Inspired by “The Sabka Vishwas Scheme” which resolved many indirect tax disputes, our Finance Minister tabled the “Vivad Se Vishwas Bill, 2020” in parliament on February 5, 2020.
BACKGROUND ANALYSIS :
Over the years, the pendency of appeals filed by taxpayers as well as Government has increased due to the fact that the number of appeals that are filed is much higher than the number of appeals that are disposed. As a result, a huge amount of disputed tax arrears is locked-up in these appeals.
As on the 30th November, 2019, the amount of disputed direct tax arrears is Rs. 9.32 lakh crores. Considering that the actual direct tax collection in the financial year 2018-19 was Rs.11.37 lakh crores, the disputed tax arrears constitute nearly one year direct tax collection.
Tax disputes consume copious amount of time, energy and resources both on the part of the Government as well as taxpayers. Moreover, they also deprive the Government of the timely collection of revenue. Therefore, there is an urgent need to provide for resolution of pending tax disputes.
“This will not only benefit the Government by generating timely revenue but also the taxpayers who will be able to deploy the time, energy and resources saved by opting for such dispute resolution towards their business activities.”
(i.) Reduce pending litigations,
(ii.) Generate timely revenue for the government,
(iii.) Providing peace of mind and saving of time and resources,
(iv.) Help tax payers settling their disputes by paying disputed tax and get waiver from disputed interest and penalty and also get immunity from prosecution.
The following are eligible to opt for Vivaad Se Vishwas Scheme :
(i.) Appeals pending before the appellate forum [Commissioner (Appeals), Income Tax Appellate Tribunal (ITAT), High Court or Supreme Court], and
(ii.) Writ petitions pending before High Court (HC) or Supreme Court (SC) or special leave petitions (SLPs) pending before SC as on the 31,t day of January, 2020 (specified date) are covered.
(iii.) 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.
(iv.) Cases where revision application under section 264 of the Act is pending before the Principal Commissioner or Commissioner are covered as well.
(v.) Further, where a declarant has initiated any proceeding or given any notice for arbitration, conciliation or mediation as referred to in clause 4 of the Bill is also covered.
(vi.) Pending appeal may be against disputed tax, interest or penalty in relation to an assessment or reassessment order or against disputed interest, disputed fees where there is no disputed tax. Further, the appeal may also be against the tax determined on defaults in respect of tax deducted at source or tax collected at source;
(vii.) Further, the scheme is also applicable to the following cases where, as on January 31, 2020 ;
(viii.) Time limit for filing an appeal has not expired;
(ix.) Cases are pending before the Dispute Resolution Panel (DRP) or where DRP directions have been passed but final assessment order is awaited;
(x.) Revision petitions are pending before the Commissioner of Income-tax; and
(xi.) Search cases where the disputed demand is less than Rs 5 crore.
EXAMPLE : For example, 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 he filed for 4 assessments where disputed tax is five crore rupees or less in each year.
An assesee whose case is pending in arbitration even if no appeal is pending is eligible for this scheme. “The disputed tax in this case would be the tax (including surcharge and cess) on the disputed income with reference to which the arbitration has been filed.”
NOTE (1) : Vivad se Vishwas can be availed by the appellant irrespective of whether the tax arrears have been paid either partly or fully or are outstanding.
COMPUTATION OF DISPUTED TAX :
“Disputed Tax”, in relation to an assessment year, means :
(i.) Tax determined under the Income-tax Act, 1961 in accordance with this formula : [(A – B) + (C – D)]
A = an amount of tax on the total income assessed as per the provisions of the Income-tax Act, 1961other than the provisions contained in section 115JB or section 115JC of the Income-tax Act, 1961(herein after called general provisions);
B = an amount of tax that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of income in respect of which appeal has been filed by the appellant;
C = an amount of tax on the total income assessed as per the provisions contained in section 115JB or section 115JC of the Income-tax Act, 1961;
D = an amount of tax that would have been chargeable had the total income assessed as per the provisions contained in section 115JB or section 115JC of the Income-tax Act, 1961 been reduced by the amount of income in respect of which appeal has been filed by the appellant
EXAMPLE : While considering a non-search case where an assesee is in appeal before commissioner (Appeals).The tax on returned income (including surcharge and cess)comes to Rs.30,000 and interest under section 234B of Rs.1,000.The assessee has paid this amount of Rs.31,000 at the time of filing his tax return.
During an assessment ,an addition is made and additional demand of Rs.16,000 has been raised, which comprises of disputed tax(including surcharge and cess) of Rs.10,000 and interest on such a disputed tax of Rs.6,000. The penalty has been initiated separately . The assesee has paid the demand of Rs.14,000 during the pendency of appeal; however interest under section 220 of the act is yet to be calculated.
The assessee filed a declaration which is accepted and the certificate is issued by the designated authority .The disputed tax of 10,000(at 100%) is to be paid on or before 31st march 2020.Since he has already paid Rs.14,000,he would be entitled to a refund of Rs.4000(without section 244A interest). Further the interest leviable under section 220 and penalty leviable shall also be waived.
AMOUNT PAYABLE BY DECLARANT :
FILING OF DECLARATION :
STEP 1 : Taxpayer has to file a declaration in a specified Form (which is yet to be notified) to the designated authority (Principal Chief Commissioner shall designate an officer, not below the rank of a Commissioner of Income-tax as the designated authority) to initiate resolution of pending direct tax disputes. Along with the declaration, the taxpayer has to also furnish an undertaking in a specified format (which is also yet to be notified) waiving his right to pursue any other remedy/claim.
STEP 2 : Based on the declaration, within 15 days, the designated authority will determine the amount payable by the Applicant and grant a certificate, containing particulars of the amount payable. It has been clarified that the applicant will not be able to file any appeal in case it does not agree to the amount determined by designated authority.
STEP 3 : The Applicant has to make the payment of the said amount within the next 15 days and submit the proof of withdrawal of appeal. The proof of appeal could either be an order dismissing the appeal due to withdrawal or can be the application filed to withdraw the appeal.
STEP 4 : The designated tax authority will then pass an order, which shall be conclusive as to the matters stated therein.
NOTE : If the above four steps are not completed by 31 march 2020, then they need to make additional payment as specified in above table.
LAST DATE FOR VIVAD SE VISHWAS SCHEME:
While the Bill passed in the lower house of the Parliament says that the last date will be later notified, however, the Finance Minister in her budget speech had mentioned that the same shall be open until June 30, 2020.
NOTE 1 : Subject to the provisions of section 5, the designated authority shall not institute any proceeding in respect of an offence; or impose or levy any penalty; or charge any interest under the Income-tax Act in respect of tax arrears.
NOTE 2 : Any amount paid in pursuance of a declaration made under section 4 shall not be refundable under any circumstances.
NON – APPLICABILITY OF SCHEME :
Tax dispute settlement scheme (Vivad se Vishwas) will not be applicable for the taxpayers in tax arrears related disputes as given below :
(i.) The scheme will not be applicable for an assessment year where the assessment has been made under section 153A or section 153C of the IT Act if it is related to any tax arrear.
(ii.) For an assessment year where the prosecution has been instituted on or before the date of filing of declaration.
(iii.) Any disclosed income from a foreign source outside India or any undisclosed assets outside India.
(iv.) For an assessment or reassessment that has been made as per the agreement highlighted in section 90 or section 90A of the Income-tax Act.
(v.) The scheme will not be applicable in cases where the appeal before the Commissioner in regard to the notice of enhancement has been made under section 251 of the Income Tax Act.
(vi.) The scheme will also not applicable to any individual against whom an order of detention has been passed under the provisions of Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 on or before the filing of declaration.
BENEFIT TO TAX PAYERS :
Apart from waiver of interest and penalty, the taxpayer shall also get the following immunities once the case is settled under the scheme :
(i.) Such cases cannot be reopened in any other proceeding by any tax authority or designated authority;
(ii.) Once the dispute has been resolved, an appellate forum cannot issue an order in relation to the matter; and
(iii.) Opting for the scheme shall not amount to conceding the tax position and tax authority cannot claim that taxpayer has acquiesced to the decision on the disputed issue.
In essence, the scheme is the government’s initiative to reduce disputes and also collect the revenues clogged in long pending litigations. All these steps also show the eagerness of the government in reaching out to the taxpayer to enable settlement of long pending disputes.
Though these are steps in the right direction towards building taxpayers’ “Vishwas”, implementation of the scheme may pose certain practical challenges in the beginning.
It may not be inappropriate to say that this is indeed a golden opportunity for taxpayers to resolve disputes if they believe litigation are not worth their time and efforts, and start evaluating their cases.
It is totally the choice of the taxpayer to opt or not the benefits of the scheme. He should make an informed decision. Consider the rules and requirements before going for the scheme. Conduct a cost analysis before going for or dropping the scheme. It can benefit you if you make a wise decision.
NOTE : “VIVAD SE VISHWAS SCHEME HAS BEEN EXTENDED TILL 30th JUNE, 2020 DUE TO COVID-19 IN INDIA”
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