Advocate Shashi Ashok Bekal has complimented the CBDT for its proactiveness in clarifying the doubts of taxpayers. However, he has pointed out that certain important doubts have still not been clarified. He has requested the CBDT to take a liberal view regarding these issues and issue a speedy clarification. He has assured that a timely clarification would not only help tax payers and the taxman but will also play a role with respect to achieving the desired results for the administration
The Vivad se Vishwas (VSV) Scheme was announced by Union Finance Minister Nirmala Sitharaman during her budget speech on February 1, 2020. This has been introduced as a way to reduce the pendency of litigation under the Income tax Act, 1961 (Act) with a golden shake hand. Pursuant to that, the administration has come up with amendments and clarifications to ensure smooth implementation of the Scheme. An ordinance was issued extending the last date for beneficial payment, when the lockdown on account of the global pandemic seemed to threaten the success of the Scheme.
The important dates – The Direct tax Vivad Se Vishwas Act, 2020 are as under:
| Sr. No. | Date | Particulars |
| 1. | January 31, 2020 | Specified date as defined under the VSV Act, 2020 |
| 2. | February 1, 2020 | The Union Finance Minister Nirmala Sitharaman during her budget speech on February 1, 2020 (2020) 420 ITR 115 (st) (146) proposed to introduce a scheme at para 126 of the speech. |
| 3. | February 5, 2020 | The Bill is formally presented before the Parliament. |
| 4. | February 12, 2020 | The Cabinet approved certain amendments with a view to widen the scope of the Bill. |
| 5. | March 4, 2020 | Central Board of Direct Taxes (‘CBDT’) vide Circular No. 7 of 2020 provided clarifications on provisions of VSV in the form of FAQs. |
| 6. | March 4, 2020 | VSV Bill, 2020 passed in the Lok Sabha |
| 7. | March 5, 2020 | Press Release: CBDT issues FAQs on Direct Tax Vivad se Vishwas Scheme, 2020. |
| 8. | March 13, 2020 | VSV Bill, 2020 receives a nod from the Rajya Sabha |
| 9. | March 17, 2020 | VSV Bill, 2020 receives a nod from the President |
| 10. | March 17, 2020 | VSV Act, 2020 comes into force |
| 11. | March 18, 2020 | VSV Rules, 2020 are notified |
| 12. | March 24, 2020 | The Finance Ministry vide Taxation and other Laws (Relaxation of Certain Provisions) Ordinance, 2020 extended the last date for beneficial payment under VSVA. |
| 13. | April 22, 2020 | CBDT issues Circular 9 of 2020, thereby Circular 7 of 2020 stands withdrawn. |
| 14. | June 30, 2020 | Cut-off date for beneficial payment under the VSV Act, 2020 extended by Finance Ministry in view of COVID-19. (previously the date was March 31, 2020) |
The Central Board of Direct Taxes (CBDT) vide Circular dated April 22, 2020 bearing no 9 of 2020 has withdrawn the previous Circular dated March 4, 2020 bearing no 7 of 2020. The former Circular was issued prior to the enactment of the Direct tax Vivad Se Vishwas Act, 2020 (VSVA) bearing the subject ‘Clarifications on provisions of the Direct Tax Vivad se Vishwas Bill, 2020’. After introduction of the Bill in Lok Sabha, several queries were received from the stakeholders seeking clarifications in respect of various provisions contained therein. The administration had considered these queries and had decided to clarify the same in form of answers to frequently asked questions (FAQs) vide the earlier Circular.
With the Bill receiving legislative sanction and subsequently, the assent of the President on March 17, 2020; it became imperative to extend the implications of the clarifications to the Act as well, to avoid any undesirable consequence.
Therefore, the Circular No. 7 of 2020 has been reissued as Circular No. 9 of 2020 with the following modifications:
- ‘Vivad se Vishwas’ referred to Direct Tax Vivad se Vishwas Bill, 2020 in Circular No 7 of 2020. However, in this circular it refers to The Direct Tax Vivad Se Vishwas Act, 2020;
- Since clauses of the Bill have now become sections in the ‘Vivad Se Vishwas’, the reference to “clause” in Circular No 7 of 2020 has been replaced with “section”;
- Reference to declaration form in Circular no 7 of 2020 has been replaced with referencing of relevant form, since rules and forms have now been notified; and
- Answer to question no 22 has been modified to reflect the correct intent of the law. It has now been clarified that where only notice for initiation of prosecution has been issued without prosecution being instituted, the assessee is eligible to file declaration under Vivad Se Vishwas. However, where the prosecution has been instituted with respect to an assessment year, the assessec is not eligible to file declaration for that assessment year under Vivad se Vishwas, unless the prosecution is compounded before filing the declaration.
Although there is no substantial change or clarification brought by this new Circular, the proactiveness of the administration during such difficult times deserves to be appreciated. VSVA is a well drafted piece of legislation and considering its vitality on the judiciary and economy, this administration has made sincere efforts to ensure its smooth implementation with amendments and circulars. On account of the lockdown, the Finance Ministry vide Taxation and other Laws (Relaxation of Certain Provisions) Ordinance, 2020 dated March 24, 2020 inter alia extended the date for beneficial payment under VSVA from March 31, 2020 to June 30, 2020.
However, practical challenges which require clarifications are emerging and there is still no clarity on these issues. Some of the key issues are as under:
- As per 2ndProviso to Section 3 of VSVA “Provided further that in a case where an appeal is filed before the Commissioner (Appeals) or objections is filed before the Dispute Resolution Panel by the appellant on any issue on which he has already got a decision in his favour from 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), the amount payable shall be one-half of the amount in the Table above calculated on such issue, in such manner as may be prescribed”
The assessee is not given shelter of a Supreme Court judgement or jurisdictional High Court judgement, which is not of the assessee but having identical facts.
All decisions of the Hon’ble Supreme Court are binding over all lower Courts and Tribunals as per Article 141 of the Constitution of India. Similarly, All the decisions of the Hon’ble High Court are biding over all lower Courts and Tribunals within its jurisdiction as per Article 227 of the Constitution of India. Ipso facto, this proviso can be construed to be ultra vires the Constitution.
- Where an appeal is filed before the ‘specified date’ as per the VSVA along with an application for condonation of delay. The application for condonation of delay has not been allowed yet. In such an instance, will the assessee be allowed to settle the matter under VSVA?
- Where there is an appeal pending before the Commissioner of Income tax- Appeals on the specified date. Can an assessee file a rectification under section 154 of the Act after the specified date to rectify an error apparent from the Order of the Assessing Officer? (Q. 25 of Circular No. 9 of 2020 only envisages a situation where the rectification application is also pending on the ‘specified date’)
- Where the Department has preferred an appeal before the Income tax Appellate Tribunal (ITAT) and the same has been allowed; subsequently the assessee files a miscellaneous application under section 254 of the Act before the Tribunal and the same is pending. Firstly, is the assessee eligible to opt under the VSVA? Secondly, will the matter be considered as an assessee’s appeal or a departmental appeal?
- Similar to 3. Where the Department has preferred an appeal before the Hon’ble High Court and the same has been allowed; subsequently, the assessee files a review petition before the same High Court. Firstly, is the assessee eligible to opt under the VSVA? Secondly, will the matter be considered as an assessee’s appeal or a departmental appeal?
- Whether a taxpayer will be permitted to file second declaration where first declaration gets disqualified due to any reason-say, non-payment of disputed tax under section 5(2) of VSVA, due to financial difficulty?
- Suppose there is patent error in the certificate issued under section 5(1) of VSVA by the Designated Authority (DA) and is later on rectified by DA, whether period of 15 days for making payment shall be reckoned from date of rectified order?
A clarification to these above questions would not only help tax payers and the taxman but will also play a role with respect to the scope of VSVA. A liberal view to these questions would increase the number of declarations by many folds thereby improving the chances of achieving the desired results for the administration. Thus, with more than 5 weeks for the last date for beneficial payment, a circular clarifying these issues would be a WIN-WIN situation for the tax payer and tax man.
Articles for reference:
- Controversies Of Vivad Se Vishwas Scheme And Possible Reasons For Its Failure by CA Shivangi Samdhani
- Vivad Se Vishwas Scheme: The Law, Procedure And Dilemma by Mr. Shashi Ashok Bekal, Advocate
- Vivad Se Vishwas Scheme -Quick Fix version 3 Requiredby Mr Paras Savla and Mr Harsh Shah, Advocates
- Amendments to the Direct Vivad Se Vishwas Bill 2020: Major improvement but minor lacuna remainsby Mr. Shashi Ashok Bekal, Advocate
- Vivad Se Vishwas Scheme : Comparison with KVSS and compilation of Judgementsby Ms. Neelam Jadav, Advocate
- Tax Counsel Explains intricacies of “Vivad Se Vishwas Schemeby Mr. Firoze Andhyarujina, Senior Advocate
- FAQ on the Direct Tax Vivad Se Vishwas Bill, 2020By CAs Ketan Ved, Urvi Mehta & Shraddha Jain
- “Vivad Se Vishwas” Scheme: Is It A Penalizing Or Pardoning Tax Regimen?by CA Nidhi Surana Jain
- Analysis of The Direct Tax Vivad Se Vishwas Bill, 2020by CA Ashish Chadha
- The Direct tax Vivad Se Vishwas Bill, 2020 by Dharan V. Gandhi (2020) The Chamber’s Journal – Feb- P. 87
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A penalty u/s 271D has been imposed and order served upon the assessee on 25.01.2020. The time to file appeal against such order as on specified date is not expired.
As per section 2 ‘disputed tax’ and ‘disputed penalty’ have been defined differently. While disputed tax includes cases where the order is served upon the assessee before the specified date i.e. 31.01.2020 and the time to file appeal against such order is not expired but it is not so in the case of disputed penalty.
Circular issued by CBDT wherein some FAQs are there and Question 20 relates to penalty which states that where there is an appellate order passed by the CIT (A) and the time to file appeal before ITAT is not expired such case is covered.
Relevant definitions and FAQ are reproduced herein below for ready reference.
Section 2(i) “disputed penalty” means the penalty determined in any case under the
provisions of the Income-tax Act, 1961, where—
(i) such penalty is not levied or leviable in respect of disputed income or
disputed tax, as the case may be;
(ii) an appeal has been filed by the appellant in respect of such penalty;
( j) “disputed tax”, in relation to an assessment year or financial year, as the case
may be, means the income-tax, including surcharge and cess (hereafter in this clause
referred to as the amount of tax) payable by the appellant under the provisions of the
Income-tax Act, 1961, as computed hereunder:—
(A) in a case where any appeal, writ petition or special leave petition is
pending before the appellate forum as on the specified date, the amount of tax
that is payable by the appellant if such appeal or writ petition or special leave
petition was to be decided against him;
(B) in a case where an order in an appeal or in writ petition has been passed
by the appellate forum on or before the specified date, and the time for filing
appeal or special leave petition against such order has not expired as on that
date, the amount of tax payable by the appellant after giving effect to the order
(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, the amount of tax payable by the appellant in
accordance with such order;
(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, the amount of tax payable by the appellant if the
Dispute Resolution Panel was to confirm the variation proposed in the
draft order;
(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, the amount of tax payable by the appellant as per the
assessment order to be passed by the Assessing Officer under sub-section (13)
thereof;
(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:
Provided that in a case where Commissioner (Appeals) has issued notice
of enhancement under section 251 of the Income-tax Act on or before the specified
date, the disputed tax shall be increased by the amount of tax pertaining to
issues for which notice of enhancement has been issued:
Provided further that in a case where the dispute in relation to an
assessment year relates to reduction of tax credit under section 115JAA or
section 115D of the Income-tax Act or any loss or depreciation computed
thereunder, the appellant shall have an option either to include the amount of
tax related to such tax credit or loss or depreciation in the amount of disputed
tax, or to carry forward the reduced tax credit or loss or depreciation, in such
manner as may be prescribed.
20. In a case there is no disputed tax. However, there is appeal for
disputed penalty which has been disposed of by CIT (Appeals) on 5th
January 2020. Time to file appeal in ITAT against the order of
Commissioner(Appeals) is still available but the appeal has not yet
been filed. Will such case be eligible to avail the benefit?
Yes, the appellant in this case would also be eligible to avail the benefit
of Vivad se Vishwas. In this case, the terms of availing Vivad se
Vishwas in case of disputed penalty/interest/fee are similar to terms in
case of disputed tax. Thus, if the time to file appeal has not expired as
on specified date, the appellant is eligible to avail benefit of Vivad se
Vishwas. In this case the appellant should indicate in the declaration
form that time limit to file appeal in ITA T has not expired.
Please guide as to whether such case of penalty u/s 271D where no appeal is pending as on 31.01.2020 would qualify for scheme. Thanks
There is one more issue. As per answer to Question No. 35 if there is substantive addition in one year and protective addition in another year and the assessee is eligible to be covered under VsV for the year in which substantive addition was made,then, on settlement of the substantive addition, the AO will pass a rectification order deleting protective addition. No timelines for passing of rectification order by the AO have been provided for in Circular No.9. This may be relevant where the assessee desires to file declaration also for the year in which protective addition was made (for other additions). In other words, if the AO does not pass the rectification order (deleting protective addition) promptly, can the assessee deduct the amount of the said protective addition while filing declaration?