Modi 3.0 Introduces Vivad Se Vishwas 2.0

Bhavin Shah - Partner - Tax & Regulatory Services

In the third term of the Modi-led Government, the Budget 2024-25 focused predominantly on nine identified areas: productivity and resilience in agriculture, employment and skilling, inclusive human resource development and social justice, manufacturing and services, urban development, energy security, infrastructure, innovation, research and development, and next generation reforms.

On the direct tax front, in view of the above priorities, the Hon'ble Finance Minister announced proposals centred around five key pillars, namely, proposals providing tax relief, measures to promote investment and employment, simplification and rationalisation, widening and deepening of tax base and anti-avoidance, and tax administration.

With respect to Tax Administration, the government has announced several proposals (such as decriminalisation in case of delayed payments of TDS, abolition of Equalisation levy on online sale of goods and services, etc.) to simplify or reduce tax compliance burdens for taxpayers and the authorities alike. Further, building on the success of the Vivad Se Vishwas Scheme, 2020 (VSV 2020) wherein the disputed tax amount of around INR 99,756 crores1 was settled, the Government has proposed to introduce a new scheme - Vivad Se Vishwas Scheme 2024 (VSV 2024 or Scheme), aimed at tackling the backlog of tax litigation cases.

The Scheme provides a mechanism for resolving specified tax disputes pending before the appellate authorities by filing declarations with tax authorities. Upon receipt, tax authorities will issue certificates computing the tax payable, which taxpayers must settle within the prescribed time.

The key aspects of the VSV 2024 as introduced in the Finance Bill 2024 are detailed ahead.

Direct Tax Vivad Se Vishwas Scheme 2024

 A. Eligible taxpayer:

Any taxpayer can apply for the Scheme in cases where -

  •  Appeals/ writ petition/ special leave petition has been filed either by the appellant or tax authority before any forum;

  •  A taxpayer has filed objections before the Dispute Resolution Panel (DRP) under section 144C of the Income Tax Act, 1961 (Act) and DRP has not issued any directions on or before the specified date;

  •  A taxpayer in whose case DRP has issued direction but the Assessing Officer (AO) has not completed the assessment; or

  •  A taxpayer who has filed an application for revision under section 264 of the Act and such application is pending as on the specified date.

B. Ineligible cases:

The Scheme is not applicable with respect to tax arrears in cases relating to:

  •  Search cases: An assessment year in respect of which an assessment has been made on the basis of search initiated under section 132 or section 132A of the Act.

  •  Prosecution matters: An assessment year in respect of which prosecution has been instituted on or before the date of filing of declaration.

  •  Black money law cases: Any undisclosed income from a source located outside India or an undisclosed asset located outside India.

  •  Matters involving exchange of information with foreign countries: An assessment or reassessment made on the basis of information received under an agreement referred to in section 90 or section 90A of the Act, if it relates to any tax arrears.

  •  Others: Any taxpayer who has violated provisions of other specified laws.

C. Key terms:

  •  'Disputed Income' in relation to an assessment year means the whole or so much of total income as is relatable to the 'Disputed Tax';

  •  'Disputed Tax' means the Income Tax including surcharge and cess payable under the Act as computed as follows:

 

Particulars

Disputed Tax

 

Appeal or Writ petition or Special Leave Petition (SLP)

Amount of tax that is payable by the appellant if such appeal or Writ petition or SLP was to be decided against him

 

Where objection filed by the appellant is pending before the DRP

Tax payable by the appellant if the DRP was to confirm the variation proposed in the draft order

 

Where DRP has issued any direction, and the AO has not passed the final assessment order on or before the specified date

Amount of tax payable by the appellant as per the assessment order to be passed by the AO

In a case where the dispute in relation to an assessment year relates to reduction of tax credit under section 115JAA or section 115JD of the Act, or any loss or depreciation computed thereunder, the appellant shall have an option either to include the amount of tax related to such tax credit or loss or depreciation in the amount of disputed tax, or to carry forward the reduced tax credit or loss or depreciation, in such manner as may be prescribed.

  •  'Disputed Interest' means the interest determined in any case under provisions of the Act where i) such interest is not charged or chargeable on disputed tax; ii) an appeal has been filed by the appellant in respect of such interest.

  •  'Disputed Fee' means the fee determined under the provisions of the Act in respect of which an appeal has been filed by the Appellant.

  •  'Disputed Penalty' means the penalty determined in any case under provisions of the Act where i) such penalty is not levied or leviable in respect of disputed income or disputed tax, as case may be; ii) an appeal has been filed by the appellant in respect of such penalty.

  •  'Appellate Forum' means the Supreme Court or the High Court or the Income Tax Appellate Tribunal or the Commissioner (Appeals) or Joint Commissioner (Appeals), as the case may be.

  •  'Specified date' means 22 July 2024.

  D. Amount payable under the Scheme:

The amount of tax/ arrear payable by the taxpayer under this Scheme is tabulated below:

 

Sr. no.

Particulars

On or before 31 December 2024

On or after the 01 January 2025 but on or before last date

 

1

Cases (where the tax arrear is aggregate of disputed tax, interest thereon and penalty) and appeal is filed after 31 January, 2020 but before 22 July 2024

Amount of disputed tax

110% of amount of disputed tax

 

2

Cases (where the tax arrear is aggregate of disputed tax, interest thereon and penalty) and appeal is filed on or before 31 January 2020

110% of amount of disputed tax

120% of amount of disputed tax

 

3

Cases involving interest, penalty or fees (where tax arrear relates to disputed interest or penalty or disputed fee) and the appeal is filed after 31 January 2020 but before 22 July 2024

25% of disputed interest/ penalty/ fee

30% of disputed interest/ penalty/ fee

 

4

Cases involving interest, penalty or fees (where tax arrear relates to disputed interest or penalty or disputed fee) and the appeal is filed on or before 31 January 2020

30% of disputed interest/ penalty/ fee

35% of disputed interest/ penalty/ fee

Further, the Scheme provides that in no circumstances, any amount paid under Scheme shall be refundable. However, before filing the declaration under the Scheme, if the taxpayer had paid any amount towards the tax arrears exceeding amount payable under the Scheme, he shall be entitled to a refund of the excess amount without any interest thereon.

 E. Issues:

VSV 2024 proposes another opportunity to taxpayers to resolve pending litigations by paying the specified amount of disputed tax. However, taxpayers who failed to opt for VSV 2020 would be required to pay a marginally higher tax in relation to appeals filed and pending before 31 January 2020 (specified date under VSV Scheme 2020).

Separately, the Scheme does not cover cases such as search, arbitration, or orders against which the time limit to file an appeal has not expired on specified date, which were eligible for erstwhile VSV Scheme 2020.

Whilst VSV 2024 appears to be encouraging towards reducing the number of tax disputes, it would be pertinent to provide necessary clarifications on the concerns of taxpayers. Some of the noteworthy issues (though pertaining to VSV 2020) wherein clarifications were issued by way of Circular and subsequently overruled by the Court, are as under:

  •  With respect to the cases involving delay in filing of appeal or irregularities in the appeal, it needs to be clarified whether such taxpayers are eligible to opt for the VSV scheme regardless of the status of condonation application at the time of filing of declaration under the Scheme. The Courts had allowed such applications under VSV Scheme 20202.

  •  While VSV 2024 provides for adjustment of taxes paid against disputed tax, eligibility to adjust taxes paid under VSV 2020 against the disputed tax payable under the Scheme needs to be clarified. Based on the decision of the Courts concerning the erstwhile scheme VSV 2020, the Revenue was directed to consider the credit of taxes paid3.

  •  In cases where multiple disputes are pending in the form of different appeals, or cases where the disputes are pending with different forums for a particular assessment year, whether each dispute shall be considered as separate for settlement of dispute under Scheme as selective issue is not permitted under Scheme. The Courts while dealing with VSV 2020 have held that it is not mandatory to settle all pending disputes for a particular assessment year4.

  •  It needs to be clarified whether to include cases pending with the Income Tax Appellate Tribunal by way of Miscellaneous Application, and any appeal filed against intimation by tax authorities under section 143(1) of the Act. The Courts found such cases eligible to opt for VSV 20205.

  •  In the draft Scheme, the last date for payment of disputed tax is not yet prescribed. However, direction to make tax payments in instalments shall assist taxpayers in settling disputes involving a large amount of taxes without impacting their cash flow.

 F. Concluding thoughts:

As of today, a multitude of cases remain pending across multiple forums. The introduction of VSV 2024 is a welcome move that promises benefits for both taxpayers and the Revenue. However, an appropriate direction from the Government to include various other cases may assist in reducing litigation. Furthermore, taxpayers should conduct a thorough cost-benefit analysis while considering pending disputes.

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1. pib.gov.in/PressReleaseIframePage.aspx?PRID=1744134

2. Medeor Hospital Ltd. vs. PCIT (HC - Delhi) [2022] 145 taxmann.com 548 (Delhi); Tushar Agro Chemicals vs. PCIT (HC - Gujarat) [TS-776-HC-2021(GUJ)]

3. Pinacle Vastunirman Private Limited [TS-805-HC-2021(BOM)]

4. MUFG Bank ltd vc CIT [TS-915-HC-2022(DEL)]

5. Oerlikon Balzers Coating India Private Limited [TS-356-HC-2023(BOM)]; Manoj Finvest Pvt. Ltd [TS-794-HC-2022(DEL)]


Source:- Taxmann