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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The assessee could not opt in for the scheme as prosecution was launched against him. Can legal heir of the Assessee opt in for now when the Assessee has expired and the prosecution so launched against him will now be infructuous
if the appeal is filed with condonation of delay in ITAT and is pending to be admitted as on 31/01/2020, will the assessee still be eligible for availing benefit under this scheme?
The assesse has been issued a show cause notice u/s279(1) of the income tax act asking for an explanation as to why prosecution u/s278B should not be initiated on account of failure to deposit TDs on time .
Section 9 of the Scheme of the VSV act provides for certain exceptions wherein the provisions of the Scheme would not apply. – One of them being in
Cases in which prosecution under the Act has been instituted on or before the date of declaration.
Since the Prosecution has still not been instituted the assesse is trying to opt for relief under the VSV scheme but is unable to do so as the drop down in the form is not facilitating the exercise of this option. Please advice .
An order imposing penalty u/s 221 for non payment of self assessment tax was passed on 31.01.2020 and was served to assessee on the very same day. Whether the assessee is eligible to opt for Vivad se Vishwas ?Kindly guide. Thanks
It is not only that appeal is pending on 31st January 2020 but if the time for filing appeal has not expired on 31st January, such matters are also covered under Vivad se Vishwas scheme. In your case since the order imposing penalty was server on 31st January the time for filing appeal starts from 31st January and therefore in my opinion you are eligible to go for the scheme.
In respect of Disputed Tax it is defined so under section 2((j)(B) that where time to file appeal has not expired such cases are eligible. However in case of Disputed Penalty is defined there is no such mention regarding time to file appeal and it simply states in section 2(i)(ii) “an appeal has been filed by the appellant in respect of such penalty”. Therefore I have a doubt that though the time to file appeal is not expired on 31.01.2020 in respect of penalty but no appeal is pending on 31.01.2020 will be eligible or not. Please gudie. Thanks
I was unable to file appeal on 28 January when I paid 205 of tax and penalty. However my CA helped to file on 18 Feb, 2020.
Can I still use vivad se vishwash scheme?
On January 28, 2020 I paid 20% of tax and penalty to IT department and tried file an appeal on line but was not successful. However my CA filed on February 18, 2020, which is about 18-20 days later than dead line specified in Vivad Se Vishwash scheme.
Is it possible to tak advantage of this scheme. If yes, what do I need to do?
Thanks.
Waiver application for interest u/s 234A, B, & C was rejected by CCIT. The assessee filed the writ against the same order in High Court, which is pending as on today. Whether assessee can avail the benefit of scheme
if the appeal is filed with condonation of delay as on 20/02/2020, will the assessee still be eligible for availing benefit under this scheme?
The appeal is pending as on 31/01/2020, the condition for opting VSV is satisfied.
The Appeal was heard on 21/02/2020, and order passed.
The assessee (as well as his Tax consultant) feels that opting for VSV is better than the result of appeal.
Since the precondition, appeal pending as on 31/01/2020 is satisfied, can the assessee opt for VSV and ignore the result of the appeal.
Ha Ha Ha….. Forum Shopping.
No it is IMPERMISSIBLE.
Appeal is to remain pending at the filing of Form 1 as also 31.1.20
After filing declaration, pending appeal is to be withdrawn.
What will you withdraw, in case VSV is accepted.
Read Question 7 of FAQ (Ist) – there you may find some scope. Although it appears to be loosely drafted.
After announcement of Scheme,ITO proposed to impose penalty u/s 271(1)(c) despite replying that assessee shall avail the VSV scheme. In my opinion action of ITO is bad in law being against the spirit of scheme if he imposes penalty.
If a showcause for implementation of penalty is issued on 19th feb2000 where in the matter is being heard at ITAT with final hearing on 18th March.
If the assesse decides to go for vivad scheme before 18th march & ITO decides to finalise penalty order will the penalty order be valid?
As the scheme says appeals pending on 31st Jan are valid for vivad scheme & if the full tax is paid under the scheme , penalty ( if order issued in Feb end or March) should not be applicable.
An appeal has been filed against the order of AO to CIT(A) in which the AO had put the remark ” Subject to valuation report from DVO. The DVO had already already send the report in FY 2012-13 but the AO has passed the revised order till the date u/s 154 or otherwise. If the assessee opt for the VSV scheme whether AO or CIT can pass fresh order as per DVO report and assessee has to pay the additional or enhanced tax further?
Whether interest u/s 243(b) and (c) will also be deleted in VSV if appeal against order u/s 143(3) has not been filed or if appeal with condonation of delay could be filed to avail the benefit of VSV
As per the present scheme of VSV the eligibility to apply for the scheme is that the appeal of the assessee should be pending before the S.C., H.C., ITAT or CIT (A).as on 31st January, 2020. Though the scheme is silent on this but as per the press notes if the time for filing appeal has not yet expires one can still apply but if the time for filing appeal has expired than the scheme as it stands presently, cannot be availed of. This is my view.
The assessee traded in a penny Stock and declared income on such trading in the return , set off such income against c/f business losses.The AO taxed it as income u/s 68 and disallowed the set off.
THIS IS NOT POSSIBLE BECAUSE ADDITION IS MADE U/S 68 OF IT ACT
Kindly give the specific section of the VSV where the said is not possible.
The scheme is very clear that tax has been determined payable irrespective of issue and either the appeal is pending on 31.01.2020 or time to file appeal is not expired then every such case is eligible.
Whether benefit of the scheme will be available, where the assessee before the Tribunal has agreed to addition at lower rate of N.P. ratio i.e. 5% from 8% (8% Addition by the AO) in case of low NP ratio addition.
IN EARLIER SCHEME OF INDIRECT TAXES RELIEF WAS IN DISPUTED TAX AROUND 50%-BUT NOT SO IN PRESENT SCHEME
Would anticipated disputes as a result of unfavorable advance rulings also be covered under VSV?
Yes if it is pending before the HC. Against a negative view of the AAR a WP ideally should have been filed in the HC which should be pending on 30 January 2020
If the assessee has filed an appeal before the ITAT for the relief not given by CIT (A) and the department has also filed an appeal before the ITAT against the relief given by the CIT(A) to the assessee, what is the disputed tax in this case for which one can go for vivad se vishwal scheme? Is it the tax disputed by the assessee or the tax disputed by department also?
Ideally the full, but let’s wait for the Final Scheme to come out.
IT IS TAX DISPUTED BY THE ASSESSEE.DEPARTMENT ALSO CAN GO INTO VIVAD SCHEME IN MY VIEW
Do you mean to say that in this case the assessee can apply for resolution under the scheme as far as demand disputed by him in appeal before ITAT is concerned but department’s appeal before the ITAT will stand which they can pursue.
Only tax disputed by the assessee. Since department has not filed appeal there is no dispute.
I have said that department has also gone for appeal against the relief given by CIT(A) to the assessee. The whole tax becomes disputed because cross appeals by the assessee and the department. In this case what will be the disputed tax that the assessee will have to pay. Is it the tax on relief given by CIT(A) also which the assessee will be required to pay?
Where an appeal has been pending before CIT – A on different issues is it possible to file Declaration only in respect of the Ground/Issue which tax payer feels may not get decided in his favour and withdraws only the said ground from appeal while making the Declaration under Vivad Bill? For the rest of the Ground(s) appeal is kept alive as the tax payer is confident of getting favourable decision.
Doesn’t seem possible in the current version of the Scheme
If in a given case CIT – A has passed very recently an Appellate Order giving partial relief to the tax payer and for the issue where the relief is not granted the tax payer would like to take the benefit of Vivad Bill. This is the case of reduction of loss on assessment (See Question 8). Whether would it be necessary for the tax payer to file an appeal to ITAT before filing Declaration under Vivad Bill and later on withdraw the appeal to ITAT?
1. In respect of Question No. 7 the department and Vivad Bill should ideally provide for allowing/adjusting partial taxes paid (say 20% of disputed demand while filing appeal to CIT – A) against the Disputed Tax while making Declaration under Vivad Bill. If this is not done the tax payer would have to pay full Disputed Tax under Vivad Bill and apply for refund from the Assessing Officer which would be both time consuming and cumbersome procedure.
Whether upon receipt of Certificate under Vivad Bill demand raised in assessment would get automatically cancelled/deleted?
1. In respect of Question No. 8 news item has appeared Business Standard edition of 19.02.2020 which could be of help to such taxpayers. As per the news report the Revised Bill gives two options. They can pay tax on reduced losses and adjust the entire losses to incomes in future years. Alternatively, they can pay a penalty of 25 per cent and adjust only the reduced losses to their future incomes.