COVID-19 lockdown)

1

Aggregate amount of disputed tax, interest, and penalty.

Amount of disputed tax.

110% of Disputed Tax. Penalty and interest would be waived off.

(However when 10% of disputed tax exceeds the aggregate of interest and penalty, the excess shall be ignored)

2

Aggregate amount of disputed tax, interest, and penalty determined in search cases u/s 132 or 132A of Income Tax Act.

125% of the disputed tax.

(However when 25% of disputed tax exceeds the aggregate of interest and penalty, the excess shall be ignored)

135% of the disputed tax.

(However when 35% of disputed tax exceeds the aggregate of interest and penalty, the excess shall be ignored)

3

Where a tax arrears relates to disputed interest or disputed penalty or disputed fee.

25% of disputed interest, penalty or fee.

Balance 75% would be waived of

30% of disputed interest, penalty or fee.

Balance 70% would be waived off.

Note 1: Restriction of amount payable to 50% of the above in the following cases (Proviso to Section 3 of the Act):

  1. Appeal or writ petition or special leave petition is filed by the Income Tax Authority on any issue before the appellate forum.
  2. Issue is a covered matter in subsequent year :

Appeal filed before the Commissioner (Appeals) or objections filed before the Dispute Resolution Panel by the appellant on which decision was given in his favor by the Income Tax Appellate Tribunal (where the decision on such issue is not reversed by the High Court or the Supreme Court) or the High Court (where the decision on such issue is not reversed by the Supreme Court).

Appeal is filed by the appellant on any issue before the Income Tax Appellate Tribunal on which decision was given in his favor by the High Court (where the decision on such issue is not reversed by the Supreme Court).

Note 2: Refund of excess tax paid by taxpayer over the amount payable under the Scheme shall be granted back to the assessee.

II. IMPORTANT CONCEPTS UNDER VIVAD SE VISHWAS

i. Meaning of “Disputed Tax”: [Section 2(1)(j)]

Cases

Disputed Tax:

Appeals pending as on 31.01.2020

Amount of Tax payable if such appeal was to be decided in favor of revenue

Where an order in appeal has been passed on or before 31.01.2020, and time for filing further appeal has not expired as on 31.01.2020

Amount of tax payable after giving effect to the order so passed

Where an order in original has been passed by Assessing officer on or before 31.01.2020, and time for filing appeal has not expired as on 31.01.2020

Amount of tax payable in accordance with such order

Where objection filed is pending before Dispute Resolution Panel (DRP) u/s 144C as on 31.01.2020

Amount of tax payable if the DRP was to confirm the variations proposed in the draft order.

Where DRP has issued any direction u/s 144C(5) and the AO has not passed final order as on 31.01.2020.

Amount of tax payable as per the assessment order to be passed by the Assessing Officer

Where an application for revision under section 264 is pending as on the 31.01.2020

Amount of tax payable if such application for revision was not to be accepted

** Amount of Tax Payable= Income Tax + Surcharge + Cess

ii. Where Commissioner (Appeals) has issued notice of enhancement under section 251 of the Income-tax Act on or before 31/01/2020, the disputed tax shall be increased by the amount of such enhancement.

iii. In a case where the dispute relates to reduction of MAT/ AMT Credit or reduction of any loss or depreciation, the appellant shall have an option either to include the amount of tax related to such MAT/AMT credit or loss or depreciation in the amount of disputed tax, or to carry forward the reduced tax credit or loss or depreciation, in prescribed manner.

III. NON APPLICABILITY OF VIVAD-SE-VISHWAS ACT, 2020 [SECTION 9]

i. in respect of tax arrears,

  1. relating to an assessment year in respect of which an assessment has been made [143(3)/144/153A/153C] on the basis of search initiated u/s 132/132A, if the amount of disputed tax exceeds Rs. 5 Crore;
  2. relating to an assessment year in respect of which prosecution has been instituted on or before the date of filing of declaration;
  3. relating to any undisclosed income from a source located outside India or undisclosed asset located outside India;
  4. relating to an assessment or reassessment made on the basis of information received under an agreement referred to in section 90 or section 90A of the Income-tax Act,

ii. To any person on whom prosecution for any offence punishable under Unlawful Activities (Prevention) Act, 1967, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Prevention of Corruption Act, 1988, the Prevention of Money Laundering Act, 2002, the Prohibition of Benami Property Transactions Act, 1988 has been instituted on or before the filing of the declaration or such person has been convicted of any such offence punishable under any of those Acts;

iii. in case of any person in respect of whom prosecution for any offence punishable under the provisions of the Indian Penal Code or some other acts or for the purpose of enforcement of any civil liability has been instituted on or before the filing of the declaration or such person has been convicted of any such offence punishable under any of those Acts; etc.

iv. to any person notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 on or before the filing of declaration.

IV. PROCEDURAL CONCEPTS UNDER VIVAD SE VISHWAS

  1. The declaration under this scheme shall be filed by the declarant before the designated authority in Form-1 to the designated authority i.e., officer not below the rank of a CIT of Income-tax notified by the PCIT for such purposes.
  1. The declarant shall also furnish an undertaking in Form-2 for waiving his right, to seek or pursue any remedy or any claim in relation to the tax arrears which may otherwise be available to him.
  1. The Form-1 and Form-2 referred to in rule 3 and Form-4 referred to in rule 5 shall be furnished electronically under digital signature, if the return of income is required to be furnished under digital signature and in other cases through electronic verification code.
  1. The designated authority shall grant a certificate to the declarant in Form-3.
  1. The declarant will have to pay the amount so determined within 15 days of receipt of such certificate and declarant shall intimate details of such payment to the designated authority in the Form-4, along with proof of withdrawal of appeal, objection, application, writ petition, special leave petition.
  1. Thereupon the designated authority shall pass an order under Form-5 stating that the declarant has paid the amount, payable as per the certificate granted.

V. CLARIFICATIONS ISSUED BY CBDT

  1. Vivad-se-Vishwas settlement is not available for the disputes pending before Authority of Advance Ruling (AAR). However, where order has been passed by AAR and writ against such order is pending in High Court, the appellant would be eligible to apply for the Vivad se Vishwas settlement.
  1. If assessment has been set aside by appellate authority to assessing officer for giving proper opportunity or to carry out fresh examination with specific direction, the assessee would be eligible to avail the Vivad se Vishwas scheme.
  1. If there is reduction or increase in the income and tax liability as a result of rectification, then the disputed tax in such cases would be calculated after giving effect to the rectification order passed.
  1. Where a writ has been filed against notice issued under section 148, then assessee would not be eligible for Vivad se Vishwas as there is no determination of income against the said notice.

VI. CERTAIN ISSUES & CLARIFICATIONS UNDER THE ACT

i. Consider the case where the appellate order is in favor of the assessee, and assessee is of the view that department may go in appeal after 31st January 2020, can the assessee take shelter of this Act?

Yes, in such cases, appeal shall be assumed to be filed by the department and the first proviso to section 3 shall come into picture. Hence, the amount payable shall be one-half of the amount payable under the act.

For instance, Addition to the returned income and the tax payable, as assessed, by AO amounted to be INR 1000 and INR 300 respectively. The said addition is reversed by the CIT(A) as on 30 January 2020. Further, the assessee contemplates that revenue shall file an appeal after 31st January for the said order of CIT(A).

The recourse available with the assessee is to pay an amount of INR 150 (50% of tax payable) under the Act and the proceedings shall abate.

ii. What options are available where dispute relates to reduction of losses or unabsorbed depreciation?

  • Option 1 - Pay notional tax on amount by which the loss is reduced and carry forward the full amount of loss ignoring such reduction.
  • Option 2 - No payment to be made but the carry forward loss is restricted to the loss so assessed.
 

For instance, refer the following situation:

Particulars

Amount

Income/(Loss) as per ROI

(1000)

Assessed income/(loss) as per AO

(600)

Addition

400

If taxpayer opts for VsV

Option 1

Option 2

Notional tax payable on the amount by which loss is reduced

120

(400*30%)

-

Amount payable under VsV Act

240

-

Loss carry forward to year 2

1000

600

 

*Note: It is pertinent to note that if an assessee opts for option 2 i.e., reduced loss to be carried forward, there exist chances, that the losses have already been utilized in the subsequent year relevant to Assessment year. Therefore, option 1 is good-to-go in cases where the losses have been set off in subsequent years.

iii. Where an appellant desires to settle appeal for concealment of penalty pending before CIT(A), while continuing to litigate quantum appeal that has travelled to higher appellate forum. Since both of these are separate appeals, whether the appellant can settle one to the exclusion of others?

If both the appeals i.e., quantum appeal and penalty appeal are pending, the declarant is required to pay disputed tax only. Further, an appellant cannot apply for settlement of penalty appeal only, when appeal on disputed tax linked to such penalty is pending.

iv. Whether appeals against penalty on late furnishing of TDS/TCS return (Section 234E) & Income Tax Return (Section 234F) are covered?

If appeal is pending against the disputed fee, the appellant is eligible for declaration and shall be liable to pay 25% or 35% of the disputed fee, as the case may be. However, if fee imposed pertains to a year in which there is disputed tax, the settlement of disputed tax shall not settle the disputed fee, assessee has to settle it separately by paying 25% or 35% of the disputed fee, as the case may be.


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