In recent time, Government has taken several measures to reduce tax litigations. In Finance Act (No. 2) of 2019, a dispute resolution cum amnesty scheme called “the Sabka Vishwas Legacy Dispute Resolution Scheme, 2019” has been introduced for resolution and settlement of legacy cases of Central Excise and Service Tax, which was operated till 15th January 2020.
In line with the scheme so introduced for settlement of Indirect tax disputes, in Union Budget 2020, a similar scheme to settle disputes in Direct Taxes was introduced and accordingly “The Direct Tax Vivad Se Vishwas Bill, 2020”, has been passed by Lok Sabha on 4th March 2020.
(II) Brief about the Scheme:
√ The provisions of the Bill shall be applicable to appeals filed by taxpayers or the Government, which are pending with any appellate form i.e. Commissioner (Appeals), Income tax Appellate Tribunal, High Court or Supreme Court as on 31st January, 2020 irrespective of whether demand in such cases is pending or has been paid.
√ The pending appeal may be
√ In appeals related to disputed tax, the declarant will have to pay 100% of the disputed tax if the payment is made before the 31st March, 2020 and for the payments made after the 31st March, 2020, the amount payable shall be 110% of disputed tax.
√ In appeals related to disputed penalty or disputed interest, the amount payable is 25% of the disputed penalty or disputed interest, as the case may be, if the payment is made on or before the 31st March, 2020. If payment is made after 31st March, 2020, the amount payable shall be increased to 30% of the disputed penalty or disputed interest.
√ In case of Search cases (where amount disputed tax is up to Rs. 5 Crore) involving dispute relating to tax, interest, penalty, etc., the amount payable is 125% or 135% of the disputed tax depending of the date of payment.
√ Amount payable under the scheme will be restricted to 50% in case of departmental appeal or in case where department has lost an issue.
Thus the two main components of the Scheme are dispute resolution and amnesty.
√ The dispute resolution component is for liquidating the pending cases of Direct Taxes, which are pending in litigation at various forums.
√ The amnesty component of the Scheme offers an opportunity to the taxpayers to pay the disputed tax and be free from any other consequence under the law. There is also a complete Immunity from initiation of proceedings in respect of offence in respect of tax arrears.
(III) Eligibility Criteria for declaration under the Scheme:
Following person are eligible to make a declaration under this Scheme:
√ a person in whose case an appeal or a writ petition or SLP has been filed either by him or by the income-tax authority or by both, before an appellate forum and such appeal or petition is pending as on 31.01.2020.
√ a person in whose case an order has been passed on or before 31.01.2020
and, time for filing any appeal or SLP against such order has not expired as on 31.01.2020.
√ a person who has filed his objections before the Dispute Resolution Panel (DRP) u/s 144C and the DRP has not issued any direction as on 31.01.2020
√ a person in whose case the DRP has issued direction u/s 144C(5) and the AO has not passed any order u/s 144(13) as on 31.01.2020
√ a person who has filed an application for revision u/s 264 and such application is pending as on 31.01.2020.
However the provisions of this scheme shall not apply in following cases:—
(i) in respect of tax arrear,—
a. relating to an assessment year in respect of which an assessment has been made on the basis of search initiated u/s 132/132A, if the amount of disputed tax exceeds Rs. 5 Crore;
b. relating to an assessment year in respect of which prosecution has been instituted on or before the date of filing of declaration;
c. relating to any undisclosed income from a source located outside India or undisclosed asset located outside India;
d. relating to an assessment or reassessment made on the basis of information received under an agreement referred to in section 90 or section 90A of the Income-tax Act,
(ii) in case of any person in respect of whom an order of detention has been made under the provisions of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 on or before the filing of declaration
(iii) in case of any person in respect of whom prosecution for any offence punishable under the provisions of the Indian Penal Code or some other acts or for the purpose of enforcement of any civil liability has been instituted on or before the filing of the declaration or such person has been convicted of any such offence punishable under any of those Acts; etc.
(IV) Amount payable by the declarant:
|Nature of tax arrear relates to-||Amount Payable
(If declaration made till 31.03.2020)
(If declaration made on or after 01.04.2020)
|Search cases involving dispute relating to tax, interest, penalty, etc.||125% of Disputed Tax.
Penalty and interest would be waived of.
(However when 25% of disputed tax exceeds the aggregate of interest and penalty, the excess shall be ignored)
|135% of Disputed Tax.
Penalty and interest would be waived of.
(However when 35% of disputed tax exceeds the aggregate of interest and penalty, the excess shall be ignored)
|Other than search cases where dispute involves tax, interest, penalty, etc.||100% of Disputed Tax.
Penalty and interest would be waived of.
|110% of Disputed Tax.
Penalty and interest would be waived of
(However when 10% of disputed tax exceeds the aggregate of interest and penalty, the excess shall be ignored)
|Where dispute relates only to interest, penalty or levy||25% of disputed interest, penalty or fee.
Balance 75% would be waived of
|30% of disputed interest, penalty or fee.
Balance 70% would be waived of
Note (1): Amount payable restricted to 50% in case of departmental appeal:
where an appeal or writ petition or SLP is filed by the department (i.e. by income-tax authority) on any issue before the appellate forum, the amount payable shall be 50% of the amount in the above Table.
Note (2): Amount payable restricted to 50% in case or cases where department has lost an issue:
Note (3): Refund of excess tax paid by taxpayer over the amount payable under the Scheme is allowed.
Meaning of “Disputed Tax”:
|Cases||Disputed Tax means:|
|In case of appeals pending as on 31.01.2020||Amount of Tax payable if such appeal was to be decided in favor of revenue|
|In case where an order in appeal has been passed on or before 31.01.2020, and time for filing further appeal has not expired as on 31.01.2020||Amount of tax payable after giving effect to the order so passed|
|In case where an order in original has been passed by Assessing officer on or before 31.01.2020, and time for filing appeal has not expired as on 31.01.2020||Amount of tax payable in accordance with such order|
|In case where objection filed is pending before Dispute Resolution Panel (DRP) u/s 144C as on 31.01.2020||Amount of tax payable if the DRP was to confirm the variations proposed in the draft order.|
|in case where DRP has issued any direction u/s 144C(5) and the AO has not passed final order as on 31.01.2020||Amount of tax payable as per the assessment order to be passed by the Assessing Officer|
|in a case where an application for revision under section 264 is pending as on the 31.01.2020||Amount of tax payable if such application for revision was not to be accepted|
Note (1): Amount of Tax Payable= Income Tax + Surcharge + Cess
Note (2): In a case where the dispute relates to reduction of MAT/ AMT Credit or reduction of any loss or depreciation, the appellant shall have an option either to include the amount of tax related to such MAT/AMT credit or loss or depreciation in the amount of disputed tax, or to carry forward the reduced tax credit or loss or depreciation, in prescribed manner.
(V) Filing of declaration, Time and manner of payment:
√ The declaration under this scheme shall be filed by the declarant before the designated authority in prescribed form and manner.
√ The designated authority shall, within a period of 15 days from the date of receipt of the declaration, by order, determine the amount payable by the declarant under the scheme and grant a certificate to the declarant containing particulars of the tax arrear and the amount payable after such determination, in prescribed form.
√ The declarant will have to pay the amount so determined within 15 days of receipt of such certificate
√ Thereafter the declarant shall intimate the details of such payment to the designated authority in the prescribed form
√ Thereupon the designated authority shall pass an order stating that the declarant has paid the amount.
(VI) Some Important clarifications as issued by CBDT:
(1) If assessment has been set aside by appellate authority to assessing officer for giving proper opportunity or to carry out fresh examination with specific direction, the assesse would be eligible to avail the Vivad se Vishwas Scheme.
In such a case, disputed tax shall be the tax which would have been payable had the addition in respect of which the order was set aside was to repeated.
(2) If there is reduction or increase in the income and tax liability as a result of rectification, then the disputed tax in such cases would be calculated after giving effect to the rectification order passed, if any.
(3) Making a declaration under this scheme shall not amount to conceding the tax position and it shall not be lawful for the income tax authority or the assesse to contend that the assesse or income tax authority, as the case may be, has acquiesced in the decision on the disputed issue by settling the dispute.
Over the years, the pendency of appeals filed by taxpayers as well as Government has increased due to the fact that the number of appeals that are filed is much higher than the number of appeals that are disposed. Tax disputes consume copious amount of time, energy and resources both on the part of the Government as well as taxpayers. Thus an urgent need was felt to provide for resolution of pending tax disputes.
This scheme is a bold endeavor to unload the baggage relating to the pending cases of Direct Taxes and to allow the taxpayers to deploy the time, energy and resources saved by opting for such dispute resolution towards their business activities.
Thus after the huge success of “Sabka Vishwas Scheme” for settlement of disputes in indirect tax law, the “Direct Tax Vivad se Vishwas Scheme, 2020” has the potential to liquidate the huge outstanding litigation and free the taxpayers from the burden of litigation under the direct tax law.
(i) THE DIRECT TAX VIVAD SE VISHWAS BILL, 2020 as passed by Loksabha on 4th March 2020.
(ii) Circular No. 7/2020 dated 4th March 2020 as issued by CBDT
(Disclaimer: This write up is based on the understanding and interpretation of authors and the same is not intended to be a professional advice.)
[The author is a Practicing Chartered Accountant and can also be reached at [email protected]]
(Republished with Amendments)