Analysis of the Direct tax Vivad se Vishwas act, 2020

You might have heard/read about the Vivad Se Vishwas Scheme in the Budget 2020 which is intended to reduce or simplify the litigations under which an assessee is not required to pay heavy penalties and interests in case of any pending dispute with the department. Only pending tax amount have to be paid.

This proposed scheme has received the assent of the President on 17th March, 2020 and became THE DIRECT TAX VIVAD SE VISHWAS ACT, 2020.

Why Vivad se Vishvas scheme?

As per the reports of the Income Tax Department, there are more than 4,50,000 pending cases before the appellate authorities under which an amount of more than 9 trillion Rupees is outstanding on the part of the assessees in these appeals. This scheme aims at speedy and hassle free recovery of these outstanding dues.

A Win-Win Situation:

A win-win situation is a situation where both the parties reap the benefits from a particular scenario. I am saying this scheme a win-win situation because here, the department will be able to get the long standing amounts back and on the other side the assessees will get complete or partial waiver of interest & penalty without going into further appeals.

Read further to understand this win-win situation in detail.

Eligibility for Vivad se Vishwas scheme:

The following assessees/cases are eligible for availing this scheme:

• Appeals, writ petitions or special leave petitions (SLP) filed by department or taxpayer on or before 31/01/2020
• Where an order in an appeal or writ has been passed by the Appellate in respect of which time for filling appeal has not expired on 31/01/2020
• Cases pending before Dispute Resolution Panel (DRP) under Section 144C of The Income Tax Act, 1961 on 31/01/2020.
• Cases where Dispute Resolution Panel (DRP) has issued any direction but orders has not yet been passed on or before 31/01/2020.
• Cases where assessee has filed application for revision under section 264 of The Income Tax Act, 1961.
• Cases including disputed tax (including interest or penalty on such disputed tax) in relation to an assessment or reassessment order.
• Cases including disputed interest disputed penalty or disputed fees where there is no disputed tax.
• Disputes where payment has already been made.
• Cases including disputed tax due to notice of enhancement.

Duration of the Vivadse vishwas Scheme:

This scheme has come into the force from the date of assent of the President i.e. 17th March, 2020 and the last date to avail this scheme without interest is 30th June, 2020. Earlier it was 31st March, 2020 but it has been extended due to Covid-19 outbreak.

Provided, the last date without interest may be further extended and the date of closure of scheme is still not notified. Earlier, the expected date of closure of this scheme was 30th June, 2020.

Also, the payment made after 30th June, 2020 and before the date of closure of scheme will include the payment of interest on the “outstanding amount calculated as per this scheme.”

Terms of Payment:

[Hereunder, the term appeal will include Appeals, Writ Petitions, SLPs and Arbitration]

Category-I: Payment on or before 30th June, 2020.

• Appeals relating to Disputed Tax: 100% of the disputed tax and there will be complete waiver of interest & penalty.

• Appeals relating only to the disputed penalty or interest or fee: 25% of the disputed penalty or interest or fee.

Category-II: Payment after 30th June, 2020.

• Appeals relating to Disputed Tax: 110% of the disputed tax and there will be complete waiver of interest & penalty.
• Appeals relating only to the disputed penalty or interest or fee: 30% of the disputed penalty or interest or fee.

Category-III: Search Cases. Payment on or before 30th June, 2020

• Appeals relating to Disputed Tax: 125% of the disputed tax and there will be complete waiver of interest & penalty.
• Appeals relating only to the disputed penalty or interest or fee: 25% of the disputed penalty or interest or fee.

Category-IV: Search Cases. Payment after before 30th June, 2020

• Appeals relating to Disputed Tax: 135% of the disputed tax and there will be complete waiver of interest & penalty.
• Appeals relating only to the disputed penalty or interest or fee: 30% of the disputed penalty or interest or fee.

Category V:

If an issue in taxpayer’s pending appeal already decided in favor of taxpayer by Higher Appellate Forum or if Department has filed appeal; Amount payable is 50% of the aforesaid amounts.

Filing of Declaration:

The term Declaration has not been defined under this Act but it can be understood with its literal meaning. As per this Act, an assessee (i.e. declarant) is required to file the declaration to the department in order to avail the benefit of the scheme. The declaration will include the details of the pending “eligible cases” and the disputed amounts of the respective declarant. In essence, the declaration here is a statement covering details of dispute.

Time & Manner of Payment:

Step 1: Assessee (declarant) will file declaration to the designated authority. Designated Authority means an officer not below the rank of Commissioner of Income Tax.

Step 2: The designated authority shall within 15 days from the date of receipt of declaration issue a Certificate to the declarant covering the details of the tax arrears and the amount payable by the declarant.

Step 3: The declarant shall pay the amount determined in the prescribed form within 15 days of the receipt of the Certificate.

Ineligible Cases for the Scheme:

• Search cases if disputed tax in a year is more than Rs.5 crore.
• Cases where prosecution has been initiated by the department under Income Tax Act or under Indian penal Code.
• Cases involving undisclosed foreign income & assets.
• Cases completed on the basis of information received from foreign jurisdiction.
• Cases where person is notified under Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992 or detained under Conservation of Foreign Exchange and prevention of Smuggling Activities Act, 1974.
• Cases covered under Narcotic Drugs & Phychotropic Substances Act, Unlawful Activities (Prevention) Act, Prevention of Corruption Act, Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, Prevention of Money Laundering Act, Prohibition of Benami Property Transactions Act.

Benefits of availing this Scheme:

To Assessees:

• Consequent to such declaration and on fulfilment of conditions, all appeals, writs, SLPs, arbitration to be withdrawn (both by taxpayer and by department)
• Immunity to be granted from levy of interest, penalty and institution of any proceeding for prosecution for any offence under The Income Tax Act in respect of matters covered in the declaration.
• If excess payment made before filling declaration, Refund shall be issued but there will no payment of interest on the refund amount.

To Department:

• As this scheme has been implemented for a very short duration of time, this will ensure speedy recovery of the outstanding dues.
• Further, this scheme ensures disposal of appeals which will reduce the burden from the appellate authorities.
• In the absence of this scheme, the department has to follow the standard appellate procedures which will take its usual time to complete the assessments under which there are higher chances of the cases to go into further appeals, resultant of which the department may lose complete revenue in some cases. This scheme ensures recovery of disputed tax amount in 100% as the waiver has been given to pending interest and penalty amounts only.

Projected Scenario after this Scheme:

Suppose, 50% of the assessees avails the scheme and remaining 50% do not opt for it. So, the availing of this scheme by 50% will ensure the instant recovery of 50% of the outstanding amounts which otherwise would not be possible in one Assessment Year without this scheme.

Now, what about the other 50% who do not avail this scheme?

The answer is simple, the department will take its usual time in the collection of that amount but the point to be noted is that department will not waive the interest and penalty amounts on that disputed tax amounts and also due to passage of time, there will be more accumulation of interest and penalty. In this way, department will recover more amount in the future from those 50% of the assessees who did not opt for the scheme.

So, in this way it is win-win situation for both the parties that is the department and the assessee.

The author can also be reached at Atulkhurana9@gmail.com