Tax Counsel Explains Intricacies Of ‘Vivad Se Vishwas Scheme’

Senior Advocate Firoze Andhyarujina delivered a lecture in which he has explained all the nuances and intricacies of the ‘Vivad Se Vishwas Scheme in a detailed manner. The learned counsel has pinpointed the pitfalls in the scheme and also offered valuable suggestions on how they can be resolved so as to attain the laudable objective of the Government of eliminating the backlog of disputed cases

Mr. Firoze Andhyarujina, Senior Advocate, Bombay High Court was invited by the Chamber of Tax Consultants, Mumbai on February 14, 2020 to speak on the intricacies involved in Direct Tax –Vivad Se Vishwas Bill, 2020 (‘Scheme’).

The subject being very important the Learned speaker has analysed various provisions of the Scheme. A gist of his speech along with the video is hosted for the benefit of the readers.

The speaker begins with emphasis on the government’s efforts to widen the tax base with a view to ensure more people pay their fair share of taxes. He has also coined the term ‘directional budget’ as there is a lot of emphasis on agriculture, animal husbandry, climate change, biosphere, infrastructure and education etc. Further he believes, with respect to the amendments provided in the Finance Bill with respect to direct taxes are not inspirational. He welcomes the Scheme as a step in the right direction for reduction in litigation, payment of taxes, improvement in compliance and most importantly to have faith in the government.

In para 126 of the Budget speech proposes a ‘scheme’ a taxpayer would be required to pay only the amount of the disputed taxes and will get complete waiver of interest and penalty provided he pays by 31st March, 2020. Those who avail this scheme after 31st March, 2020 will have to pay some additional amount. The scheme will remain open till 30th June, 2020.The highlights/ issues discussed by the speaker are an under:

1. Scheme vs Bill

For the first time in the history of India an amnesty scheme has been introduced as a Bill which will become an act after passing through the legislature and after receiving the assent of the President. The Vivad Se Vishwas Scheme is being introduced not as a delegated legislation but rather directly by the legislature which shows the intention of the government with respect to the enforceability of the Scheme

2. Pending Appeal

As the scheme applies to cases which are pending with the Commissioner of Income tax (Appeals) (‘CIT(A)’), Income tax Appellate Tribunal (‘ITAT’), High Court or Supreme Court as on the 31st day of January, 2020 (‘cut-off date’).

A question arises with respect to the matters for which order has been received prior to the cut off date, however the assessee is yet to file the appeal and the statutory period for filing of appeal is not yet exhausted.

In the speaker’s opinion, such cases must be covered within the ambit of the Scheme.

3. Delay in filing of Appeal

Reiterating, As the scheme applies to cases which are pending with the CIT(A), ITAT, High Court or Supreme Court as on the 31st day of January, 2020.

A question arises for appeals which were filed before January 31, 2020; however, a delay exists in filing of the appeal as per the respective statutory provisions and the application for condonation of delay has not been disposed of. Can such cases avail the benefit of the Scheme.

According to the speaker, such cases must be covered within the ambit of the Scheme.

4. Set aside proceedings

An issue arises where the matter is remanded back to the Ld.  Assessing Officer (‘AO’) by the Tribunal (mostly) for de novo proceedings, whether the same will be covered within the ambit of the Scheme.

The speaker visualises 3 possibilities:

(a) Where all the issues are remanded back to the Ld. AO: As there is no appeal pending as per section 2 (1) (a) of the proposed Scheme; The same will not be covered within the ambit of the Scheme.

(b) Where all the issues are remanded back to the Ld. CIT(A): As there is an appeal pending against an order of the Ld. AO as per section 2 (1) (a) of the proposed Scheme; The same will be covered within the ambit of the Scheme.

(c) Where part issues are remanded back to the Ld. AO and part to the Ld. CIT: The speaker believes the assessee must be allowed to take up the matters pending with the Ld. AO to the Ld. CIT(A) so as to facilitate him to avail the benefit of the Scheme.

5. Orders pronounced post February 4, 2020.

Reiterating, As the scheme applies to cases which are pending with the CIT(A), ITAT, High Court or Supreme Court as on the 31st day of January, 2020.

A question arises with respect to the matters which were heard before January 31, 2020 and the order has been passed after February 4, 2020. Will such cases be able to take advantage of this Scheme?

According to the speaker, such cases must be covered within the ambit of the Scheme.

However, precaution must be taken to ensure that the CIT(A) does not pass a high pitched assessment after the budget speech.

Further, in the event a Miscellaneous application is filed against an order of the Tribunal, in a case which was heard before the cut off date but order has been passed after the budget speech. It must be understood that a Miscellaneous application revives the appeal which pending before the Tribunal and therefore such cases must be covered within the ambit of the Scheme.

6. Term – ‘appellant’

This point is made to clarify that although the term used is ‘appellant’ and the same has been defined under section 2 (1)(a) of the Scheme. There is a clarification provided under section 4 (3) of the Scheme to include Writ petitions and SLPs

7. Term – ‘appellate forum’

This point is to clarify that appellate forums have been well defined. The proceedings before Settlement Commission and the Authority for Advance Ruling will not form a part of this Scheme.

However, proceedings before the Dispute Resolution Panel should be brought within the ambit of the Scheme as the objections are raised against a draft order of the Ld. AO.

8. Departmental appeal

This point is to clarify that, in cases where there is a departmental appeal, the assesee should evaluate the tax effect of the appeal and that even in the event of a departmental appeal, it is the assessee who would apply for the scheme.

9. Year on year issue

This point is to clarify in the event the tax payer has a year on year issue which is debatable and on that basis the case is selected for scrutiny. Merely because the assessee has chosen to avail the scheme to buy peace of mind, does not amount to admission on the part of the assessee. This is also clarified vide Circulars.

10. Cross Appeals

This point is to clarify in the event the assessee and the department are in appeal. The cross appeals do come within the ambit of the scheme and both the appeal should be treated together as a whole

11. In event assessee is still in loss post assessment

This point is to clarify in the event theassessee is in a loss even post assessment. The assessee will be subject to double jeopardy under the scheme as he will have to make a payment under the scheme and on the other hand will not be allowed to carry forward the losses.

12. Re-opening proceedings

This point is to advise that in reopening proceedings, where the interest component is high and matter does not seem to be strong on merits. It is advisable to take shelter of the Scheme.

13. Simultaneous TDS and Quantum proceedings

An issue would arise where the deduction of TDS is a debatable issue and the proceedings are on going before the CIT (TDS), on account of which the expenses have been disallowed and the same are pending before the CIT(A) or higher authorities. Availing the Scheme would amount to double taxation, in such cases.

14. Doctrine of relation back

Doctrine of Relation Back is a principle that something done today will be treated as if it were done earlier. According to the speaker, this principle needs to be applied while computing interest and penalty as interest accrued during pendency of appeal or penal leviable cannot be taken into account for the purpose of the Scheme

15. Discrimination

The speaker illustrates a small example of a Partnership firm with two equal partners both being assessed at Rs. 150 each. The first partner to buy peace of mind pays the amount of Rs. 150. However, the second one chooses to appeal against it. The second partner will be able to avail the benefit of the Scheme as he has an appeal pending for the purpose of the Scheme. According to the speaker, this amount to discrimination, and unequal treatment.

16. Inconsistency in the provisions of the Scheme

Section 4 (3) of the Scheme uses the term ‘appellate forum which is defined under section 2(1) (b) of the Scheme which includes the Ld. CIT(A) and Hon’ble ITAT and requires the assessee to seek leave of the Court to withdraw the appeal along with a declaration. However, Section 4(2) confers a deeming provision with respect to the withdrawal of the appeal before the CIT(A) and Hon’ble ITAT. Thus there is inconsistency between Section 4(2) and 4(3) of the Scheme.

17. Waiver of rights

With a view to clarify, although the Scheme envisages a provision for waiver of all rights once the assessee chooses the scheme for a particular appeal, nothing precludes the assessee from filing a second application under the scheme in the event the first application is rejected.

18. Prosecution

With a view to clarify, availment of the Scheme for a particular appeal ensures that there is no prosecution launched for the particular year under consideration.

19. Section 9 of the Scheme i.e. non-application in certain cases

The speaker believes that debarring search and seizure cases from the ambit of the Scheme is discriminatory. Further, where there is a break in the block assessment, the appellant is at liberty to avail the scheme for that period which is under assessment.

Further, prosecution matters to also be included within the enhancement of the scheme. The speaker provides clarification with respect to section 9 (c) of the Scheme to explain that the application of the allied laws will apply only to the extent of its implications on the Income tax Act, 1961 and not in absolute sense.

The Speaker welcomes the Scheme and considers it as an opportunity to come clean even in demonetization cases, penny stock cases, reopening cases where interest component would be high. This Scheme will fulfil the aspirations of the government and improve tax collection.

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