Article on The Direct Tax Vivad Se Vishwas Act, 2020 covers critical analysis, useful insights of the Scheme on eligibility to opt for the Vivad Se Vishwas Scheme, calculation of amount payable to settle the dispute, immunity from other proceedings, etc. Article also cover procedural aspects of Vivad Se Vishwas Scheme.
The Government has introduced The Direct Tax Vivad Se Vishwas Act, 2020 (‘VSV’) to provide for dispute resolution of pending income tax litigation and timely collection of tax arrears.
The appellant shall be able to settle the tax arrears on payment of 100% of disputed tax (125% in search cases), 25% of the disputed penalty/interest/fee upto 30th June, 2020.
Important aspects pertaining to eligibility, calculation of tax arrears, amount payable by the declarant under the VSV, immunity from other proceedings, etc. have been covered in this Article. The same have been presented in the form of FAQ’s as below:
1. Who are eligible to opt for VSV?
a. Where an appeal/writ petition/special leave petition is pending before any appellate forum [SC/HC/ITAT/CIT(A)] as on 3 1.01.2020 or the time limit for filing the same has not expired as on 3 1.01.2020.
b. Where a person has filed his objections before Dispute Resolution Panel (‘DRP’) against the draft assessment order and are pending as on 3 1.01.2020 or the DRP has issued the directions to the AO but the final assessment order is not passed as on 3 1.01.2020.
c. Where an application for revision u/s. 264 of the Income Tax Act, 1961 (‘the IT Act’) is pending as on 3 1.01.2020.
d. Cases where Miscellaneous Application is pending before ITAT, or application u/s. 154 is pending before CIT(A) are not eligible under
e. Search cases where disputed tax exceeds Rs. 5 crores in an assessment year shall not be eligible for that assessment year.
f. Cases where prosecution has been instituted in the Court on or before the date of filing of declaration under VSV are not eligible.
g. Cases pertaining to undisclosed income/asset located outside India are not eligible.
h. Cases pertaining to information received from Foreign Countries under DTAA are not eligible.
i. Cases where detention order has been passed or prosecution has been instituted under the circumstances specified under VSV Act are not
2. If any order of appeal has been passed after 31.01.2020 by any appellate forum dismissing the appeal or partly allowed, whether the assessee will be eligible under VSV?
Yes, in cases where the appeal is dismissed after 31.01.2020, the appellant can opt to avail the benefit of VSV, since the appeal is pending before the appellate forum as on 3 1.01.2020 . Further, if the appeal is partly allowed after 31.01.2020, the appellant would have to file the declaration of the total amount of tax arrear outstanding as on 3 1.01.2020 i.e. will have to ignore the part relief. Further, even if any appeal is dismissed as unadmitted after 3 1.01.2020 on any ground such as lack of jurisdiction, procedural fault, any defects, irregularity or incompleteness, delay in filing of appeal, etc., the appellant would still be eligible to opt under VSV as the appeal is pending as on 3 1.01.2020.
3. What is the amount payable under VSV?
|Nature of tax arrear||Amount payable on before 30th or June, 2020||Amount payable after
30th June, 2020 till the
last date (to be notified)
|Disputed Tax, interest and
penalty on such disputed tax
|100% of disputed tax (125% in search cases)||110% of disputed tax
(135% in search cases)
|Disputed interest or disputed penalty or disputed fee||25%||30%|
|Disputed Tax, interest and penalty on such disputed tax in Covered matters* or where appeal is filed by Revenue||50% of disputed tax
(62.5% in search
|55% of disputed tax
(6 7.5% in search cases)
|Disputed interest or disputed penalty or disputed fee in Covered matters* or where appeal is filed by Revenue||12.5%
(one-half of 25%)
(one-half of 30%)
* Note: Covered matters are cases where the appellant has already got a decision in his favour from higher appellate forum . It is pertinent to note that where an appeal is pending before ITAT, an earlier order from the ITAT shall not be treated as a covered matter. Similarly, where an appeal is pending before CIT(A), an earlier order from the CIT(A) shall not be treated as a covered matter.
4. How to calculate disputed tax in cases where dispute relates to reduction of business loss or unabsorbed depreciation?
In such cases, the appellant shall have the following two options:
i. The tax payable on such reduction of losses for that assessment year shall be considered as disputed tax, which the appellant shall be required to pay (i.e. the appellant would only have to pay the amount of disputed tax. Interest will be waived). In such circumstances, the appellant shall be able to carry forward the losses to subsequent years as per his return of income; OR
ii. Accept the reduction in losses in assessment year under dispute and carry forward the reduced amount of loss or unabsorbed depreciation, without paying any tax in the year under dispute. As a result, the appellant shall be able to carry forward only the reduced amount of losses. Consequently, the appellant will have reduced amount of losses to be set-off against income of the subsequent years. This may result in additional tax liability in the subsequent years which he shall be liable to pay, ALONGWITH INTEREST.
E.g. ABC Ltd. – In A.Y. 20 15-16, Losses c/f. as per return of income – Rs. 90 Crores. Addition made in the said assessment – Rs. 30 Crores. So, reduced loss c/f. – Rs. 60 Crores (90-30). For the A.Y. 20 16-17 – Assume Net Profit of Rs. 75 Crores.
If the assessee choses option (i) above, disputed tax of Rs. 9 Crores (30% of 30 Crores) is required to be paid alongwith surcharge and cess for the AY 20 15-16 without payment of any interest and there will be no impact on the tax liability of any subsequent year and in AY 20 16-17, he will be allowed to set-off b/f. loss of Rs. 90 Crores without any reduction.
If the assessee choses option (ii) above, then there will be no tax liability in the AY 20 15-16. But, the assessee will have to carry forward reduced loss of Rs. 60 Crores only. Earlier, in the original return of income for AY 20 16-17, the appellant would have adjusted the b/f. loss of Rs. 90 Crores. However, as a result of choosing Option (ii), it will be allowed to set-off reduced b/f. loss of Rs. 60 Crores only. Thus, now the Company will have to pay tax of Rs. 4.5 Crores [being 30% of (NP of 75 Crores – reduced b/f. loss of Rs.60 Crores)] alongwith surcharge, cess and Interest for the AY 2016-17 upto payment of tax (i.e. till date).
5. How to calculate disputed tax in cases where dispute relates to reduction of MAT Credit?
In such cases, the appellant company shall have the following two options:
i. Pay the amount of MAT Credit reduced by considering the same as disputed tax (interest will be waived) and carry forward the MAT credit by ignoring such amount of reduction as per return of income. ;OR
ii. Accept the reduction in MAT Credit for the assessment year under dispute and carry forward the reduced MAT credit to subsequent years without payment of any disputed tax.
6. If the appellant has filed a declaration under VSV for aggregate amount of disputed tax alongwith interest and penalty levied on such disputed tax, whether penalty not related to disputed tax will be waived?
If the appellant opts to settle the quantum appeal under the VSV, interest and penalty will be waived upon payment of disputed tax only. Eg. Interest u/s. 234A, 234B, 220, etc. will be waived and penalty u/s. 271(1)(c), 270A, 271AAB, 271AAC, etc. will also be waived.
However, it is pertinent to note that penalty u/s. 271A, 271B, 271D, 272A, 271E, 271DA, etc. would not be waived as the same does not relates to disputed tax and the appellant would still be required to pay 25% of such disputed penalty under VSV.
7. What is the procedure to be followed under VSV?
All the forms under the VSV have to be furnished electronically on www.incometaxindiaefiling.gov.in à Login à Select Vivad se Vishwas Tab in ‘Prepare and Submit Online’ mode. For TDS/TCS matters, declaration under VSV has to be filed through TAN Login on the e-filing portal.
The entire procedure under the VSV is as under:
a. Filing of Declaration in Form-1 and Form-2 :-
File declaration in Form-1 alongwith an undertaking in Form-2 waiving other rights in relation to tax arrears. Both the forms are being submitted together on the e-filing portal. The forms have to be verified under DSC, if the return of income is required to be filed under DSC, in other cases, the declaration has to be verified through EVC.
b. Certificate from Designated Authority in Form-3 :-
Within 15 days from the date of receipt of declaration, the designated authority (an officer not below the rank of Commissioner) shall issue a CERTIFICATE in Form-3 electronically, determining the amount payable by the declarant as full and final settlement of the tax arrears.
c. Payment of Taxes and withdrawal of pending appeals, etc. :-
The declarant shall pay the amount determined in Form-3 within 15 days of receipt of Certificate in Form-3. However, if the declarant fails to pay the same, the declaration shall be presumed never to have been made. Further, the declarant has to withdraw the appeal, etc. pending before any appellate forum, for which the declaration under VSV has been filed.
d. Intimation of Payment of Taxes in Form-4 :-
The declarant has to intimate the details of tax paid alongwith proof of withdrawal of appeals, etc. in ‘Form-4 – Intimation of Payment u/s. 5(2) of the
VSV Act’. The declarant shall file a letter before the appellate forum indicating that he has opted to settle the dispute relating to tax arrears under the VSV. Copy of acknowledgment of such letter would be treated as Proof of withdrawal of appeal/writ petition/special leave petition, etc. The same has to uploaded online on the e-filing portal while filing Form-4.
e. Order for full and final settlement of tax arrears in Form-5 :-
Upon receipt of Form -4 from the declarant, the designated authority shall pass an Order in ‘Form-5 – Order for full and final settlement u/s. 5(2) r.w.s 6 of the VSV Act’ certifying the following:
i. The declarant has paid the amount payable under the VSV Act.
ii. Immunity has been granted from prosecution/penalty in respect of the settled tax arrears.
iii. Declaration under the VSV Act shall not amount to conceding the tax position by the declarant.
8. What all immunities will be granted to the declarant?
Once the matter has been settled under VSV, immunity shall be granted from initiation of proceedings in respect of offence and imposition of penalty. Further, as per Sec. 5(3) of the VSV Act, no matter which have been settled under VSV, shall be reopened under the Income-tax Act or any other law for the time being in force. However, it may be noted that any other issues which are not covered under the appeal or settled under VSV may be reopened.
About 4,83,000 cases are pending before various appellate forums. In order to reduce litigation and timely collection of revenue, VSV is beneficial to both, the assessee as well as the revenue. Even after the CBDT Clarification vide Circular No. 7/2020, a lot of issues are yet to be addressed like whether MA pending before ITAT could be included, whether Form-3 Certificate can be rectified by the designated authority, cases where appeals of deceased person could not be filed, etc.
In past, schemes like Direct Tax Dispute Resolution Scheme, 2016 and Kar Vivad Samadhan Scheme, 1998 were introduced to provide for settlement of direct tax disputes. This Scheme has taken care of shortcomings of those earlier schemes and is comparatively wider in scope. This Scheme is a good opportunity for appellants to settle their disputes to avoid the uncertainty of outcome of pending litigation.