BACKGROUND

Considering the success of Direct Taxes Vivad se Vishwas Scheme (VsV 2020), Finance (No.2) Act, 2024 introduced the Direct Tax Vivad Se Vishwas Scheme 2024 (‘VsV 2024’ or Scheme) with a motive to reduce the pending income-tax litigations, timely recovery of outstanding tax demands and providing mental as well as monetary relief to the taxpayers. The said Scheme has commenced with effect from 1 October 2024 and will be applicable to all appeals that are pending as of 22 July 2024 (Specified Date). On 20 September 2024, the Central Board of Direct Taxes (CBDT) issued Vivad Se Vishwas Rules (VsV Rules, 2024) and forms for enabling the Scheme. Please click here to read our detailed alert on VsV Rules, 2024.

Post enactment of VsV 2024, several queries were raised by the stakeholders seeking guidance in respect of various provisions contained therein. In order to address the same, the CBDT has issued a circular¹ providing clarifications on various matters such as eligibility criteria, rates, forms timelines etc.

We, at BDO in India, have analysed and summarised the key provisions of the circular hereunder:

1. What are the relevant Forms and Timelines specified in the Scheme?

The following forms have been notified for the purposes of VsV 2024:

• The Scheme also provides that Form- 1 shall be filed separately for each dispute, provided that where the taxpayer and the income-tax authority, both have filed an appeal in respect of the same order, a single Form- 1 shall be filed in such a case.

• The intimation of payment is to be made in Form-3 and is to be furnished to the Designated Authority along with proof of withdrawal of the appeal, objection, application, writ petition, special leave petition, or claim.

2. Kindly clarify which assessments shall be considered to have been made on the basis of the search initiated under section 132/132A of the IT Act.

Assessments under section 153A or 153C of the IT Act are clearly made on the basis of a search initiated under section 132/132A of the IT Act. Therefore, such cases shall not be eligible for the VsV, 2024.
For other cases where assessments have been made under section 143(3)/144/147 of the IT Act, the following cases shall be considered as cases where assessments have been made on the basis of a search initiated under section 132/ 132A of the IT Act.

• Where a search is initiated under section 132 of the IT Act or books of account, other documents or any assets are requisitioned under section 132A of the IT Act, on or after 1 April 2021, in the case of the taxpayer and assessments have been made consequently; or

• Where the tax officer has drawn satisfaction, with the prior approval of the Principal Commissioner or Commissioner, that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned under section 132 or section 132A of the IT Act in case of any other person on or after the 1 April 2021, belongs to the taxpayer and assessments have been made consequently; or

• Where the tax officer has drawn satisfaction, with the prior approval of Principal Commissioner or Commissioner, that any books of account or documents, seized or requisitioned under section 132 or section 132A of the IT Act in case of any other person on or after the 1 April 2021, pertains or pertain to, or any information contained therein, relate to, the taxpayer and assessments have been made consequently.

3. A taxpayer is evaluating to close a few years in VsV 2024 out of 4 rollback years. Whether Advance Pricing Agreement be pursued for the remaining years of the 4 rollback years?

As per CBDT Circular 15/2015 dated 10 June 2015, the taxpayer does not have the option to choose the years for which it wants to apply for rollback. The taxpayer has to either apply for all four years or not apply at all. However, if the covered international transaction(s) did not exist in a rollback year or there is some disqualification in a rollback year, then the taxpayer can apply for rollback for less than four years.

Thus, in certain exceptions, the rollback period could be less than 4 years also. On the same analogy, if a few years are settled in the Scheme, the rollback can be applied for the remaining years.

4. Where the taxpayer’s appeal was pending as of 22 July 2024, however before filing of declaration under the VsV 2024 his appeal was disposed off. Can such taxpayers still file declarations under the Scheme?

The VsV, 2024 is a Scheme for settlement of tax disputes. Where a decision has been given prior to the taxpayer filing a declaration, there is no dispute pending unless the taxpayer or the Tax Authority again prefers an appeal. Therefore, where an appeal is pending as of 22 July 2024 but is not pending as of the date of making declaration under the Scheme, such cases shall not be eligible for the Scheme.

However, in cases where a taxpayer files a declaration under section 90² of the Scheme and intimates the same to the appellate authority, the concerned appellate authority may consider not disposing of the appeal of the taxpayer.

5. Extant provisions of VsV 2024, do not cover cases where the Taxpayer would have received orders but the lime limit to file an appeal / special leave petition had not expired as on 22 July 2024. Is there any possibility that such cases can be covered in the Scheme?

As per section 89(1) of the Scheme, it is clear that the appeal has to be pending on the specified date i.e. 22 July 2024 for an appellant to be eligible for the Scheme. The definition of appellant also covers cases where the DRP has issued directions under section 144C(5) of the IT Act but the tax officer has not completed the assessment under section 144C(13) of the IT Act.
Therefore, the Scheme does not provide for the eligibility of those cases where an appeal is not pending as of 22 July 2024 except for DRP cases referred to above.

7. Can a taxpayer settle a penalty appeal while continuing to litigate the associated quantum appeal?

Section 89(1)(i) of the Scheme defines the ‘disputed penalty’ as a penalty which is not levied or leviable in respect of disputed income or disputed tax. Thus, it would not be possible for the taxpayer to apply for settlement of penalty appeal only, when the appeal on disputed tax related to such penalty is still pending.

If both quantum appeals covering disputed tax and appeal against penalty levied on such disputed tax for a tax year are pending, the taxpayer is required to file a declaration form giving details of both disputed tax appeal and penalty appeal. However, the taxpayer would be required to pay a relevant percentage of the disputed tax only.

8. If there is substantive addition as well as protective addition in the case of the same taxpayer for different tax year, how will that be covered? Similarly, if there is a substantive addition in the case of one taxpayer and a protective addition on the same issue in the case of another taxpayer, how will that be covered under VsV 2024?

Where substantive as well as protective additions have been made whether in the case of the same taxpayer for different tax years or in the hands of different taxpayers, then either of the two additions i.e. substantive or protective can be settled if the substantive addition is eligible for settlement under the scheme.

On settlement of a dispute related to substantive or protective addition, the tax officer shall pass a rectification order deleting the protective or substantive addition, as the case may be, relating to the same issue in the case of the same taxpayer or in the case of another taxpayer.

9. Are disputes relating to wealth tax, security transaction tax, commodity transaction tax and equalisation levy covered?

No. Only disputes relating to income tax are covered.

10. If a taxpayer has requested for withdrawal of an appeal under section 91(3) of the Scheme and the appeal is not yet allowed to be withdrawn, how will the taxpayer furnish proof of withdrawal in such cases?

Where taxpayer has made a request for withdrawal and such request is under process, proof of request made shall be enclosed.

11. With respect to interest under sections 234A, 234B or 234C of the IT Act, there is no appeal but the taxpayer has filed a waiver application before the competent authority which is pending as of 22 July 2024. Will such cases be covered under the Scheme?

A taxpayer who has filed a waiver application is not an appellant under section 89(1)(a) of the Scheme. Therefore, such cases are not covered.

12. If the First Appellate Authority has given an enhancement notice, can the taxpayer avail the VsV 2024 after including the proposed enhanced income in the total assessed income?

Yes. Where an appeal is pending before the First Appellate Authority, the disputed tax is the amount that is payable by the taxpayer if such an appeal was to be decided against the taxpayer. This is as per the definition of ‘disputed tax’ in section 89(1)(j) of the VSV 2024. Hence, where the First Appellate Authority has given enhancement notice, the taxpayer can avail of the Scheme after including the proposed enhanced income in the total assessed income. Appropriate calculation of disputed tax is accordingly provided in the relevant Schedules of Form- 1.

13. Whether taxpayers can settle appeals under VSV 2024, using the refunds which they are expecting from the tax authority?

As per section 92(2) of the Scheme, the declarant shall pay the amount determined under section 92(1) of the Scheme within fifteen days of the date of receipt of the certificate and intimate the details of such payment to the Designated Authority in the prescribed form and thereupon the Designated Authority shall pass an order stating that the declarant has paid the amount.

There is no provision in the Scheme allowing payment of the amount determined under section 92(1) of the Scheme through adjustment of any refund expected from the Department.

14. If taxes are paid after availing the benefits of the VsV 2024, and later the taxpayer decides to take a refund of these taxes paid, would it be possible?

No. Any amount paid in pursuance of a declaration made under the Scheme shall not be refundable under any circumstances as per provisions of section 94(1) of the Scheme.

15. Will delay in the deposit of TDS/TCS be also covered under the Scheme?

The disputed tax includes tax related to tax deducted at source (TDS) and tax collection at source (TCS) which are disputed and pending in appeal. However, if there is no dispute related to TDS or TCS and there is a delay in depositing such TDS/TCS, then the dispute pending in appeal related to interest levied due to such delay will be covered under the Scheme.

16. Where the taxpayer settles the TDS appeal (against the order under 201 of the IT Act) as deductor of TDS, will credit of such tax be allowed to deductee?

Yes. However, the credit will be allowed as of the date of settlement of dispute by the deductor and hence the interest as applicable to the deductee shall apply.

17. When the taxpayer settles his own appeal under VsV 2024, will consequential relief be available to the deductor in default from liability determined under the TDS order under section 201 of the IT Act?

Yes. In such a case, the deductor in default would not be required to pay the corresponding TDS amount. However, he would be required to pay the interest under section 201(1A) of the IT Act. If such levy of interest under section 201(1A) of the IT Act qualifies for VsV 2024, the deductor in default can settle this disputed interest by filing up the relevant schedule of disputed interest.

18. Where the taxpayer settles TDS liability as a deductor of TDS under VSV, 2024 (i.e. against the order under section 201 of the IT Act), when will he get consequential relief of expenditure allowance under proviso to section 40(a)(i)/(ia) of the IT Act?

In such cases, the deductor shall be entitled to get consequential relief or allowable expenditure under proviso to section 40(a)(i)/(ia) of the IT Act in the year in which the tax was required to be deducted, if the disallowance under section 40(a)(i)/(ia) of the IT Act is with respect to the same issue on which order under section 201 of the IT Act has been issued.

However, if the taxpayer has already claimed a deduction of the same amount under section 40(a)(i)/(ia) of the IT Act in the subsequent year on account of recovery of TDS in such subsequent year, he shall not be entitled to consequential relief under section 40(a)(i)/(ia) of the IT Act on the basis of the settlement under VsV, 2024.

In this case, in the order under section 143(3) of the IT Act, there are other issues as well, and the taxpayer wants to settle the dispute with respect to the order under section 143(3) of the IT Act as well, then the disallowance under section 40(a)(i)/(ia) of the IT Act relating to the issue on which he has already settled liability under section 201 of the IT Act would be ignored for calculating
disputed tax.

19. Where a trust has been denied registration under section 12AA of the IT Act, whether an appeal against such order is eligible for VsV 2024?

No, an appeal against such an order is not eligible for VsV 2024.

20. An order has been set aside, fully or partially, to the tax officer. Can the taxpayer avail of the VsV 2024 if the set-aside matter is pending as of 22 July 2024?

According to the Scheme, an appeal which is pending as of 22 July 2024 shall be eligible for settlement. A set-aside matter to the tax officer is not an appeal pending as such. Therefore, set-aside matters to the tax officer, whether fully set-aside or partially set-aside are not covered under the Scheme.

21. Where there are two appeals filed for a tax year in respect of the same order - one by the taxpayer and one by the tax authority, whether the taxpayer can opt for only one appeal? How would the disputed tax be computed in such a case?

Yes. The taxpayer has the option to opt for settling an appeal filed by him or an appeal filed by the tax authority or both. This has to be specified in the declaration to be made in Form 1. Reference in this regard can be made to the Proviso to Rule 4 of the VsV Rules 2024, which provides that -

“where the appellant and the income-tax authority have both filed an appeal or writ petition or special leave petition in respect of the same order, single Form- 1 shall be filed by the appellant."

Accordingly, relevant Schedules in Form- 1 have to be filled out by the taxpayer and the disputed tax would be worked out.

22. If a writ has been filed against a notice issued under section 148/148A of the IT Act and no assessment order has been passed consequent to that notice, whether such cases are eligible under the Scheme?

The income in such cases is yet to be determined. Therefore, the disputed tax is not ascertainable. Thus, the taxpayer would not be eligible for the Scheme in such cases.

23. If an appeal is filed before the High Court or Supreme Court and is pending for admission as on 22 July 2024, whether the case is eligible for VsV, 2024?

Yes, it is eligible for VsV 2024.

24. Whether cross objections filed and pending as on 22 July 2024 will also be covered by the Scheme?

Yes, the same will also be covered by the Scheme.

25. Whether Miscellaneous Application (MA) pending as of 22 July 2024 will also be covered by the Scheme?

No. MA is not an appeal. Therefore, there is no pending appeal as of 22 July 2024.

26. Whether the VsV 2024 can be availed in a case where the enforceability of an assessment order passed by a tax officer has been stayed by the High Court or Supreme Court?

No. A quantum appeal pending on 22 July 2024 can be settled under the Scheme. Where an assessment order has been stayed it does not tantamount to an appeal pending as of 22 July 2024.

27. The assessment order under section 143(3) of the IT Act was passed in the case of a taxpayer for a tax year. The said assessment order is pending with the Tax Tribunal. Subsequently, another order under section 147/143(3) was passed for the same tax year and that is pending with First Appellate Authority. Could both or one of the orders be settled under VsV 2024?

The taxpayer in this case has an option to settle either of the two appeals or both appeals for the same tax year.
As per rule 4(1) of the VsV Rules, 2024, the declaration shall be filed separately in respect of each order. Therefore, if a taxpayer decides to settle both appeals, then he has to file separate declarations for the two orders.

28. There is no provision for a 50% concession in an appeal pending in the High Court on an issue where the taxpayer has got relief on that issue from the Supreme Court.

If the taxpayer has got the decision in his favour from the Supreme Court on an issue, there is no dispute now with regard to that issue and he need not settle that issue. If that issue is part of the multiple issues, the disputed tax may be calculated on other issues considering nil tax on this issue.

29. An addition was made under 143(3) of the IT Act on two issues whereas an appeal is filed only for one addition. Whether interest and penalty be waived for both additions?

Under VsV, 2024 interest and penalty will be waived only in respect of the issue which is disputed in appeal and for which declaration is filed. Hence, for the undisputed issue, the tax, interest and penalty shall be payable.

30. Once the declaration is filed under VsV, 2024, and for financial difficulties, payment is not made accordingly, will the declaration be null and void?

Yes. As per provisions of section 91(5) of the Scheme, it shall be deemed as if the declaration has not been made.

31. Whether the immunity from prosecution only for the declarant or also for the director of the company or partner of the firm with respect to the disputes settled under VsV, 2024?

If a dispute has been settled under the Scheme, the immunity from prosecution with respect to that dispute shall also extend to the director/partner of the company/firm (being the declarant) in respect of the same dispute under section 278B of the IT Act.

BDO IN INDIA COMMENTS

Timely clarification by the CBDT in relation to VsV 2024 is a welcome move. These FAQs will help the taxpayers understand which cases would come under the ambit of VsV 2024 and which would fall outside the purview of VsV2 2024. Further, taxpayers would be able to ascertain if the VsV route is more beneficial and accordingly opt to avail of its benefit. The circular specifically excludes disputes relating to equalisation levy from its ambit and clarifies that VsV applies only to the disputes relating to the Income-tax Act, 1961

It is also pertinent to note that in one of the FAQs issued for VsV 2020, it was clarified that the appeal filed against intimation under section 143(1) of the IT Act shall also be eligible under VsV 2020. However, the guidance for VsV 2024 is silent on this. A similar clarification for VsV 2024 may help in giving clarity on such type of matters. Additionally, VsV 2020 covered tax disputes in cases where an order has been passed by a tax officer or appellate authorities or the High Court but the time limit for filing an appeal has not expired as of 31 January 2020. However, the VsV 2024, does not cover cases where the Taxpayer would have received orders but the lime limit to file an appeal/ special leave petition had not expired as of 22 July 2024. Therefore, it appears that a different view has been taken in VsV 2024. Pursuant to a contrary view taken under VsV 2024, it will lead the taxpayer into long-drawn litigation which otherwise could have been resolved.