PREAMBLE

The Direct Tax Vivad se Vishwas Act, 2020 (DTVSV) received the assent of the Hon President of India on 17-3-2020. The CBDT had in Circular No 7/2020 dated 4-3-2020 clarified on 55 questions. The DTVSV Rules were announced on 18-3-2020 prescribing the forms and procedures and the website was developed and the portal was made possible. Several relief measures were announced due to COVID 19 lockdown, one being deferment of the due date to pay tax under DTVSV. In light of the developments, the Board has issued Circular No. 9/2020 dated 22-4-2020 read with corrigenda dated 27-4-2020 re-issuing the 55 FAQs with modifications.

It may be noted that the circulars have been issued even prior to law coming into force by notification and amendments to the statue.

NEED FOR THE ARTICLE

The Subject in entirety is revisited as on date and the following article is authored by the authors which in their opinion required further clarifications in the interest of both the Assessees, Department and Tax Practitioners. In this article, the FAQs, answers given by the department and further comments of the authors are interleaved for better understanding.

BIBLIOGRAPHY

For the purpose of this article, interplay of the relevant provisions of the Income Tax Act, 1961, The Direct Tax Vivad se Vishwas Act 2020, Rules framed, Memorandum of objects, Circulars issued are deliberated, harmonious, purposive, objective and constructive interpretations are employed than on the basis of literal interpretation of the statute.

CONFLICTING PROVISIONS

The authors also factored that where two interpretations were possible, the Court should take the interpretation that is favourable to the asseessee bearing in mind that a taxing statute is being construed – CIT v. J.K. Hoseiry Factory 159 ITR 85 (SC). Kelvinator of India Ltd. v. DCIT [1996] 56 ITD 251 (DELHI).

Also Read Part I –Unanswered FAQs on Direct Tax Vivad se Vivadh Act 2020- Part I

BINDING NATURE OF CIRCULARS

The binding nature of the Circulars issued by the CBDTsis an important matter to be considered since they can bind the Income-tax Officer but will not bind the appellate authority or the Tribunal or the court or even the assessee. [ITO vs. V.D. Manoharlal Kothari, 236 ITR 357 (Mad.)].

SPECIAL LAW OVERRIDES GENERAL LAW

The lawmakers did not specify that DTVSV is a special law overriding the provisions of general law i.e. the Income Tax Act.

The accepted rule of interpretation is that special provisions will prevail when there is a conflict between the two. This rule of interpretation has been highlighted in CIT v. Shahzada Nand & Sons 60 ITR 32 (SC).

The taxing statutes are always special laws and most often self contained enactments which even oust the jurisdiction of Courts in many cases, and they would most definitely prevail over the General Clauses Act, 1897, while defining the scope of terms or procedures.

“QUESTIONS ON SCOPE/ ELIGIBILITY (Q. No. 1— 24)”

Question No. 1. Which appeals are covered under the Vivad se Vishwas ?  
Answer:

 

Appeals pending before the appellate forum [Commissioner (Appeals), Income Tax Appellate Tribunal (ITAT), High Court or Supreme Court], and writ petitions pending before High Court (HC) or Supreme Court (SC) or special leave petitions (SLPs) pending before SC as on the 31st day of January, 2020 (specified date) are covered. Cases where the order has been passed but the time limit for filing appeal under the Income-tax Act, 1961 (the Act) against the order has not expired as on the specified date are also covered. Similarly, cases where objections filed by the assessee against draft order are pending with Dispute Resolution Panel (DRP) or where DRP has given the directions but the Assessing Officer (AO) has not yet passed the final order on or before the specified date are also covered. Cases where revision application under section 264 of the Act is pending before the Principal Commissioner or Commissioner are covered as well. Further, where a declarant has initiated any proceeding or given any notice for arbitration, conciliation or mediation as referred to in section 4 of the Bill is also covered.

 

More Clarity Required No. 1 of FAQ 1

The DTVSV Act and FAQ refer to time limit(emphasis applied) for filing appeal under the IT Act. The time limit is the absolute time limit prescribed under the IT Act.No two interpretations are possible to ascertain the time limit. In part B of VsV in the login portal, the declarant is expected to fill in the date on which time limit for filing appeal expires in crystal clear terms. An appeal not filed within the time limit (falling beyond specified date i.e. 31.01.2020) is not expected to be eligible. Even the Board does not have the powers to extend the time limit for filing appeal. The IT Act does not empower the appellate forum to extend the time limit, however, the appellate forum is entitled to admit by condoning the delay for valid reasonsor it can dismiss the appeal belatedly filed. Merely because the delay is condoned, it cannot re-instate or made to come into existence as on the due date date, to have been filed.

For Example, in a case where an order was received on 12.01.2020 and the time limit for filing appeal did not expire as on 31.01.2020 [since due before 11-2-2020] and hence eligible. If the appellant filed an appeal say on 20.03.2020 and the appellate forum admitted the appeal, the question is whether such appellant is eligible or not. In view of the foregoing discussions and legal framework, the appellant is not eligible. The Board has not clarified on such type of cases. For the benefit of removing difficulties or clarifying the issue, the Board should clarify whether such type of appeals belatedly filed are eligible or not, since in anticipation of availing the benefits under VsV, innumerable appeals involving large revenues were filed and the fate of appellants depends on the clarity to be given by the Board.

A contrary view is that in simple reading of the language employed, the applicant claims to be eligible for the reason that as on 31-1-2020, the time to file appeal did not expire. The law does not expect that the appeal should have been filed within time limits after the specified date. Hence as on the date of filing the declaration, the requirement is either Appeal is pending on 31-1-2020 or time limit did not expire. If either of the conditions are satisfied, he is eligible to file the declaration on a subsequent date.

The Board under Section 10 may issue directions or orders or instructions to the Income Tax Authorities for the purpose of this Act in the public interest. The Central Government is empowered to issue an order removing the difficulties arising in giving effect to the provisions of this Act and such order issued under section 11 be laid before each house of Parliament.

No doubt such type of belated appeals, if eligible are of public interest and hence the Board or Government may clarify for the reason of public interest. It also causes hardship or difficulties to the tax payer community if their Appeals are treated as not eligible.

More Clarity Required No. 2 of FAQ 1

 

Only Arbitration matters pending as on specified date alone are eligible under VsV. In respect of concluded arbitration matters, where an award is passed, aggrieved party can institute an appeal to the High Court. Till the time appeal is not filed before the High Court, such cases are not eligible under VsV. Once the appeal is filed before the High Court, the appellant becomes eligible. Award passed cases pending filing of appeal before High Court are not covered as eligible.

There is no time limit prescribed under the Income Tax Act to file an appeal against arbitration award because arbitration award is not an appealable order under the Income Tax Act. Appeal against the arbitration award lies before the High Court u/s 34 of the Arbitration Act. Such a case in diagram explains for ease in understanding:

Notice issued, Arbitration proceedings are pending Award passed but Appeal not filed before HC Appeal filed before HC
Eligible FAQ 2 Not Eligible Eligible

In view of such unintentional omission to give benefit in the interest of public, the government may clarify and give relief.

More Clarity Required No. 3 of FAQ 1 In Sch. A, B, C Sch. VI, VII and VIII of Form 1, declarant is expected to fill in the date on which time limit for filing Writ before High Court / Supreme Court not expired.It maybe noted that there is no time limit specified under the IT Act for filing a Writ before the High Court or Supreme Court. It can only be filed within a reasonable time.The Board to take note of the fact that there is no due date for filing of Writ before the High Court and Supreme Court.
Question No. 5 What if the disputed demand including interest has been paid by the appellant while being in appeal?
Answer: Appeals in which appellant has already paid the disputed demand either partly or fully are also covered. If the amount of tax paid is more than amount payable under Vivad se Vishwas, the appellant will be entitled to refund without interest under section 244A of the Act. 
More Clarity required on FAQ 5 Where the declarant has paid the tax, the particulars to be furnished in Form 1 are BSR Code, date of payment, Serial Number of Challan and the amount paid. It is possible for various mechanisms of payment such as attachment of bank accounts, refund adjustment, cash seized at the time of search and deposited into treasury. In all these type of cases, the required particulars to be filled in are not available and hence Form 1 cannot be uploaded without mandated fields.
Question No. 6 Can the benefit of the Vivad se Vishwas be availed, if a search and seizure action by the Income-tax Department has been initiated against a taxpayer?
Answer:

 

Case where the tax arrears relate to an assessment made under section 143(3) or section 144 or section 153A or section 153C of the Act on the basis of search initiated under section 132 or section 132A of the Act are excluded if the amount of disputed tax exceeds five crore rupees in that assessment year.

Thus, if there are 7 assessments of an assessee relating to search & seizure, out of which in 4 assessments, disputed tax is five crore rupees or less in each year and in remaining 3 assessments, disputed tax is more than five crore rupees in each year, declaration can be filed for 4 assessments where disputed tax is five crore rupees or less in each year.

More clarity required in FAQ 6 Where a declarant challenges the legality of search on various technical grounds, whether the declarant is eligible to claim the benefit under VsV on the whole amount of disputed tax even though the appeal is not filed on each and every item of addition. The differentiating matter is legality of search vs nature of additions.

The FAQ clarifies that the assesses are eligible where search assessments are completed. Where search assessments are pending for completion, even though search was initiated and completed, the assessee is not eligible simply because the amount is not quantified in an assessment order for no fault of him, but desires to settle the matter.

The FAQ did not clarify question No. 6 to the extent where search and seizure has been initiated (emphasis applied) and whether the benefit of VsV be availed by the taxpayer.

Question No. 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? 
Answer: 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.
More Clarity Required on FAQ 22

Section 9 of DTVSV Act provides that this Act shall not apply….

a. In respect of tax arrear-

(i) ……

(ii) Relating to an assessment year in respect of which prosecution has been initiated on or before the date of filing declaration

From the reading of the language employed in the statute, DTVSV Act is not applicable in respect of tax arrear relating to an assessment year in respect of which prosecution has been instituted.

The statutory bar is not applicable in respect of tax arrear for an assessment year where prosecution is not instituted.

In other words, the bar is in respect of tax arrear of an assessment year. Where prosecution is not launched for any assessment year, the benefit of DTVSV is available.

In a case where there are tax arrears for four assessment years of which, prosecution is launched for one of the years, the assessee is not eligible to file declaration for that assessment year alone and eligible for the rest of 3 years.

The heading of the paragraph is that Act not to apply in certain cases meaning only for assessment years as inferred above. It is not a case where a person is prosecuted for an any assessment year he is debarred from filing declaration in respect of other assessment years.

The Board should clarify the above stand from the plain reading of the Act.

New Clarif-ication

The provisions of section 9 (d) of DTVSV Act reads as follows: Shall not apply –

(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 Income-tax authority;

The emphasis employed in section 9(d) is on a person on whom prosecution has been initiated either under IT Act or any other law for an offence punishable. If such being the interpretation, every person who has been prosecuted is all together not eligible for any number of assessment years.

Section 9(d) is in relation to a person in respect of whom prosecution has been initiated in contrast to Section 9(a)(ii) which is with reference to an assessment year.

The Board may clarify on the self conflicting or contradicting provisions to remove the difficulties in the interest of public.

For the purpose of compounding, an assessee will have to first pay tax, interest and penalty and later on compounding fee. Under such circumstances, what is the benefit available for going under VsV?

Refer to guidelines for compounding dated 14/06/2019.

“QUESTIONS ON SCOPE/ ELIGIBILITY (Q. No. 25— 40)”
Question No. 25 In a case appeal or arbitration is pending on the specified date, but a rectification is also pending with the AO which if accepted will reduce the total assessed income. Will the calculation of disputed tax be calculated on rectified total assessed income?
Answer: The rectification order passed by the AO may have an impact on determination of disputed tax, if there is reduction or increase in the income and tax liability of the assessee as a result of rectification. The disputed tax in such cases would be calculated after giving effect to the rectification order passed, if any.
More Clarity Required Given a case where both appeal and rectifications are pending, the Board has not clarified whether Form 1 should be filed for the gross amount as in appeal or the lower amount as per the rectification order as if passed. The Board should clarify whether DA shall determine the amount of tax payable after giving effect to the rectification application pending before the AO. The roles and responsibilities of the assessee, DA and AO have to be decided in a time bound manner given the importance of VsV application to be made and to be accepted.
Question No.

 

28. What amount of tax is required to be paid, if an assessee wants to avail the benefit of the Vivad se Vishwas? 
Answer:

 

Under the Vivad se Vishwas, declarant is required to make following payment for settling disputes:

A. In appeals / writ / SLP / DRP objections / revision application under section 264 / arbitration filed by the assessee –

(a) in case payment is made till 30 June, 2020‑

(i) 100% of the disputed tax (125% in search cases) where dispute relates to disputed tax (excess amount over 100% limited to the amount of interest and penalty levied or leviable), or

(ii) 25% of the disputed penalty, interest or fee where dispute relates to disputed penalty, interest or fee only.

(b) In case payment is made after 30 June, 2020 —

(i) 110% of the disputed tax (135% in search cases) where dispute relates to disputed tax (excess amount over 100% limited to the amount of interest and penalty), or

(ii) 30% of the disputed penalty, interest or fee in case of dispute related to disputed penalty, interest or fee only.

However, if in an appeal before Commissioner (Appeals) or in objections pending before DRP, there is an issue on which the appellant has got favourable decision from ITAT (not reversed by HC or SC) or from the High Court (not reversed by SC) in earlier years then the amount payable shall be half or 50% of above amount.

Similarly, if in an appeal before ITAT, there is an issue on which the appellant has got favourable decision from the High Court (not reversed by SC) in earlier years then the amount payable shall be half or 50% of above amount.

B. In appeals /writ / SLP filed by the Department ‑

(a) In case payment is made till 30June, 2020‑

(i) 50% of the disputed tax (62.5% in search cases) in ease of dispute related to disputed tax or

(ii) 12.5% of the disputed penalty, interest or fee in case of dispute related to disputed penalty, interest or fee only.

(b) In case payment is made after 30 June, 2020 –

(i) 55% of the disputed tax (67.5% in search cases) in cases of dispute related to disputed tax, or

(ii) 15% of the disputed penalty, interest or fee in case of dispute related to disputed penalty, interest or fee only.

More Clarity Required on FAQ 28

Reference is invited to Section 3 of the DTVSV Act.

The FAQ still clarifies the due date to pay taxes as before 31/03/2020 and after 31/03/2020 even though it has been extended to 30/06/2020. The online portal Form 1 also provides the due date for payment as before 30.06.2020 and after 30/06/2020. It is since been clarified through corrigendum.

The Finance Minister announcing several relief measures on 24/03/2020 stated in Point No. 3 under the head Income Tax as –Vivad se Vishwas schemeno additional 10% amount, if payment made by June 30, 2020.

The point for consideration is that the law provided for 100% of tax if paid on or before 31/03/2020 and 110% if paid after 31/03/2020.

Given the legal interpretation of FM’s relief measures, it is construed that even though the payment is made after 31/03/2020 but on or before 30/06/2020, the additional tax @ 10% need not be paid as a relief measure given.Neither the relief measures announced nor any orders are given by the government extending the applicability of the Scheme beyond 30/06/2020.However, CPC portal provides for beyond 30/06/2020 with no specific mention of last date (Section 2(l)).

The government to order extending the due date from 31/03/2020 to 30/06/2020 to pay 100% of tax in arrears and additional 10% of tax in arrears after 30/06/2020 but before the last date to be specified. Such last date is still not specified for the informed decision to be taken by the assessees.

Question No. 29. Whether credit for earlier taxes paid against disputed tax will be available against the payment to he made under Vivad se Vishwas?
Answer: The amount payable by the declarant under Vivad se Vishwas shall be determined by the DA under section 5. Credit for taxes paid against the disputed tax before filing declaration shall be available to the declarant. Please refer to example at question no. 26 above. If in that example against disputed tax of Rs. 10,000 an amount of Rs. 8,000/- has already been paid, the appellant would be required to pay only the remaining Rs. 2,000/- by 31st June 2020.
More Clarity Required on FAQ 29

Attention is invited to FAQ 4 and FAQ 5 read with Section 3. The relevance of FAQ 29 is that taxes paid against a disputed tax will be available against payment to be made under VsV. However, read with FAQ 4 and 5, the declarant having paid Rs. 14,000 against a demand of Rs. 16,000 (Rs. 10,000 tax and Rs. 6,000 interest), he is entitled to get waiver of interest of Rs. 6,000/- leaving a balance tax liability of Rs. 10,000 only. Having paid Rs. 14,000/- against tax disputed tax of Rs. 10,000/- during appeal, he is entitled to get refund of Rs. 4,000/- under VsV. However, the answer to FAQ gives a different interpretation, yet he still has to pay Rs. 2,000/- as per FAQ 29.

FAQ does not mention whether interest paid earlier is refundable or not.

Read with explanation to Section 7 reading as follows, the declarant is eligible to get a refund of Rs. 4,000 (disputed tax of Rs. 10,000/- (-) amount paid Rs. 14,000/-).

Explanation.—For the removal of doubts, it is hereby clarified that where the declarant had, before filing the declaration under sub-section (1) of section 4, paid any amount under the Income-tax Act in respect of his tax arrear which exceeds the amount payable under section 3, he shall be entitled to a refund of such excess amount, but shall not be entitled to interest on such excess amount under section 244A of the Income-tax Act.

Question No. 30. Where assessee settles TDS appeal or withdraws arbitration (against order u/s 201) as deductor of TDS, will credit of such tax be allowed to deductee?
Answer: In such cases, the deductee shall be allowed to claim credit of taxes in respect of which the deductor has availed of dispute resolution under Vivad se Vishwas. However, the credit will be allowed as on the date of settlement of dispute by the deductor and hence the interest as applicable to deductee shall apply.
More Clarity Required on FAQ 30 Answer to FAQ 30 should be notwithstanding anything contained in Section 199 of the Income Tax Act 1961 where credit for TDS is admissible if the corresponding income is offered to tax in the same assessment year. In the case under FAQ 30, the credit for unpaid TDS in appeal of the deductor if settled under VsV, the credit is allowed in the year of settlement, FY 2020-21 i.e. AY 2021-22 during which period, the deductee should be exempted from offering the same income again in order to claim the TDS credit settled under VsV by the deductor.
Question No. 31. Where assessee settles TDS liability as deductor of TDS under Vivad se Vishwas (i.e against order u/s 201), when will he get consequential relief of expenditure allowance under proviso to section 40(a)(i/(ia)?
Answer: In such cases, the deductor shall be entitled to get consequential relief of allowable expenditure under proviso to section 40(a)(i)/(ia) in the year in which the tax was required to be deducted.

To illustrate, let us assume that there are two appeals pending; one against the order under section 201 of the Act for non-deduction of TDS and another one against the order under section 143(3) of the Act for disallowance under section 40(a)(i)/(ia) of the Act. The disallowance under section 40 is with respect to same issue on which order under section 201 has been issued. If the dispute is settled with respect to order under section 201, assessee will not be required to pay any tax on the issue relating to disallowance under section 40(a)(i)I(ia) of the Act, in accordance with the provision of section 40(a)(i)/(ia) of the Act.

In case, in the order under section 143(3) there are other issues as well, and the appellant wants to settle the dispute with respect to order under section 143(3) as well, then the disallowance under section 40(a)(i)/(ia) of the Act relating to the issue on which he has already settled liability under section 201 would be ignored for calculating disputed tax.

If the assessee has challenged the order under section 201 on merits and has won in the Supreme Court or the order of any appellate authority below Supreme Court on this issue in favour of the assessee has not been challenged by the Department on merit (not because appeal was not filed on account of monetary limit for filing of appeal as per applicable CBDT circular), then in a case where disallowance under section 40(a)(i)/(ia) of the Act is in consequence of such order under section 201 and is part of disputed income as per order under section 143(3) in his case, such disallowance would he ignored for calculating disputed tax, in accordance with the proviso to section 40(a)(i)/(ia) of the Act.

It is clarified that if the assessee has made payment against the addition representing section 40(a)(i)/(ia) disallowance, the assessee shall not be entitled to interest under section 244A of the Act on amount refundable, if any, under Vivad se Vishwas.

More Clarity Required on FAQ 31

The FAQ provides for giving consequential relief of allowable expenditure under proviso to Section 40(a)(i)/(ia) in the year in which tax was required to be deducted upon settlement of order under Section 201 of the Act by the deductor. This is not in consonance with first proviso to Section 40(a)(i)/(ia) where expenditure is required to be allowed in the year in which such TDS is remitted.

Such being the case in the illustration given under FAQ 31, all previous cases need to be reopened, disallowance under 40(a)(i) /(ia) to be deleted and refund to be granted for which there are no enabling provisions under the Income Tax Act.

The refunds maybe claimed by filing the revised returns for which time limit expired under the Act. Else, the condonation of delay needs to be granted by exercise of the provisions under Section 119(ii)(b) of the Act for all such cases.

“QUESTIONS ON SCOPE/ ELIGIBILITY (Q. No. 41— 50)”
Question No. 43. Where appeals are withdrawn from the appellate forum, and the declarant is declared to be ineligible under the Vivad se Vishwas by DA at the stage of determination of amount payable under section 5(1) or, amount determined by, DA is at variance of amount declared by declarant and declarant is not agreeable to DA’s determination of amount payable, then whether the appeals are automatically reinstated or a separate application needs to be filed for reinstating the appeal before the appellate authorities.
Answer: Under the amended procedure no appeal is required to be withdrawn before the grant of certificate by DA. After the grant of certificate by DA under section 5, the appellant is required to withdraw appeal or writ or special leave petition pending before the appellant forum and submit proof of withdrawal with intimation of payment to the DA as per the same section. Where assessee has made request for withdrawal and such request is under process, proof of request made shall be enclosed. Similarly in case of arbitration, conciliation or mediation, proof of withdrawal of arbitration/conciliation/mediation is to be enclosed along with intimation of payment to the DA.
More clarity Needed on FAQ 43 The Board did not answer where the declarant is declared to be ineligible under the Vivad se Vishwas by DA at the stage of determination of amount payable under section 5(1) or, amount determined by DA is at variance of amount declared by declarant and declarant is not agreeable to DA’s determination of amount payable, then whether the appeals are automatically reinstated or a separate application needs to befiled for reinstating the appeal before the appellate authorities. There is no proviso that the withdrawn Appeals become not maintainable under such circumstances.
New clarity needed How to calculate disputed tax?

There are two schools of thought advocating calculation of disputed tax one on the basis of Maximum Marginal Rate (highest rate applicable to the disputed income category) or average tax rate. MMR concept is not being farefor the reason that it is not the MMR on disputed income always results in disputed tax. Because, after an addition is made, the tax slabs may move to different slabs and further complicated by different surcharge levels. In other words, additions get taxed at the rates applicable. Rates vary with slabs and also SC.

As long as the disputed income relates to income taxable at special rates of tax like u/s 115BBE, 112, 112A, the disputed tax need to be calculated at specified rates plus SC and Cess.

If the disputed income is of general in nature like disallowance of expenses or increase in income, the tax need to be calculated at average rate of tax.

In certain cases where the assessed loss is reduced by certain additions of say Rs 2,50,000 in the case of an individual, in such case there is on tax effect assuming that Rs 250,000 itself is treated as disputed income.

Further if the assessed loss is reduced by Rs 400,000/- in the case of an individual or HUF, there is no tax effect with threshold exemption and deduction u/s 80C.

In such cases, there will be disputed income, however, there is no disputed tax payable. The Board should clarify its stand on calculation of disputed tax.

J V Kodhandapani and Venkatesh K Pani

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