Recently, measures have been taken by the government to reduce and settle the pending income tax litigations by introduction of Vivad se Vishwas (VsV) scheme through budget announcement, notifying it as an Act on 17th March, 2020 and thereafter rules regarding the scheme were also notified.
This scheme aims to benefit both, the Government by generating timely revenue and the taxpayers who shall after opting for the scheme shall be relieved from the burden of various dues like interest or penalties depending upon case to case basis.
1. ABOUT THE ACT
The Scheme revolves around discharging the pending cases of Income Tax, pending in various litigation forums and thereby offering an opportunity to the taxpayers to pay disputed tax to the government and be relieved from all other consequences.
The provisions of the Act are applicable to disputes which are pending in the following cases as on specified date i.e., 31st January, 2020 irrespective of whether demand in such cases has been paid or not :
(A) in a case where any appeal, writ petition or special leave petition is pending before the appellate forum i.e. Commissioner (Appeals), Income tax Appellate Tribunal, High Court or Supreme Court.
(B) in a case where an order in an appeal or in writ petition has been passed by the appellate forum, and the time for filing appeal or special leave petition against such order has not expired as on 31/01/2020,
(C) in a case where the order has been passed by the Assessing Officer on or before the specified date, and the time for filing appeal against such order has not expired as on that date
(D) in a case where objection filed by the appellant is pending before the Dispute Resolution Panel under section 144C of the Income-tax Act as on the specified date,
(E) in a case where Dispute Resolution Panel has issued any direction under sub-section (5) of section 144C of the Income-tax Act and the Assessing Officer has not passed the order under sub-section (13) of that section on or before the specified date,
(F) in a case where an application for revision under section 264 of the Income-tax Act is pending as on the specified date, the amount of tax payable by the appellant if such application for revision was not to be accepted.
Further, the pending appeal may be:
The amount payable by the declarant as per Section 3 under this Act shall be as under:
|S.No.||Nature of tax arrear||Amount payable under this Act if declaration made till 31/03/2020 (Extended to 31/12/2020 due to COVID-19 lockdown)||Amount payable under this Act if declaration made after 31/03/2020 (Extended to 31/12/2020 due to COVID-19 lockdown)|
|1||Aggregate amount of disputed tax, interest, and penalty.||Amount of disputed tax.||110% of Disputed Tax. Penalty and interest would be waived off.
(However when 10% of disputed tax exceeds the aggregate of interest and penalty, the excess shall be ignored)
|2||Aggregate amount of disputed tax, interest, and penalty determined in search cases u/s 132 or 132A of Income Tax Act.||125% of the disputed tax.
(However when 25% of disputed tax exceeds the aggregate of interest and penalty, the excess shall be ignored)
|135% of the disputed tax.
(However when 35% of disputed tax exceeds the aggregate of interest and penalty, the excess shall be ignored)
|3||Where a tax arrears relates to disputed interest or disputed penalty or disputed fee.||25% of disputed interest, penalty or fee.
Balance 75% would be waived of
|30% of disputed interest, penalty or fee.
Balance 70% would be waived off.
Note 1: Restriction of amount payable to 50% of the above in the following cases (Proviso to Section 3 of the Act):
1. Appeal or writ petition or special leave petition is filed by the Income Tax Authority on any issue before the appellate forum.
2. Issue is a covered matter in subsequent year :
Appeal filed before the Commissioner (Appeals) or objections filed before the Dispute Resolution Panel by the appellant on which decision was given in his favor by the Income Tax Appellate Tribunal (where the decision on such issue is not reversed by the High Court or the Supreme Court) or the High Court (where the decision on such issue is not reversed by the Supreme Court).
Appeal is filed by the appellant on any issue before the Income Tax Appellate Tribunal on which decision was given in his favor by the High Court (where the decision on such issue is not reversed by the Supreme Court).
Note 2: Refund of excess tax paid by taxpayer over the amount payable under the Scheme shall be granted back to the assessee.
2. IMPORTANT CONCEPTS UNDER VIVAD SE VISHWAS
|Appeals pending as on 31.01.2020||Amount of Tax payable if such appeal was to be decided in favor of revenue|
|Where an order in appeal has been passed on or before 31.01.2020, and time for filing further appeal has not expired as on 31.01.2020||Amount of tax payable after giving effect to the order so passed|
|Where an order in original has been passed by Assessing officer on or before 31.01.2020, and time for filing appeal has not expired as on 31.01.2020||Amount of tax payable in accordance with such order|
|Where objection filed is pending before Dispute Resolution Panel (DRP) u/s 144C as on 31.01.2020||Amount of tax payable if the DRP was to confirm the variations proposed in the draft order.|
|Where DRP has issued any direction u/s 144C(5) and the AO has not passed final order as on 31.01.2020.||Amount of tax payable as per the assessment order to be passed by the Assessing Officer|
|Where an application for revision under section 264 is pending as on the 31.01.2020||Amount of tax payable if such application for revision was not to be accepted|
** Amount of Tax Payable= Income Tax + Surcharge + Cess
3. NON APPLICABILITY OF VIVAD-SE-VISHWAS ACT, 2020 [SECTION 9]
4. PROCEDURAL CONCEPTS UNDER VIVAD SE VISHWAS
5. CLARIFICATIONS ISSUED BY CBDT
6. CERTAIN ISSUES & CLARIFICATIONS UNDER THE ACT
♦ Consider the case where the appellate order is in favor of the assessee, and assessee is of the view that department may go in appeal after 31st January 2020, can the assessee take shelter of this Act?
Yes, in such cases, appeal shall be assumed to be filed by the department and the first proviso to section 3 shall come into picture. Hence, the amount payable shall be one-half of the amount payable under the act.
For instance, Addition to the returned income and the tax payable, as assessed, by AO amounted to be INR 1000 and INR 300 respectively. The said addition is reversed by the CIT(A) as on 30 January 2020. Further, the assessee contemplates that revenue shall file an appeal after 31st January for the said order of CIT(A).
The recourse available with the assessee is to pay an amount of INR 150 (50% of tax payable) under the Act and the proceedings shall abate.
♦ What options are available where dispute relates to reduction of losses or unabsorbed depreciation?
Option 1 – Pay notional tax on amount by which the loss is reduced and carry forward the full amount of loss ignoring such reduction.
Option 2 – No payment to be made but the carry forward loss is restricted to the loss so assessed.
For instance, refer the following situation:
|Income/(Loss) as per ROI||(1000)|
|Assessed income/(loss) as per AO||(600)|
|If taxpayer opts for VsV||Option 1||Option 2|
|Notional tax payable on the amount by which loss is reduced||120
|Amount payable under VsV Act||240||–|
|Loss carry forward to year 2||1000||600|
*Note: It is pertinent to note that if an assessee opts for option 2 i.e., reduced loss to be carried forward, there exist chances, that the losses have already been utilized in the subsequent year relevant to Assessment year. Therefore, option 1 is good-to-go in cases where the losses have been set off in subsequent years.
♦ Where an appellant desires to settle appeal for concealment of penalty pending before CIT(A), while continuing to litigate quantum appeal that has travelled to higher appellate forum. Since both of these are separate appeals, whether the appellant can settle one to the exclusion of others?
If both the appeals i.e., quantum appeal and penalty appeal are pending, the declarant is required to pay disputed tax only. Further, an appellant cannot apply for settlement of penalty appeal only, when appeal on disputed tax linked to such penalty is pending.
♦ Whether appeals against penalty on late furnishing of TDS/TCS return (Section 234E) & Income Tax Return (Section 234F) are covered?
If appeal is pending against the disputed fee, the appellant is eligible for declaration and shall be liable to pay 25% or 35% of the disputed fee, as the case may be. However, if fee imposed pertains to a year in which there is disputed tax, the settlement of disputed tax shall not settle the disputed fee, assessee has to settle it separately by paying 25% or 35% of the disputed fee, as the case may be.