CAs Ketan Ved, Urvi Mehta & Shraddha Jain have answered a few core questions that have arisen in the minds of taxpayers and tax professionals with regard to the interpretation of the Vivad Se Vishwas scheme. The learned authors have drawn on their experience and offered workable solutions to several questions
The Direct Tax Vivad Se Vishwas Bill, 2020
Vivad se Vishwas [VsV or the Scheme] is the buzz word today amongst taxpayers and tax professionals.
In her Budget speech, the Finance Minister referred to this Scheme as one which will help reduce direct tax litigation,akin to the ‘Sabka Vishwas Scheme’ introduced last year for reducing Indirect Taxes litigation and which gave more than decent results.
The ‘Vivad Se Vishwas Bill, 2020’ i.e. ‘No dispute but Trust’Scheme has been introduced for steady settlement of pending income tax cases and as a measure to bring down pending litigation in Direct Taxes.
As per information available in public domain, the Scheme as announced is undergoing some major changes, which may still be open for debate and suggestions prior to finalisation. Further, implementation of the Scheme at both ends (i.e. from the taxpayer and the tax administration ends) may throw up major practical challenges given the 1stcut-off of 31 March 2020 announced earlier.
While, there would be many questions which would arise, and many more which would come up at the later stage, at the time of practically implementing the Scheme,captured hereunder area few of the questions that might pose some challenges both in interpretation and / or in implementing the Scheme. An attempt is also made to suggest some workable solutions to these set of questions.
Q.1 In case, there is an inconsistency in the amount declared as payable by the declarantand amount certified as payable by the ‘designated authority’whether the declarant will be given an opportunity of being heard and whether the amount so certified by the designated authority can be modified?
As of now, the Scheme does not take into account such a scenario where there is discrepancy in the amount declared and the amount certified by the designated authority.
The discrepancy could be eitherdue to a simple arithmetical error or due to an error of calculationmade at either ends, etc. Hence, it would be appropriate that a mechanism be providedfor the Designated Authority to call upon the taxpayer to clarify doubts, if any.
Ideally, the Scheme when finalised and implemented should provide for an eventuality of addressing discrepancies, if any, by providing an opportunity to the assesseeof being heard.
Absence of a mechanism to resolve differences prior to the certification of the amount by the designated authority will be a big dampener to the success of the Scheme itself.
Q.2 If the declaration has been filed by the taxpayer, before March 2020 but the certificate is issued by the ‘designated authority’ in April 2020 after which the amount of disputed tax is to be paid, whether the amount payable will have to be modified?
Section 3 of the VSV provides for the amount payable by the declarant. The relevant extract of the same isas under:
“Subject to the provisions of this Act, where a declarant files under the provisions of this Act on or before the last date, a declaration to the designated authority in accordance with the provisions of section 4 in respect of tax arrear, then, notwithstanding anything contained in the Income-tax Act or any other law for the time being in force, the amount payable by the declarant under this Act shall be as under, namely….”
As is evident from the aforesaid, what is relevant isthat the declaration shall be filed on or before the date,withthe designated authority in accordance with section 4 of the VSV.
Thus, when the declaration in terms of section 4(1) has been filed on or before 31 March 2020 but the same has been certified on or after 01 April 2020, then declarant maynot liable to pay additional tax which is payable from April 2020 onwards.
However, a reading of the table in Section 9 indicates that to be able to avail of the Scheme vis-à-vis the lower amount, this payment has to be made before March. This seems to be a challenge practically as the date of 31 March is fast approaching and hence a clarification in this regard will be imperative.
Q.3 In case the assessee has made payment under the VSV, whether it is open for the Revenue to take a stand that the additions have been accepted by the assessee and hence, the assessee cannot dispute against similar additions, if any, made in the subsequent years?
This is one of the very important questions which may determine the taxpayers’ choice of whether to go in for the Scheme and, if yes, for which year, etc.
Answer to this seems to be clear, simply because the assessee has made payment under the Scheme,inorder to avoid litigation for a particular year, it should not and cannot be construed that the assessee has accepted the departmental position for all times to come.
Each year, as we are aware, is a different year and while the taxpayer may not be able to justify its position in the facts of a particular year,the same may not be true for a subsequent year(s) when necessary evidences may be in its possession.
Accordingly, opting for the Scheme in one of the years, cannot be a death knell for other years, and hence a clarification in this regard should be issued.
This clarification could be on the lines with the clarity given in the low tax effect circulars, which state that withdrawal of appeal by the department in a particular year would not mean that the issue has been accepted by the tax department subject to conditions specified therein.
While this is the best course of action, this may not be foolproof in cases where the orders for subsequent years, refer to and rely on the findings of the earlier years(s) and don’t have any independent finding for later year(s). This factor needs to be borne in mind by the assessee while deciding.
Q.4 In case the Order passed u/s. 5(1) is not acceptable, does the declarant have any recourse to reinitiate the withdrawn appeals?
This seems to be a point of no return, as Section 4(1) of the VSV Bill states that all the appeals pending shall be withdrawn and proof of such withdrawal shall be attached with the declaration form.
There are no provisions which enable taxpayers to reinstate appeals which are withdrawn.
Hence, the decision to opt for the Scheme is like a one-way street making it necessary to consider and weigh all aspects of the matter before opting to get in.
Q.5 Whether in case the matter has been remanded back to the file of Assessing Officer or the Dispute Resolution Panel by the Tribunal, then will the assessee be eligible to opt for the VSV bill?
Since in these cases, there is no pending “appeal” the answer to this question seems to be a “No” in the current version of the Scheme. However, a clarification in this regard vis-à-vis inclusion of such cases in the ambit of the Scheme may be welcomed by the taxpayer.
Q.6 In case the interest on disputed tax is already paid by an applicant,will such interest already paid be refunded to the tax payer, if the taxpayer opts for the VSV?
Since the requirement of the Scheme is to resolve disputes and the only requirement if one were to opt for the Scheme by 31 March 2020, is only payment of ‘disputed taxes’,it appears that any amount paid, over and above the tax, may be refunded.
However, appropriate clarifications in this regard providing for the refund mechanism is also awaited.
Q.7 Whether the credit of partial payments of disputed tax or the refunds adjusted will be granted to the taxpayer?
As of now, no mechanism is prescribed in the Scheme. However, absolute clarity in this respect is required to give surety to taxpayers opting for the Scheme.
Q.8 In case where the amount of income in respect of which appeal has been filed has an effect of reducing losses, whether on payment of disputed taxes losses will be allowed to be carried forward?
As of now, no such mechanism is prescribed in the Scheme. However, complete clarity in this respect is required, to give surety to taxpayers opting for the Scheme.
These are a few issues, which can be identified based on the reading of the Scheme currently. Hopefully, once the Bill becomes an Act and clarifications are issued, implementation thereonwill be smooth without any issues.
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