India has a very complicated tax structure and even more complicated dispute resolution system. The system gives a tax-payer opportunity to go against the tax department for any grievance via appeals at various levels starting from Commissioner (Appeals) to the Supreme Court, which is the Apex Court in India. As a result, there is a huge backlog of old appeals pending at various forums while a huge lot of new appeals is added to this backlog every-day.
It is an old saying that justice delayed is justice denied. Accordingly, to overcome this bottleneck of backlog coming in the way of justice, the Government of India had come up with a one-time settlement scheme in Budget 2020 aiming at disposing off all pending litigations. This scheme is known as the Direct Tax Vivad se Vishwas Scheme, 2020 (VsV). Under the scheme, the tax-payer shall have the option to pay only the disputed amount of tax without paying any interest or penalty thereon to resolve the matter.
Who is eligible to apply under VsV?
- A person in whose case an appeal or a writ petition or special leave petition has been filed either by him or by the income-tax authority, before an appellate forum and such appeal or petition is pending for decision as on 31 January 2020.
- A person in whose case an order has been passed by the Assessing Officer, or an order has been passed by the Commissioner (Appeals) or the Income Tax Appellate Tribunal in an appeal, or by the High Court in a writ petition, on or before the specified date, and the time for filing any appeal or special leave petition against such order by that person has not expired as on 31 January 2020.
- A person who has filed his objections before the Dispute Resolution Panel under section 144C of the Income-tax Act, 1961 and the Dispute Resolution Panel has not issued any direction on or before 31 January 2020.
- A person in whose case the Dispute Resolution Panel has issued direction under section 144C(5) of and the Assessing Officer has not passed any order before 31 January 2021.
- A person who has filed an application for revision under section 264 of the Income-tax Act and such application is pending as on 31 January 2020.
Who is not eligible to apply under VsV?
Application under VSV cannot be filed under following cases in respect of assessment year for which:
- Assessment has been made on the basis of search initiated under section 132/ 132A of Income Tax Act, 1961, if the amount of disputed tax exceeds Rs. 5cr.
- Prosecution has been instituted under the Income tax Act, on or before the date of filing of declaration.
- Dispute is relating to undisclosed asset/income outside India.
- Assessment has been made due to any information received under any agreement in section 90/ 90A of IT Act, 1961.
- Prosecution has been initiated by Income tax authority for any offence punishable under the provisions of the Indian Penal Code.
In addition to this, following persons cannot apply for VSV:
- Any person notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992.
- Any person who has been detained/ prosecuted under following Acts:
- Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.
- Unlawful Activities (Prevention) Act, 1967 (37 of 1967).
- The Narcotic Drugs and Psychotropic Substances Act, 1985 (61 of 1985).
- The Prevention of Corruption Act, 1988 (49 of 1988), the Prevention of Money Laundering Act, 2002 (15 of 2003).
- The Prohibition of Benami Property Transactions Act, 1988.
What is the process for VsV?
- A declaration needs to be filed by the tax-payer with the designated authority in respect of tax arrears through e-filing portal on or before 28th February 2021.
- The designated authority shall, within a period of 15 days from the date of receipt of the declaration determine the amount payable by the declarant in accordance with the provisions of this Act and grant a certificate to the declarant containing particulars of the tax-arrear and the amount payable by declarant.
- On receipt of the certificate, if the tax-payer has filed any appeal before the appellate forum or any writ petition before the High Court or the Supreme Court against any order in respect of tax-arrear, he shall withdraw such appeal or writ petition with the leave of the Court.
- The declarant shall pay the amount determined in the certificate and intimate the details of such payment to the designated authority along-with proof of withdrawal of appeal.
- Upon receipt, the tax authority will issue final certificate that the appeal stands closed and the tax-payer is not required to pay or take any further action in this regard.
How much needs to be deposited under VsV?
*If 10%, 25% or 35%, as the case may be, exceeds the aggregate amount of interest chargeable/ charged and penalty leviable/ levied on such disputed tax, the excess amount will be ignored while computing amount payable.
Provided that in a case where an appeal or writ petition or special leave petition is filed by the income-tax authority, the amount payable shall be 50% of the amount payable in the above Table.
This scheme has been widely welcomed by the tax-payers and has benefitted both the tax-payers and the Government. While the Government has been able to collect huge revenue in the form of taxes, the tax-payers have achieved certainty and closure of litigation, without facing any harassment from the tax department.
Given the achievements of the scheme, the Government of India has proposed to introduce a permanent scheme (similar to VsV) enacted in the Income tax Act itself for small tax-payers in Budget 2021. We look forward to successful enactment of the scheme to reduce the ever-increasing litigation backlog.
This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.
CA Ruchika Gupta
AKGVG & Associates