Brief Analysis of Direct Tax Vivad se Vishwas Act, 2020

The Story so far

1. Feb 01, 2020, Finance Minister speaks about the introduction of the scheme

2. On Feb 05, 2020, the Direct Tax Vivad se Vishwas Bill is introduced in the Parliament

3. Various representations received regarding the draft bill

4. On Mar 07, 2020, Circular No. 07/2020 issued along with 55 FAQs clarifying various doubts raised by the bill

5. On Mar 17, 2020, the bill got the assent of the President and became the Direct Tax Vivad se Vishwas Act, 2020

6. Further changes were made to the act by the Taxation and other laws (Relaxation of Certain Provisions) Ordinance, 2020.

Benefits of this scheme

To the Assessee

1. Quick disposal of Income Tax disputes

2. Waiver/reduced interest and penalty

To the Government

1. Reducing the number of pending litigation

2. Generating timely revenues for the government

What cases can be sought shelter under this scheme?

We can split the cases into the following sub-heads:

• Filed and pending as on 31^st January 2020

1. Appeals pending before the Commissioner (Appeals), Income Tax Appellate Tribunal, High Court or Supreme Court.

2. Writ Petitions pending before the High Court.

3. Special Leave Petitions pending before the Supreme Court.

4. Objection pending with the Dispute Resolution Panel (DRP) under section 144C.

• Order passed

1. by Assessing officer or Commissioner (Appeals) or the Income Tax Appellate Tribunal in any appeal

2. by the High Court in any writ petition

and the time limit for filing an appeal with the next highest forum against the order passed has not expired as on 31^st January 2020.

Consider an example where the time limit for filing an appeal with the Commissioner (Appeals) expires on 01^st February 2020. The assessee will still be eligible to make the application under this act. It does not matter if the assessee files the application under this act before or after the expiry of the time limit. As long as the time limit for filing the appeal has not expired on 31^st January 2020, the assessee is eligible to file an application under this act.

• Cases where direction has been given by the DRP and the Assessing Officer has not passed any order as on 31^st January 2020.
• Application for revision filed under section 264 and pending on 31^st January 2020.
• Search cases where the disputed tax does not exceed Rs. 5 Crores.
• Applications filed for Arbitration, Mediation or Conciliation.

What is the relief given under this act?

The act provides for relief from levy of interest and penalty or levy of reduced interest and penalties.

Initially the act provided that the application shall be made on or before 31^st March 2020 in order to avail the benefit of no interest and penalty. However, this date has now been extended up to 30^th June 2020 vide the Taxation and other laws (Relaxation of Certain Provisions) Ordinance dated 31^st March 2020.

Type of Dispute	Amount payable if application filed before 30th June 2020	Amount payable if application filed after 30th June 2020
Disputed Tax + Interest on such tax + Penalty on such tax	100% of Disputed Tax	100% of Disputed Tax + 10% of Disputed Tax (provided that this 10% does not exceed the interest and penalty) i.e. 110% of the tax amount
Tax, interest or penalty determined in search cases	100% of Tax amount + 25% of the Tax (provided that this 25% does not exceed the interest and penalty) i.e 125% of the tax amount	100% of Tax amount + 35% of the Tax (provided that this 35% does not exceed the interest and penalty) i.e 135% of the tax amount
Disputed Interest or Disputed Penalty or Disputed Fee	25% of the disputed amount.	35% of the disputed amount.

Let us take one small example to understand the above. Suppose the amount payable as per the order passed by the CIT(A) is Rs. 2,00,000 as tax, interest of Rs. 40,000 and penalty of Rs. 50,000. Here, if the assessee makes an application after the 30^th of June under the scheme, then he will be paying an amount of Rs. 2,20,000 (110% of 2,00,000).

Now suppose, the amount of interest and penalty together is only Rs. 10,000. Then, the assessee will pay only 2,10,000 and not Rs. 2,20,000.

If the appeal is filed by the Income Tax Authorities and not by the assessee, then the amount payable shall be half of the amount given in the table above. Though the appeal is filed by the IT Authorities, the amount shall however, be payable by the person filing the application under this Act.

What is a disputed tax, disputed interest, disputed penalty or disputed fee?

Disputed tax means the

1. tax payable by an Assessee if the appeal or writ or special leave petition or objection pending at any forum was to be decided against him (or)

2. the amount mentioned in the order or direction passed (whose time limit for filing appeal has not expired or the AO has not passed an order) (or)

3. the amount payable if the application for revision was not accepted.

Let us take an example,

Tax payable as per the Return of Income of the Assessee	Rs. 1,00,00,000
Tax payable as computed by the Assessing officer in the assessment order passed	Rs. 1,40,00,000
The difference is	Rs. 40,00,000

If the Assessee wishes to go for an appeal against the order of the AO, he shall file an appeal for Rs. 40,00,000 and not any other amount. Thus, in the above example the disputed tax is Rs. 40,00,000

In case, the Assessee files the appeal with the Commissioner (Appeals) and the CIT(A) carries out the assessment. The CIT(A) determines the tax liability to be Rs. 45,00,000 instead of Rs. 40,00,000. Then in such situation the disputed tax shall be Rs. 45,00,000 and not Rs. 40,00,000.

Disputed interest means any interest which is NOT levied or leviable on the disputed tax and where an appeal is filed against such disputed interest.

This could include cases where the Assessee is not disputing any tax amount but only the interest amount determined as per any order.

Continuing the above example,

Difference in tax liability identified	Rs. 40,00,000
Interest determined in the order	Rs. 2,00,000

In the above case, the Assessee agrees to the difference in tax liability but prefers to go on an appeal for the interest portion of Rs. 2,00,000. In such case, the disputed interest shall be Rs. 2,00,000.

Disputed penalty means any penalty determined in any CASE under the provisions of the Income Tax Act, which is NOT levied or leviable on the disputed income or disputed tax and where an appeal is filed against such disputed penalty.

The above example holds goods in this situation also. Suppose, instead of interest in the above example, the AO has determined that a penalty of Rs. 2,00,000 is payable, which the Assessee disagrees and files an appeal with the CIT(A). In such case, the disputed penalty shall be Rs. 2,00,000.

Disputed fee means the fee determined under the Income Tax Act in respect of which an appeal is filed.

Consequence of making an application under this act

• The appeals filed and pending with the Commissioner (Appeals) and the Income Tax Appellate Tribunal shall be deemed to have withdrawn upon issuance of Form-3 (explained in the further paragraphs).
• Any appeal or writ or special leave petition filed with the High Court or Supreme Court shall be withdrawn.
• Once the amount as determined under this Act is paid, the case shall be closed and never be reopened.

Procedure for filing application and completion of the proceedings

• File an application in Form-1 electronically.
• An undertaking in Form-2 shall be filed by the applicant waiving all his rights or powers to receive any benefit under the appeal filed by him or to seek any other remedy.
• Upon filing the application, the proper officer shall verify the application and call for any additional information or documents, if needed.
• If the application is proper in all respect, the proper officer shall issue a certificate in Form-3 determining the amount to be paid by the applicant within 15 days of the receipt of the proper application.
• The applicant shall with 15 days from the receipt of the Form-3, make the payment and furnish the proof of making payment in Form-4. The proof that the appeals have been withdrawn shall also be furnished.
• Upon being satisfied that the necessary payment is made, the proper officer shall pass the order for full and final settlement of the tax arrear in Form-5.

It is to be noted that the entire process of filing of application and undertaking, issue of Form-3, intimation of payment and passing of final order shall be carried out electronically.

Application is to be filed separately for every Assessment year and no single application for multiple Assessment years or multiple appeals/orders will be accepted.

Who cannot file an application under this act?

• Person against whom search (raid) has been initiated under the Income Tax Act, where the tax amount payable is more than Rs. 5 crores.
• Where the appeal relates to undisclosed income from a source or asset located outside India.
• Person against whom assessment or reassessment has been made on the basis of information received from a foreign country in terms of an agreement between India and the other country.
• Person against whom prosecution proceedings has been instituted under the Income Tax Act or any other notified acts or Indian Penal Code.

It is to be noted that only for the Assessment years/years for which the search was conducted, the application cannot be filed under this act. For example,

If a search was conducted for AY 1718, then relating to AY 1718 alone application under this act cannot be filed. Application pertaining to any other assessment year can be filed and sought relief against.

Provisions in case there is a reduction in Loss or Unabsorbed depreciation

Consider a situation where an assessment is conducted for an Assessment year and the order has been passed. The Assessee has filed his return of income reporting a loss of Rs. 1 crore. However, at the end of the assessment, the officer feels that the loss is only Rs. 60 lakhs and not Rs. 1 crore. Thus, there is a reduction in the amount of loss. The assessee prefers to go on an appeal with the Commissioner (Appeals). Now, say the assessee falls in the 30% tax bracket. The tax on the amount reduced i.e. Rs. 40 lakhs, will come to Rs. 12 lakhs (40 lakhs*30%). Here, his disputed tax is Rs. 12 lakhs. Cess of 4% equaling to Rs. 48,000. Therefore, the tax amount shall be Rs. 12,48,000.

In such situations which involves the reduction of the amount of loss, the assessee is given two options if he wishes to avail the benefit of this scheme:

1. Pay the disputed tax and carry forward the entire amount of loss.

Considering the above example, the assessee will be paying Rs. 12.48 lakhs (disputed tax) and carry forward the loss of Rs. 1 crore.

2. Carry forward the reduced loss i.e. Rs. 60 lakhs in the given example. No amount needs to paid in case of the option 2.

Which options will be more beneficial?

Suppose the income of the assessee for the next assessment year is Rs. 1,70,00,000.

Particulars	Option 1	Option 2
Income	1,70,00,000	1,70,00,000
Loss carried forward	1,00,00,000	60,00,000
Taxable Income	70,00,000	1,10,00,000
Tax on taxable income @ 30%	21,00,000	33,00,000
Surcharge @ 7% if income is more than Rs. 1 crore	NIL	2,31,000
Total tax plus surcharge	21,00,000	35,31,000
Cess @ 4%	84,000	1,41,240
Total tax payable	21,84,000	36,72,240
Amount paid as per the scheme	12,48,000	NIL
Total Outflow	34,32,000	36,72,240

There is a difference in the total outflow while comparing the options. However, this is not always the case. If there is no surcharge involved, the amount payable under both the options will be the same. So, the decision of choosing either of the two options shall be made on a case-to-case basis.

One can argue that the assessee is making losses and there is no need for the assessee to pay tax on loss. It should be kept in mind that this scheme is introduced for speedy disposal of disputes. We should note that filing an application under this scheme is only optional and if the assessee is confident of winning the case, he need not make an application under this act.

Dispute relating to reduction in MAT credit

The treatment in cases where the dispute is against a reduction in the MAT credit is similar to the treatment of reduction in loss or unabsorbed depreciation. Consider the below example:

Particulars	Amount
Tax on income as per normal provision	1,00,00,000
Tax on income as per MAT provision	1,30,00,000
Therefore, the MAT credit will be	30,00,000

Now, the assessing officer conducts an assessment and concludes that the tax as per normal provision is 1,10,00,000 and that the MAT credit is only 20,00,000. Thus, if the assessee files an appeal, the disputed tax shall be Rs. 10,00,000 being the difference between 30 lakhs and 20 lakhs.

Here, also the assessee has two options

1. Pay the disputed tax, i.e. 10,00,000 in the above example and carry forward the MAT credit of 30,00,000 (or)

2. Carry forward the reduced MAT credit i.e. 20,00,000 in the above case.

Again, the decision to choose either of the two options shall be done on a case-to-case basis.

I hope everyone finds this article useful. Please let us know any of your queries in the comments section and I shall try to answer them at the earliest.