Published on 31/03/2020 5:05:27 PM | Source: Live Mint

The Direct Tax Vivad se Vishwas Act, 2020: What should you know?

Posted in Top Stories| #Tax #Wealth

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There are 483,000 pending income tax cases before appellate authorities as on 30 November 2019. The disputed tax in these appeals is nearly ₹9.32 trillion, which is nearly a year’s direct tax collection for the government.

These staggering numbers prompted the Finance Minister to introduce a direct tax dispute resolution scheme while tabling Union Budget 2020 before the Parliament on 1 February 2020. ‘The Direct Tax Vivad se Vishwas Bill, 2020’ (scheme) is intended for reducing litigation and for settling matters that have been pending for several years.

The scheme was tabled on 5 February 2020, in the Lok Sabha, and was almost immediately recalled for making amendments for accommodating various representations from key stakeholders. Thereafter a revised scheme was cleared by the Cabinet, and subsequently passed by the Lok Sabha on 4 March 2020. Various aspects of the amended scheme required clarifications, which have been addressed by way of a circular issued by the Central Board of Direct Taxes (CBDT). The circular provides clarity on the scope of the Scheme, procedural and computational aspects, and also consequential issues.

The scheme was enacted into law on 17 March 2020 and the relevant rules were prescribed on 18 March 2020.

Subsequently, following the lockdown situation in the country, the Hon’ble Finance Minister addressed the press on 24 March 2020 and has announced an extension in the due dates for opting for the scheme. The key clarifications provided in the CBDT circular coupled with the Finance Minister’s relief announcement are summarised below:

Eligibility and amount payable under the scheme

The scheme will be applicable to all appeals/ petitions filed by taxpayers or the income tax department, which were pending until 31 January 2020, with either the Commissioner of Income-tax (Appeals), Income-tax Appellate Tribunal, High Court, or the Supreme Court. Further, taxpayers will be required to pay the following amounts if they decide to settle under the scheme:

Taxpayers will be required to pay the above amounts if they decide to settle under the scheme
Taxpayers will be required to pay the above amounts if they decide to settle under the scheme
The due date to pay the above-mentioned amounts of disputed tax has been extended to 30 June 2020 without any additional payment (earlier, 10% additional was payable if paid after 31 March 2020). However, there is no clarity on the additional taxes which would be due if a taxpayer opted for this scheme post 30 June 2020.

Clarifications relating to the computation of the disputed tax have also been issued.

A wide range of appeals is eligible for settlement under the scheme. Illustratively,

-Cases where an appellate authority has remanded a case back to the Assessing Officer (AO) with specific directions;

-In case multiple appeals are pending for a given year, either of them, or all of them;

-Appeals where there are no tax arrears (e.g.: loss to loss cases);

-Cases where prosecution has been initiated (but not taken by a civil court yet), may be settled by compounding the offence;

-Cases pending in arbitration, despite no pending appeal.

-Cases which shall not be eligible to claim benefits under the scheme include cases pending before the AAR, cases remanded back for fresh assessment, penalty appeals where quantum is pending, writ petitions where there is no assessment order, applications for waiving interest and disputes under wealth tax, STT, CTT and equalisation levy.

Clarification on payment of disputed tax

The CBDT has provided the following clarifications in connection with payment of disputed taxes:

-Credit of all taxes paid for the year shall be available against the payment of disputed taxes;

-In case the deductor settles appeals relating to TDS:

consequential effect shall be provided in appeals where a disallowance under section 40(a)(i)/(ia) has been made; and
credit shall be allowed to the deductee (as of the date of settlement of dispute).
Some other key points to note are:

-Where the dispute relates to reduction of MAT credit or reduction of loss/depreciation, then an option to offset disputed taxes by way of reduction in MAT credit or carried forward losses or depreciation.

-If the tax payable in the scheme is lower than the amount already paid in the course of litigation, the scheme also provides that the excess will be refunded (but without interest due on such refunds).

-Declaration made under the scheme will not be considered as setting any precedence for the taxpayer or the tax authority, in relation to the issues covered under the declaration.

In conclusion, the revised scheme and the CBDT circular have cleared several doubts of taxpayers, enabling them to take a practical call for settling disputes and thus, seek finality of outcomes in those cases. Taxpayers can avail significant leverage on the waiver of interest and penalty being offered under the scheme. The scheme not only provides an opportunity for taxpayers to evaluate all open litigations, but also a way to minimise final payout. It may be beneficial for taxpayers to settle certain litigation matters such as one-time litigation cases, or cases where documentary evidence is lacking, cases where interest liability would be higher than the disputed tax, or cases where having duplicating tax impact (eg: litigation under section 40(a)(i) of the Act and litigation under section 201 of the Act) or cases pertaining to loss making companies where the losses are lapsing.

Moreover, it is heartening to note that settlement under the scheme does not set a precedence for either party and taxpayers keep a side of the bargain with themselves for cases, where they would like to pursue such cases on merit with their right to litigate.

A major dampener for taxpayers is the requirement to settle all disputes in a proceeding i.e. there is no option for the taxpayer to settle only limited issues and continue to litigate on the remaining.

Further, it would be pertinent to note that despite the clarifications, there are still many unanswered questions such as, pending miscellaneous applications, appeals filed with condonation of delay, orders received for appeals which were heard as on 31 January 2020, rules relating to set-off and carry forward of losses and MAT Credit, etc. In light of the scheme introduced as a measure to reduce litigation, it would be beneficial if the government also works towards and implements measures to streamline issue of refunds, credits for TDS, advance taxes etc. and process rectification applications quicker to reduce compliance burden and litigation on such issues.

Rajesh H. Gandhi is Partner Deloitte India. Utkarsh Trivedi is Director and Shivani Kotadia is Manager with Deloitte Haskins and Sells LLP.