CA Shivangi Samdhani has explained the problems plaguing the Vivad se Vishwas scheme and why it may not be as successful as is hoped by the Government. She has also compiled a few questions which pose challenges in the interpretation and implementation of the scheme. She has answered the questions and suggested workable solutions
Continuing the trend of introducing settlement schemes and inspired by the success of the earlier schemes, Modi Government has come up with yet another scheme Vivad se Vishwas (VsV). The VsV scheme is for settlement of Income Tax disputes and aims on settlement of 4,83,000 cases which are pending before different appellate forums.
The scheme was announced in the Budget Speech on 1st February, 2020. However, could became Act only on 17th March, 2020. The Rules, Forms, E-utilities on the income tax online portal were notified on 18th March, 2020.
However, unlike other schemes this scheme might not be that successful. To understand why, let us analyse few important sections of the VsV Act.
• Section 3 of VsV Act provides two phases of making payment. The beneficial rate shall be available if the amount is paid till 31st March, 2020.
• Section 4(1) provides that for taking advantage of the scheme i.e. for opting in the scheme, taxpayer will have to file Declaration in the prescribed form i.e. Form 1.
• Section 5(1) provides that within a period of 15 days from the date of filing of Declaration, Designated Authority shall determine the amount payable by the declarant and, will accordingly, grant Certificate in prescribed form i.e. Form 3.
• Section 5(2) then provides that the Declarant shall pay the amount as determined by the Designated Authority within 15 days from the date of receipt of certificate.
• Section 11 provides that if any difficulty arises in giving effect to the provisions of the Act, the Central Government may, by order, not inconsistent with the provisions of this Act, remove the difficulty.
Combined reading of the above sections and given the fact that VSV Act and its Rules and entire machinery for applying has been enacted on March 18, 2020 leaving less than 10 working days from the cut-off date of phase one, it can be reasonably concluded that it is now almost impossible for any tax payer to receive a Certificate from the Designated Authority and make the payment in full and final settlement of tax disputes in phase one i.e. before 31st March, 2020.
• Both the taxpayer as well as the government will miss out the benefit of this legislation as there are less than 9 effective days for taking benefit of phase one which is unfair for the taxpayers and further, the intention of the government of fulfilling its dire need of funds is also defeated.
Another reason is Coronavirus disease 2019 (COVOID-19) which has been declared a global pandemic and has create difficulty in arranging for immediate funds to make payment under the VSV Act.
If the Central Government thinks of removing the prejudice by extending the cut-off date of beneficial rate beyond 31st March, 2020 still in my opinion that shall not be possible because of section 11 of the Act. It empowers Central Government to remove difficulties, however, only those which are consistent with the provisions of Act. Where the Act has already defined the cut-off date of phase one, redefining or extending the same, probably, will be inconsistent to the provisions of the Act.
Thus, the major reason for possible failure of the VsV Act would be delayed enactment and notification.
Another reason which shall lead to the failure of the VsV Act would be no interaction. Today because of the extremely fatal coronavirus the taxpayers are not in a position to seek clarification from their consultants or the Designated Authorities. There is a lot of confusion and ambiguity on various issues in the Act. CBDT after seeking representations is yet to resolve the issues and practical challenges which have been raised at both the ends (Taxpayer and Department) by issuing FAQs.
In this article few questions which could pose some challenges in interpretation and implementation of the scheme have been compiled. Also an attempted is made to provide some workable solutions:
1. Question: Assessment Set-Aside by CIT by way of revision order u/s 263
If the Revision Order under section 263 has been passed on 21st Jan, 2020 and the matter has been set-aside to the file of the AO with a specific direction where he has to freshly examine a claim of the assessee like deduction made under section 54F amounting to Rs. X. The order of the AO is pending. Can the assessee avail the benefit of Vivad se Vishwas Scheme?
As per CBDT FAQ 7 (dated 4th March, 2020) the matters, where ITAT Set Aside the issue to the file of AO and the disputed income is quantifiable, will qualify for the Scheme. Before AO there is no appeal still the same will be treated as appeal pending before CIT(A). In the same way the matters which CIT Set Aside to the file of AO u/s 263 and where the disputed income is quantifiable, benefit of Scheme should be extended.
2. Question: Appeal was pending on 31st Jan, 2020 but appellate order had come before filing Declaration
The appeal of the assessee was pending as on 31st January, 2020. The appeal was heard and order was passed on 3rd February, 2020. Can the benefit of Vivad se Vishwas Scheme be availed?
The Scheme requires that the appeal should be pending on 31st January, 2020, therefore, the assessee should be eligible for the scheme. Further, in the earlier scheme Sabka Vikas (Legacy Dispute Resolution) Scheme, 2019 [Circular No. 1074/07/2019-CX, para 2(v)] the decided matters which were pending on the specified date were allowed to be settled.
3. Question: Disputed tax in case of penalty u/s 271AAB on surrendered income
In a search operation taxpayer surrendered income of Rs. 10,00,000 and, offered the surrender income for tax. In the assessment order u/s 153A addition of Rs. 3,00,000 was made. Further, penalty of Rs. 1,00,000 u/s 271AAB on the surrendered income of Rs. 10,00,000 was levied.Assessee is in appeal for both the proceedings i.e. assessment as well as penalty. Will filing of declaration for disputed tax (disputed income Rs. 3,00,000) provide waiver of penalty (Rs. 1,00,000)?
Section 3, clause (b) of the Act provides that penalty which has been levied on the tax arrear determined in the assessment proceedings will only be waived(penalty on addition of Rs. 3,00,000). Whereas penalty of Rs. 1,00,000, was levied on surrendered income and not on tax arrear determined in the assessment proceedings. Therefore, Tax payer will have to file separate Declarations for disputed tax (pay 125% ofRs. 3,00,000) and disputed penalty (pay 25% of Rs. 1,00,000).
4. Question: Appeal not pending on 31st Jan, 2020 but ITAT recalled its order subsequently.
Can benefit of Vivad se Vishwas Scheme be availed if the appeal was not pending as on 31st January, 2020, however, as a consequence of miscellaneous application under section 254 of the Income Tax Act, 1961, ITAT recalled the order on 1st March, 2020.
When any mistake in the earlier order is observed, the matter, as per the provisions of section 254, is recalled by ITAT. The appeal then relates back to the date on which the erroneous order was passed. Thus, the appeal should be considered pending on 31st January, 2020.
5. Question: Pending appeal filed with delay
Can benefit of Vivad se Vishwas Scheme be availed for the appeal which has been filed with delay and was pending as on 31st January, 2020?
As per the decision of Hon’ble Bombay High Court in case of Avantika Pratap Singh Morarji vs CIT (WP No. 1691 of 2005) the appeal filed belatedly shall be construed as pending. Even otherwise since the scheme has come for the benefit of assessee the same should cover such situation.
6. Question: Revival of appeal on failure of depositing amount
If Declarant fails to deposit amount as per Certificate issued will his pending appeal revive? Section 4(6) just talks about revival of proceedings against the assessee. Further, as per section 5(1) the appeal shall be treated deemed withdrawal on issue of determination certificate.
Since the scheme has come for the benefit of assessee all the proceedings including appeals of the assessee should revive.
7. Question: Role of designated authority
What will be the role of Designated Authority? Will they also highlight the mistakes in the Declaration and accordingly grant Certificate.
Designated Authority will grant Certificate only after analysing all the particulars including whether the case is covered by the decision of Higher Authority, is the assessee eligible, etc.
8. Question: Rectification not pending as on 31st January, 2020
As per FAQ 25, if any rectification is pending before AO as on 31st January, 2020 then the same will be given effect while calculating disputed tax. In a case where there is some apparent mistake, however, rectification for the same was not pending as on 31st January, 2020 will the error be corrected? Will filing of rectification now help assessees?
Since the scheme has come for the benefit of assessee all the apparent mistakes shall be rectified and AO will be asked to expedite the disposal of all rectification application. Disputed Tax should be calculated accordingly.
9. Question: Immunity from other laws
In case of appeal for Share Capital or Unsecured Loan will filing declaration under the scheme provide immunity from Benami Law also? Section 5(3) provides that the matters covered by the Order of Designated Authority shall not be reopened in any other proceedings under the Income Tax Act or under any other law for the time being in force.
As per the language, Declarant will get immunity from all the laws for the time being in force including Benami.
10. Question: Subsequent Usage of declared disputed income
Case of the assessee was reopened on the basis of entry in the diary of a Finance Broker. As a result addition of Rs. 50 lakhs was made. The appeal of the assessee is pending before the CIT(A). Can assessee after opting for the scheme and after paying tax in accordance with the said scheme, deposit the said sum of Rs. 50 lakhs in his Bank Account? Whether the scheme restricts the AO to accept the said deposit and not raise any query there?
As per section 5(3) the matters stated and covered by the order shall not be reopened in any other proceeding under the Income-tax Act. Since assessee has settled dispute with respect Rs. 50 lakhs, he should be allowed to use that amount in the manner he thinks fit and any further enquiry shall be inconsistent to the provision of the Act.
11. Question: Entry in the books of account
In respect of some loan, addition was made u/s 68 of Income Tax Act,1961. The appeal is pending before CIT(A). Can assessee after opting for the scheme and after paying tax in accordance with the said scheme, make entries in his books by crediting the said loan in his capital account? Is AO duty bound to accept such credit in assessee’s capital account in the subsequent year as genuine being part of his capital without raising any issue u/s 68 of the Income Tax Act,1961?
Refer answer to question no 10.
12. Question: Two appeals of single assessment order but pending at different forums
Aggrieved by the order of CIT(A), both assessee and department filed appeal before ITAT. ITAT because of some reason did not hear assessee’s appeal, however, heard department’s appeal and allowed the same. Assessee then filed the appeal before High Court. Thus, the assessee for some issues is in appeal before ITAT and for some is in appeal before High Court. Can assessee take benefit of Vivad se Vishwas scheme only for settlement of all the issues which are pending before High Court?
FAQ 11 provides that for one pending appeal all the issues are required to be settled. Further, FAQ 14 provides that picking and choosing issues for settlement of an appeal is not allowed. With respect to one order all the issues must be settled. Both the FAQs makes it clear that picking and choosing in matters of one appeal is not permissible and settlement has to be order wise. Since all the issues of High Court appeal arising out of the order of ITAT are proposed to be settled, assessee should be allowed to take benefit of the scheme for one appeal.
The VSV, Act was enacted with a view to improve people’s faith in the Government. The scheme when announced was considered fantastic and welcoming step of the government towards putting a hold on long running litigations. However, its delayed enactment and global pandemic situation has made its implementation difficult and unsmooth.
The cut-off date of phase one i.e. March 31, 2020 to avail the beneficial rate of the VSV Act, 2020 deserves to be postponed up to May 31, 2020. This is imperative to hold the tax payer’s Vishwasin the Government and it’s policies.
The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. The author does not accept any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non-commercial use) without express written permission.
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