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
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:
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.
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 31st January 2020.
Consider an example where the time limit for filing an appeal with the Commissioner (Appeals) expires on 01st 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 31st January 2020, the assessee is eligible to file an application under this act.
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 31st March 2020 in order to avail the benefit of no interest and penalty. However, this date has now been extended up to 30th June 2020 vide the Taxation and other laws (Relaxation of Certain Provisions) Ordinance dated 31st March 2020.
|Type of Dispute||Amount payable if application filed before 30th June 2020||Amount payable if application filed after 30th June 2020|
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
|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 30th 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
Procedure for filing application and completion of the proceedings
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?
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|
|Loss carried forward||1,00,00,000||60,00,000|
|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|
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:
|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.