Re: Exclusion from Vivad se Vishwas

Before asking the question, let me thank all the expert here as You all are doing great job.

My questions are as under:

1) one of the condition for exclusion as per section 9(a)(iii) is “relating to any undisclosed income from a source located outside
India or undisclosed asset located outside India”

Now if a private limited company has received share capital from a party based in country out side India. Such share capital has been added u/s 68 of the Act as income of the assessee vide order passed u/s 143(3). Can department say that such share capital is undisclosed income of the assessee from the country outside India; hence, not eligible for the VSV scheme.

2) For exclusion from the sheme there are two instances given for prosecution “instituted” and prosecution “Initiated” which are reproduced below:

Section 9(a)(ii): “relating to an assessment year in respect of which prosecution has
been instituted on or before the date of filing of declaration;”

Section 9(d): (d) to any person in respect of whom prosecution has been initiated by an
Income-tax authority for any offence punishable under the provisions of the Indian
Penal Code or for the purpose of enforcement of any civil liability under any law for the
time being in force, on or before the filing of the declaration or such person has been convicted of any such offence consequent to the prosecution initiated by an Incometax authority;”

How to interpret both these clauses harmoniously, Kindly enlighten us.

Thank You So much

Thank you very much for very good gesture shown by you. The purpose is to share the knowledge , and if it benefits at lease few professionals we will be very happy . Thank you once again.  

As per Section 2(2) of VsV Act, the words and expressions used in VsV Act and not defined but defined in the Income-tax Act shall have the meanings respectively assigned to them as per Income-tax Act. 

The term “Undisclosed income” is not defined in VsV Act.  However, Section 271AAA, 271AAB defined undisclosed income as under; 

(a) "undisclosed income" means—

(i) any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132, which has—

(A) not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year; or

(B) otherwise not been disclosed to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the date of search; or

(ii) any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted;

 

In the present case share capital must have been reflected in the books of accounts. Section 68 talks about unexplained credits in the books of accounts, which cannot to equated to undisclosed income. Hence your case may be eligible for the VsV Scheme. 

Just a point to ponder that the exclusion as mentioned in 9(a)(iii) is contrary to Black Money Act. Because such undisclosed income has to be taxed under the Black Money Act and not under Income Tax Act. The irony is that VsV only deals with tax arrears under Income -tax Act. 

 

Answer 2 : Prosecution 

As rightly pointed out Section 9(a)(ii) and 9(c) uses the word ‘instituted’ where as section 9(d) uses the word ‘initiated’. It may be noted that in the VSV Bill Section 9(c) and 9(d) were combined wherein it used the word ‘instituted’. The Circular no. 7 of 2020 dt. 4^th March, 2020 created a confusion at FAQ no. 22.  The revised circular no.9 of 2020 dt. 22 April, 2020 tried to resolve the issue. The FAQ and the answer reads as under; 

“Faq. 22 : In the case of an assessee prosecution has been instituted and is pending in court. Is assessee eligible for the Vivad se Vishwas? Further, where the prosecution has not been instituted but the notice has been issued, whether the assessee is eligible for Vivad se Vishwas? 

Ans. :  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 assessee is not eligible to file declaration for that assessment year under Vivad se Vishwas, unless the prosecution is compounded before filing the declaration.”

It is clear that the words ‘instituted’ and ‘initiated’ have been used differently, and cases where prosecution is instituted is out of preview of VSV. Initiation is of the process for prosecution. The AO cannot himself prosecute a person and he has to institute a criminal complaint with the Magistrate. Hence till the time a Tax Authority files a criminal complaint, a tax arrear can be considered under VSV and not thereafter.   

Though it appears to be a sheer drafting error while separating 9(d), to harmoniously interpret the sections of the Act, it can be said that section 9(d) talks about offences under Indian Penal Code and initiation in such cases can only start with filing of criminal complaint. 

 

  

 

 

---