Direct Tax Alert: CBDT issues further guidance on Direct Tax Vivad Se Vishwas Scheme, 2024

BACKGROUND

The Direct Tax Vivad Se Vishwas Scheme, 20241  (‘VsV 2024’ or the Scheme) was introduced with a motive to reduce pending income-tax litigations, generate timely revenue for the Government and benefit taxpayers by providing them peace of mind, certainty and savings on account of time and resources. Please click here to read our detailed alert on VsV Rules, 2024.

After the enactment of VsV 2024, several queries were raised by the stakeholders seeking guidance in respect of various provisions relating to the scheme. Subsequently, the Central Board of Direct Taxes (CBDT) issued a circular in the form of a Guidance note 1 2  which addressed 35 FAQs. Please click here to read our detailed alert on Guidance Note 1/2024. However, several additional queries were received from the stakeholders for further clarification. In order to address the same, Guidance Note 2/20243  vide a circular has been issued by the CBDT for creating better awareness and understanding with respect to the Scheme.

We, at BDO in India, have analysed and summarised the key aspects of the said guidance note hereunder:

1.    Eligibility of cases:

  • Appeals pending on 22 July 2024, but disposed-off on or before the filing of declaration (FAQ 36 and 37).
    • Taxpayer’s appeal pending as of 22 July 2024 are eligible for the Scheme, even if such appeal is subsequently disposed-off on merits or withdrawn for the purposes of the Scheme. Further, disputed tax will be calculated as if such appeal was yet to be disposed-off. 
    • In case a taxpayer has filed a declaration in Form-1 under the Scheme and after the declaration, the appeal has been disposed-off, such case will be eligible for settlement under the Scheme.
  • Appeals filed along with the application for condonation of delay (FAQ 38 and 39)
    • In case the time limit for filing of appeal has expired before 22 July 2024 but an appeal along with the application for condonation of delay has been filed after 22 July 2024, it does not tantamount to pendency of appeal as on 22 July 2024 and hence, will not be eligible under the Scheme. However, a taxpayer can opt for the Scheme in case an appeal along with condonation of delay has been filed on or before 22 July 2024 and the appeal has been admitted by allowing condonation of delay prior to the date of filing of declaration. 
  • Appeals filed against intimation under section 143(1)of the IT Act (FAQ 41)
    • Appeal filed against intimation under section 143(1) of the Income-tax Act, 1961 (IT Act) and pending as on 22 July 2024 is eligible under the Scheme.
  • Information received under section 904  or section 90A5  of the IT Act (FAQ 43)
    • The Scheme shall not apply where tax arrears relate to assessment/ reassessment made on the basis of information received under section 90 or 90A of the IT Act.
    • Where information received under section 90 or section 90A of the IT Act has not been used for making additions in assessment/ re-assessment order, taxpayers can opt for the Scheme for such orders.
  • Review petitions pending before High Courts or Supreme Court (FAQ 44)
    • Such cases won’t be eligible for settlement under the Scheme even if a review petition is pending as on 22 July 2024 since pendency of review petitions does not tantamount to pendency of an appeal.
  • Proceedings pending before Income Tax Settlement Commission (ITSC) (FAQ 45)
    • The Scheme cannot be availed in cases where proceedings are pending before ITSC or where writ has been filed against the order of ITSC.
  • Other cases
    • In cases where declaration/ application has been filed under section 158A 6/158AA 7/158AB8  of the IT Act on or before 22 July 2024, the taxpayer can opt for settlement under the Scheme, provided that if there is any appeal relating to the relevant year, it is also settled. (FAQ 46)
    • As per section 2489  of the IT Act, no appeal can be filed where tax is paid to the credit of the Central Government on or after 1 April 2022. However, appeal filed under section 248 of the IT Act, prior to 1 April 2022, is eligible under the Scheme. (FAQ 42)
    • Search cases before 1 April 2021 where assessment was made under section 153A or 153C of the IT Act for years other than the search year and under section 143(3) of the IT Act for search years are not eligible for the Scheme. (FAQ 40) 


2.    Set-aside Appeal (FAQ 47)

  • In cases where an appeal has been set-aside fully to Tax Tribunal/ First-Appellate authority/ DRP, such appeals will be eligible for settlement if the appeals were pending on 22 July 2024.
  • Where an appeal has been partially set-aside to Tax Tribunal/ First-Appellate authority/ DRP, all the issues which have been set-aside will form a separate appeal and shall be eligible for settlement and disputed tax will be computed as if pending at the level to which it is set-aside.
  • However, matters set-aside to the tax officer are not covered under the Scheme.


3.    Prosecution Proceedings 

  • The Scheme shall not apply in respect of tax arrears relating to a Fiscal Year (FY) in respect of which prosecution has been instituted on or before the date of filing of declaration. Accordingly, where the prosecution proceedings have not yet been filed before a court of law, the taxpayer can opt for the Scheme. (FAQ 48)
  • In cases where prosecution is for a different FY and the appeal for a different FY, the taxpayer won’t be debarred from filing declaration for FY for which prosecution has not been instituted. (FAQ 49) 


4.    Payment and Computation of disputed amount:

  • The amount payable is linked to the date of filing declaration. Lower rate will apply if the declaration is filed on or before 31 December 2024. While the payment of disputed amount is required to be made within 15 days of the date of receipt of certificate in Form No. 2. (FAQ 50) 
  • If additional ground has been filed on or before 22 July 2024, it shall be considered for  computing disputed tax. (FAQ 51)

5.    Disputed Penalty

  • Penalty levied after a declaration has been filed for settlement of the associated quantum appeal would be waived. (FAQ 52)
  • Penalties unrelated to quantum additions are eligible for settlement where an appeal in respect of such penalty is pending as on 22 July 2024. Such penalties are unrelated to quantum additions and therefore, can be settled independent of quantum appeals. Further, where the additions made in an assessment have reached finality and no quantum appeal is pending as on 22 July 2024, such penalty can be settled separately under the Scheme. (FAQ 53)
  • Appeal against penalties unrelated to quantum assessment like penalties under section 271B10 , 271BA11 , 271DA12  of the IT Act, etc. are not automatically waived upon settlement of appeal relating to disputed tax and are required to be settled separately. (FAQ 54)

6.    Advance Pricing Agreement (APA) and Mutual Agreement Procedure (MAP) cases (FAQ 55)

  • Issues pending in appeal are to be settled in full, including those pertaining to APA/MAP adjustments. 

7.    Taxes paid before filing Declaration  

  • Credit for taxes paid against disputed tax before filing declaration shall be available against the payment to be made under the Scheme. (FAQ 56)
  • Cases where appeal is pending as on 22 July 2024 but disputed tax demands have been already fully paid before filing of declaration, will be eligible under the Scheme. (FAQ 57)

8.    Withholding tax related queries 

  • Where a deductee has settled his tax liability, the deductor is relieved from his withholding tax liability other than interest payable. Consequential relief for expense deduction under section 40(a)13  of the IT Act shall be available to such deductor. (FAQ 58)
  • Appeals filed under section 200A14  of the IT Act can be settled under the Scheme if appeal is pending as on 22 July 2024. (FAQ 59)


9.    Transfer Pricing Adjustment

  • If a taxpayer avails the Scheme for Transfer Pricing adjustment, secondary adjustment under section 92CE15  of the IT Act will be applicable for FY 2016-17 and onwards. (FAQ 62)

10.    Miscellaneous

  • The Designated Authority can amend his order to rectify any apparent errors. (FAQ 60)
  • In cases where an appeal is pending in respect of foreign entity not having adequate business presence in India, a representative of the foreign entity can opt for settlement under the Scheme with proper authorisation. Similarly, in the case of deceased taxpayer, the legal representative may also opt for settlement under the Scheme. (FAQ 61)

BDO IN INDIA COMMENTS

Additional clarifications provided by the CBDT in form of FAQs covering various aspects such as eligibility, computing disputed amount, etc. is a welcome move. Since the deadline to avail maximum benefit of the Scheme (i.e. 31 December 2024) is fast approaching, taxpayers intending to apply for the Scheme should consider the impact of above FAQs.
   
Few FAQs/ the Scheme are on a different footing vis-à-vis the observations of the following Delhi High Court decisions in the context of eligibility under the Scheme:
 

As per Delhi High Court decision

As per FAQ

NRA Iron and Steel Pvt. Ltd.16 : Review petition pending as of 31 January 2020, qualifies as a ‘pending proceeding’ under the Direct Taxes Vivad se Vishwas Scheme (VsV 2020).

FAQ 44 states that review petition pending before the High Courts or the Supreme Court are not eligible for the Scheme.

Naveen Kumar Agarwal17 : VsV 2024 discriminates between taxpayers based on timing of filing an appeal and accordingly, directed the CBDT to consider the Scheme to be made applicable to taxpayers in whose case the statutory filing of appeal has not expired as on 22 July 2024.

This has not been discussed in FAQ.
The Scheme allows settlement of appeals pending as on 22 July 2024 and unlike VsV 2020, it does not include cases where the time limit to prefer appeal has not expired as on 22 July 2024.
 

Considering the above, one needs to see whether the CBDT provides clarification on the above decisions by Delhi High Court so that taxpayers with similar issues can avail the Scheme.
 

1Notification No. 104/2024, F. No. 370142/16/2024-TPL, dated 20 September 2024
2Circular No. 12 of 2024, dated 15 October 2024 
3Circular No 19 of 2024, dated 16 December 2024
4Section 90 of the IT Act relates to the agreements with foreign countries or specified territories.
5Section 90A of the IT Act provides for the adoption of agreement by Central Government between specified associations for double taxation relief.
6Section 158A of the IT Act provides the procedure where the taxpayer claims identical question of law is pending before High Court or Supreme Court.
7Section 158AA of the IT Act provides the procedure where in an appeal by revenue an identical question of law is pending before Supreme Court.
8Section 158AB of the IT Act provides the procedure where an identical question of law is pending before High Courts or Supreme Court.
9Section 248 of the IT Act relates to appeal by a person denying liability to withhold tax in certain cases.
10Section 271B of the IT Act provides for the penalty in case any person fails to get his accounts audited.
11Section 271BA of the IT Act provides for the penalty in case any person fails to furnish report under section 92CE of the IT Act.
12Section 271DA of the IT Act provides for the penalty in case any person fails to comply with the provisions of section 269ST of the IT Act.
13Section 40 of the IT Act provides for the amounts not deductible in computing the income chargeable under the head ‘Profits and gains of business or profession’.
14Section 200A of the IT Act provides the manner for processing of statements of withholding tax.
15Section 92CE of the IT Act provides certain cases where secondary adjustment is applicable.
16NRA Iron and Steel Pvt Ltd vs. ITD & Others, WP no. (C) 3537/2021, Delhi High Court
17Naveen Kumar Aggarwal vs. CBDT, WP No. (C)17014/2024, Delhi High Court