KSCAA Seeks Clarity on Eligibility of Appeals with Delay Condonation under VSVS

Karnataka State Chartered Accountants Association (KSCAA) has submitted a second representation to the Central Board of Direct Taxes (CBDT) addressing issues in the Direct Tax Vivad Se Vishwas Scheme 2024. The Scheme, designed to resolve pending income tax litigation, requires clarification on cases where appeals, accompanied by applications for condonation of delay, remain undecided on the specified date. KSCAA argues that such appeals should qualify as “pending” under Section 89(1)(a) of the Finance (No. 2) Act, 2024, irrespective of their admission status. The representation references similar rulings from various High Courts and earlier iterations of the scheme, emphasizing that requiring appeal admission contradicts the Scheme’s objectives. KSCAA suggests eliminating the admission prerequisite and enabling taxpayers to declare pending condonation applications in the declaration forms. These amendments aim to ensure equitable treatment for taxpayers and strengthen collaboration between tax authorities and professionals.

Karnataka State Chartered Accountants Association (R)

To,
Shri Ravi Agarwal,
Chairperson,
The Central Board of Direct Taxes,
Government of India

Ref No: 011/2024-25 Date: 14^th February 2025

SUBJECT: SECOND REPRESENTATIONS AND SUGGESTIONS REGARDING THE PROVISIONS OF DIRECT TAX VIVAD SE VISHWAS SCHEME, 2024

The Karnataka State Chartered Accountants Association (R) (in short ‘KSCAA’), founded in 1957 and registered under the Karnataka Societies Registration Act, is dedicated to advancing the welfare of Chartered Accountants. Our core mission is to represent their interests before regulatory bodies and address the professional challenges faced by both Chartered Accountants and the business community, striving for effective solutions.

Over the years, we have repeatedly highlighted the challenges and difficulties faced by taxpayers and Chartered Accountants, while also offering potential solutions. In this representation, we aim to address specific issues encountered by both taxpayers and professionals in relation to the Direct Tax Vivad Se Vishwas Scheme 2024 (VSVS/the Scheme), as well as the Frequently Asked Questions (FAQs) issued by the Central Board of Direct Taxes (CBDT) in connection with the Scheme’s implementation.

Furthermore, we would like to emphasize that we had submitted a representation on 5th December, raising concerns regarding various aspects of the Scheme. In that submission, we also proposed several recommendations to mitigate these challenges and improve the Scheme’s overall effectiveness.

We express gratitude for issuing clarifications pursuant to the representation filed by our Association in connection with the provisions of the Direct Taxes Vivad se Vishwas Scheme, 2024 (‘the Scheme’).

In this representation, we aim to highlight a specific hardship faced by both taxpayers and professionals as a result of the Scheme. Additionally, we take the opportunity to propose a few suggestions to address these issues and resolve the challenges encountered.

1. Intent of the scheme and the Circular No. 19 of 2024

1.1  The scheme was introduced by the Central Government vide Chapter IV of the Finance (No. 2) Act, 2024, to provide for dispute resolution in respect of pending Income-tax litigation. As is quoted from Circular No 19 of 2024 dated 16.12.2024 (‘the Circular’), the intention of the Scheme was to reduce the pending litigation. The relevant extract from the Circular is reproduced below:

‘The objective of the Scheme is to inter alia, reduce pending income tax litigation, generate timely revenue for the Government and benefit taxpayers by providing them peace of mind, certainty and savings on account of time and resources that would otherwise be spent on the long-drawn and vexatious litigation process.’

1.2 Therefore, the objective of the Scheme is to facilitate an amicable resolution of disputes between the Revenue and the taxpayer. However, certain challenges faced by taxpayers—particularly the ‘specific issue’ outlined below— contradicts the interests of both taxpayers and the Revenue.

2. On the Specific Issue

2.1  The provisions of the Scheme are intended to apply to all direct tax disputes which are pending at various

levels, before the “specified date”, as defined in section 89(1)(n) of the Finance (No. 2) Act, 2024, i.e., 22nd July, 2024.

2.2 The CBDT vide Circular dated 16.12.2024 clarifies the applicability of the Scheme in various circumstances. FAQ No. 39 therein deals with the applicability of Scheme in cases where appeal is filed along with petition for condonation of delay. The issue and the comments as per FAQ No. 39 of the Circular is reproduced below:

“Issue: Suppose an appeal has been filed before 22nd July, 2024 with an application for condonation of delay which is also filed before 22nd July, 2024. This appeal has been admitted by allowing condonation of delay prior to the date of filing of declaration under the Scheme. Whether such a taxpayer can opt for the Scheme?

Comment: Yes. In such cases where the appeal as well as condonation application have been filed on or before 22nd July, 2024. On admission of condonation application, such cases convert into an appeal pending on 22nd of July, 2024. Therefore, the taxpayer can opt for settlement under the Scheme in such cases.”

2.3 From the above clarification, it is discernible that belated appeals are eligible for the Scheme if the same is admitted after accepting the application for condonation of delay before the date of filing of declaration. The Circular however abstains from addressing situations where the application for condonation of appeal is ‘still pending’ as on the date of filing the declaration. In other words, the Circular does not clarify instances where an assessee fulfils all other conditions, namely:

(i) filing of appeal before the specified date i.e. pending appeal;

(ii) such appeal is accompanied with an application for condonation of the delay which is also filed before the specified date; and

(ii) such application for condonation of delay was pending on the date of filing the declaration.

2.4 Section 89(1)(a) of the Finance (No. 2) Act, 2024 does not stipulate the appeal to be admitted before the specified date, it only adverts to its pendency. It is also pertinent to note that there is no stage of formal admission of the appeal or condonation application before the CIT(A) or the Tribunal. Therefore, the reference to this term of ‘admission of appeal by allowing the condonation application’ in the circular is superfluous¹. The Circular is ultra vires and contrary to the Scheme for the reason that filing appeal along with application for condonation of delay is within the control of assessee, but the decision relating to condonation of the appeal is not. Further, since most of the appeals are pending before the Commissioner of Income Tax (Appeals)/ NFAC, it is difficult for the appellants to approach them in a faceless manner or to follow up on the disposal of condonation applications in view of the Scheme. In any case, the FAQ itself clarifies that once the application for condonation is admitted, such cases convert into an appeal pending on 22nd of July, 2024. Therefore, the appeals (including appeals where application for condonation) which are pending as on the specified date should be covered as ‘appellant’ in terms of section 89(1)(a) of the Finance (No. 2) Act, 2024.

2.5  The provisions of the Scheme and CBDT clarification is mutandis mutatis to Direct Tax Vivad Se Vishwas Scheme, 2020 (VSVS, 2020) and the clarification issued in FAQ No 59 of the Circular No. 21/2020, dated 4-12-2020. Various High Courts have consistently held that the VSVS scheme does not stipulate that appeal should be admitted before specified date; it only adverts to its pendency. An appeal would be ‘pending’ in context of VSVS when it is first filed till its disposal. Consequently, the FAQ issued by CBDT to extent it relates to admission of appeal before filing of declaration as a condition precedent to be eligible for settlement under VSV Act is contrary to law.

2.6 Reliance is placed on the Delhi High Court decision in Shyam Sunder Sethi vs. Principal Commissioner of Income-tax – 10 [2021] 130 taxmann.com 66 (Delhi) [03-03-2021], wherein it was held that

“Respondent no. 1 seems to have, in our view, wrongly equated admission of the appeal with pendency. In our view, as noted above, the appeal would be pending as soon as it is filed and up until such time it is adjudicated upon and a decision is taken qua the same. We could have appreciated the stand of the respondents if a plea made for condonation of delay would have been rejected by respondent no. 3/CIT(A) before the petitioner had filed Forms 1 and 2. If that situation obtained, the respondents could have, possibly, taken the stand that nothing was pending before the appellate forum”

2.7  Similar dictum has been upheld in Stride Multitrade (P.) Ltd. vs. ACIT, Circle-13(2)(2) [2021] 133 taxmann.com 282 (Bombay); Medeor Hospital Ltd. vs. PCIT [2022] 145 taxmann.com 548 (Delhi); Maheshbhai Shantilal Patel vs. PCIT, Ahmedabad 2021] 131 taxmann.com 1 (Gujarat)

2.8 In view of the above, the appeals filed along with petition for condonation of delay before the specified date ought to be treated as an appeal ‘pending’ in context of section 89(1)(a) of the Finance No. 2 Act, 2024. The CBDT clarification in the FAQ No. 39 of Circular dated 16.12.2024 to the extent it contemplates admission of appeal is contrary to the law. “This is resulting in a considerable number of taxpayers being unable to access the benefits of the scheme.”

3. Our Suggestions

To promote fairness and aid in the resolution of prolonged disputes, we respectfully request the Board to provide a clarification on the specified issue—one that safeguards the interests of the Revenue while also offering a just resolution for the assessee. The following suggestions are proposed in this regard:

(a) Dispense with the requirement of admission of appeal by allowing condonation of delay prior to the date of filing of declaration under the Scheme as it is against the provisions as well as intent of the Scheme; and/or

(b) Treat the cases where the appeal as well as condonation application have been filed on or before 22nd July, 2024 as ‘appellant’ in terms of section 89(1)(a) of the Finance (No. 2) Act, 2024; and / or

(c) Enable the taxpayers to indicate pending applications for condonations in the Form-1 of the Scheme, and direct the Department to adjudicate the pending application for condonation while issuing form-

We trust in your unwavering commitment to fairness, justice, and the efficient administration of tax systems. The timely and thoughtful consideration of this representation is of utmost importance to the continued stability and growth of the economy. It will serve as a testament to the government’s dedication to safeguarding taxpayers’ rights, ensuring that the tax system is both fair and efficient. Furthermore, such an intervention would significantly enhance the collaborative relationship between tax authorities and professionals who serve as critical enablers of compliance.

In light of the difficulties encountered, we urge you to consider our request in the interest of the industry in Karnataka.

Yours sincerely,

For Karnataka State Chartered Accountants Association ®

Cc to:

1. Nirmala Sitharaman, Hon. Union Minister of Finance and Corporate Affairs, Government of India

2. Pankaj Choudhary, Hon’ble Minister of State, Finance.

3. Sanjay Malhotra, Hon’ble Revenue Secretary

4. Shelly Jindal, PCCIT, Karnataka and Goa

Notes:- 

¹ Rakesh Garg vs. PCIT [2022] 443 ITR 137 (Rajasthan)