Advocates Paras Savla and Harsh Shah have conducted a critical analysis of CBDT’s Circular No. 7 dated 4th March, 2020 which answers 55 FAQs on the Vivad Se Vishwas Scheme. The learned authors have pointed out that there are a number of other controversial issues that require urgent clarification from the CBDT. They have identified these issues and also offered their own interpretation as to what the answers should be
In India, financial year begins from 1st April and ends on 31st March. The year ending saddles, the Chartered Accountants fraternity with lots of work, which in itself keeps them under great pressure. Added to this, is the Vivad se Vishwas scheme, which again sets 31st March as the due date to get a beneficial rate for settling disputes. Be it as it may, though the bill was introduced on 5th February, the amended bill was placed and passed only on 4th March, by Lok Sabha.
Simultaneously the department has came up with a long list of clarifications vide circular No. 7 of 2020 which answers 55 FAQs. One more circular is expected which would clarify further doubts.
In this article we have made an attempt to bring out issues which need further clarifications. They are as under;
1. The bill suggests payment of 100%if paid before 31st March and 110 %, post 31st March. (considering a taxpayer wants to settle disputed tax, interest and penalty which is pending). However it would be difficult for taxpayers to arrange for funds. If the taxpayer pays part amount before 31st March and part in the month of April, what rate would be applicable and how would it be computed?
2. Assuming that in question no. 1, if the taxpayer makes part payment in March and thereafter is unable to pay the balance amount for the reason of say bankruptcy. In such a scenario there would be a violation of the condition and it would be presumed that declaration was never made as per section 4(6). Whether refund would be available in spite of section 7?In case balance payment is made after 31st March 2020, will the enhanced rate be applicable only to the balance amount, or the entire amount?
3. The term ‘appellant’ is defined in section 2(1)(a). Sub-clause (ii) reads as under;
(ii) a person in whose case an order has been passed by the Assessing Officer, or an order has been passed by the Commissioner (Appeals) or the Income Tax Appellate Tribunal in an appeal, or by the High Court in a writ petition, on or before the specified date, and the time for filing any appeal or special leave petition against such order by that person has not expired as on that date;
High Court appeals have been missed in this clause. This seems a drafting error which needs to be rectified.
4. The term ‘disputed tax’ is defined in section 2(1)(j). Sub-clause (B) reads as under;
(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 so passed;
What if the order giving effect is not passed? Designated authorities should not treat such cases as remand with specific directions and compute the disputed tax, by repeating the original order.
5. There would be cases pertaining to cash deposits, bogus purchases, bogus share capital, penny stock? Can a declarant capitalise the disputed income in the books of account, post acceptance under Vivad se vishwas. If yes, whether any immunity would be provided?
6. What if the taxpayer make a declaration and basis that information, action is taken under Companies Law, Benami law, or PMLA law, etc.? Whether any immunity would be granted for other corresponding laws also.
7. In FAQ No. 7 dealing with set-aside situation, it excludes cases where assessment is cancelled with a direction that assessment is to be framed de-novo. Such a directions cannot be given by the CIT(A), but only by the ITAT / HC / SC. In such cases where assessment is cancelled with a direction that assessment is to be framed de-novo, the AO cannot make an addition of an amount more than the original assessment. Reliance is placed on Supreme decision in the case of MCORP Global (P) Ltd., Vs. Commissioner of Income Tax reported in (2009) 309 ITR 0434. Considering that the quantum of dispute cannot increase even in the second round, even set-aside with de-novo directions may be allowed to be settled in VsV.
8. CBDT is expected to prescribes the mechanism for set-off and carry forward of loss. It should be ensured that they factor 50% in case of department appeals. Otherwise, it would be disadvantageous for the taxpayers giving up losses, as they will have to forego complete losses instead of half.
9. FAQ 25 – question is on a situation where rectification is pending – however the answer is based on a situation where rectification order is passed by the AO. What happens when rectification order is pending and no order is passed by the AO.
10. There may be cases where the taxpayers have rectification issues pending in appeals. No separate rectification is filed with the AO, considering that the issue is taken up before the appellate forum. Whether in such cases the taxpayer would be asked to pay 100 % on the said issues.
10. At FAQ 40 it has been mentioned that only one declaration for one assessment year and for different assessment years separate declarations have to be filed. However there could be multiple orders for single assessment year. Say order u/s 143(3), order u/s 154, order u/s 201, which included assessee and department appeals at higher forums. Taxpayer may want to settle few appeals only. This aspect may be clarified further?
11. In case of department appeals, where all issues are covered by SC not in Taxpayer’s case but involves an identical issue, can one opt for VsV to close litigation? Will the department agree to close litigation without any payment in such cases?
12. In situations where CIT(A)/ITAT/HC have decided an issue in the taxpayers own case in its favor, following a Supreme Court decision, will the designated authority treat it as an issue covered by the Supreme Court and ignore it for the purpose of computation of disputed taxes?
13. FAQ 22 says that if notice for initiation of prosecution has been issued, the taxpayer has a choice to compound the offence and opt for Vivad se Vishwas. However section 9(a)(ii) excludes only cases relating to assessment years where prosecution has been instituted on or before the date of filing of declaration. There seems some confusion on notice for initiation of prosecution vs prosecution being instituted. This aspect may be clarified.
14. There could be a situation wherein the appeal has been dismissed by the Tribunal for non-appearance. If the Taxpayer files a miscellaneous application before the Tribunal for restoring the matter and hearing on merits, can the Taxpayer avail VsV by considering the MA as an appeal pending before the Tribunal on the ground that the MA is in respect of same appeal?
15. Similarly if the Tribunal has dismissed an appeal and a miscellaneous application is filed to rectify some mistakes apparent on record, can it be said that the appeal is pending?
The above may not be an exhaustive list of queries and there may be many other issues arising case to case basis. Readers may add their queries in the comments column, which may help us to make a representation to the Government in order to make this Scheme a success.
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