Clarification on Direct Tax Vivad se Vishwas Act, 2020

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Clarification on Direct Tax Vivad se Vishwas Act, 2020

The Central Board of Direct Taxation (CBDT) issued further Clarification on provisions of Direct Tax Vivad se Vishwas Act, 2020 vide a Circular No. 21/2020 dated 04.12.2020. During the Union Budget, 2020 the Vivad se Vishwas Act, 2020 was introduced to provide for dispute resolution in respect of pending income tax litigation. In the present article, we are covering the Clarifications issued by the CBDT in respect of the Direct Tax Vivad se Vishwas Act, 2020.

Gist of Notification

The Circular contains the clarifications on various issues of the Direct Tax Vivad se Vishwas Act, 2020 in the form of frequently asked questions (FAQs) categorized in the following four parts;

  • Clarification on Scope/Eligibility of DTVSV Act
  • Clarification on the computation of disputed tax
  • Clarification on consequences of Appeal Filing
  • Clarification on Appeal Filing Procedure under DTVSV Act

Earlier Clarification on Vivad se Vishwas Act

To facilitate the taxpayers, the CBDT had vided circular no. 9/2020 dated 22.4.2020 issued clarifications in form of answers to 55 frequently asked questions on issues related to eligibility, computation of amount payable, procedure and consequences under Vivad se Vishwas Act, the 2020s.

The provisions of Vivad se Vishwas were amended by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 to provide certain relaxations because of the COVID-19 pandemic.

The Central Board of Direct Taxation (CBDT) issued the Clarification on Direct Tax Vivad se Vishwas Act, 2020 vide a notification dated 28.10.2020. With this notification, the CBDT has extended for the third time the deadline for making payment under the direct tax dispute settlement scheme ‘Vivad Se Vishwas’ by three months to March 31, 2021.

  • The date for making payment without an additional amount under the Vivad se Vishwas Act from 31st December 2020 to 31st March 2021.
  • The CBDT also notified the last date for filing declaration under Vivad se Vishwas as 31st December 2020.

Clarification on Scope/Eligibility of DTVSV Act

The following are the eligibility for the Direct Tax Vivad se Vishwas Act, 2020

  • The amount payable under Vivad se Vishwas will be computed concerning the position of appeal or arbitration as on 31st January 2020.
  • Vivad se Vishwas can be availed in a case the enforceability of an assessment order passed by the Assessing Officer has been stayed by the High Court or Supreme Court
  • In such a case, the taxpayer can file a declaration under Vivad se Vishwas, whether or not the appeal has been filed against the assessment order.
  • Writ/Appeal pending in High Court and Supreme Court need be required to be withdrawn by the taxpayer.
  • Upon settlement of quantum appeal, interest and penalty, if any, will be waived.

Appeal or Writ against an order under Section 263

If order under section 263 of the Act contains general directions and income is not quantifiable, appeal against such order is not eligible under Vivad se Vishwas. However, if order under section 263 of the Act contains only specific directions and income is quantifiable (and does not contain any general directions due to which income is not quantifiable), appeal against such order is eligible under Vivad se Vishwas. In such case, the taxpayer is required to settle all the issues in the order, which are the subject matter of order u/s 263 of the Act as well as issues pending in appeal (or issues in respect of which time to file an appeal has not expired on 31st, Jan 2020),

The Time-limit for Filing of Appeal

If the time limit for filing appeal expired during the period from 1″ April 2019 to 31″ Jan 2020 (both dates included in the period), and the application for condonation is filed before the date of issue of this circular, and appeal is admitted by the appellate authority before the date of filing of the declaration, such appeal will be deemed to be pending as on 31″ Jan 2020

Filing of Cross objections

The main appeal is also required to be settled along with cross-objections.

Miscellaneous Application (MA)

  • If the MA pending on 31st Jan 2020 is in respect of an appeal which was dismissed in time (before 31, January 2020), such MA is eligible.
  • Disputed tax will be computed concerning the appeal which was dismissed.

Block assessment

The appeal, writ or Special Leave Petition in respect of block assessment is eligible if the disputed tax does not exceed five crore rupees for the said block assessment

Mutual Agreement Procedure (MAP)

If MAP resolution is pending or the taxpayer has not accepted MAP decision, the related appeal will be eligible under Vivad se Vishwas Act. In such a case, the declaring will be required to withdraw both MAP application and appeal.

Advance Ruling

The taxpayer is eligible since the income is quantifiable. In such case, since the issue is covered in favour of the taxpayer, only 50% of the disputed tax is payable

Pending Appeal

An appeal has been set aside to CIT(A) / Dispute Resolution Panel (DRP) and was pending as on 31st Jan 2020, Such case can be settled under Vivad se Vishwas and the set-aside issues will be deemed to be pending at the level of CIT(A) / DRP as on 31st  Jan 2020. However, all issues which were either pending in appeal (whether set aside or not) or in respect of which time to file an appeal has not expired on 31 st Jan 2020 have to be settled.

Other Eligibility Criteria

  • The appellate authority has quashed the prosecution complaint or ruled in favour of the taxpayer and no further appeal is filed by Department on or before the filing of the declaration are eligible, such cases are eligible if the time limit for filing an appeal by the Department has expired and the Department has not filed appeal (with or without condonation of application).
  • If the prosecution has been instituted for TDS default in a financial year on or before the date of filing of declaration, it cannot be settled under Vivad se Vishwas Act.
  • The prosecution in one assessment year does not debar the taxpayer from filing declaration for any other assessment year if it is otherwise eligible
  • If the declaration/application filed u/s 158AI158AA of the Act on or before 31st January 2020 shall be deemed to be a pending appeal as on 31’t Jan 2020 for Vivad se Vishwas.
  • Appeal filed against intimation under section 143(1) of the Act is eligible under Vivad se Vishwas if the adjustment has been made under sub-clause (iii) to (vi) of clause (a) of section 143(1) of the Act.
  • The ineligibility to file declaration relates to an assessment year in respect of which prosecution has been instituted on or before the date of declaration. Since in this example, for the same assessment year (2012-13) prosecution has already been instituted, the taxpayer is not eligible to file declaration for this assessment year even on issues not relating to J2rosecution.

Clarification on the computation of Disputed Tax

The Clarification on the computation of Disputed Tax under Vivad se Vishwas is as follows:

Enhancement notice

Enhancement notice issued by CIT(A) after 31 st Jan 2020 but before the date of issue of this circular will be required to be taken into account for determining the amount payable under Vivad se Vishwas. However, the enhancement notice issued on or after the date of this circular but on or before 31 s\ December shall not be taken into account for determining the amount payable under Vivad se Vishwas.

Filing of Additional ground

If any additional ground has been filed on or before 31 st January 2020, it shall be considered for computing disputed tax.

Repeated addition on the same issue

Disputed tax in respect of repeated addition will be payable only once, both the assessment and reassessment appeals are required to be settled together. If there is a difference between tax liability in respect of such addition in assessment and reassessment, then higher of the two tax liabilities will be considered for computing disputed tax.

If prepaid tax, being TDS/TCS, is dearly identifiable with the source of income, it will be adjusted against tax liability concerning such income. Rest of the pre-paid tax, which cannot be clearly identified with the source of income, will be apportioned against the remaining tax liability

Clarification on Consequences of DTVSV Act

The Clarification on Consequences of DTVSV Act is explained in detail below:

Clarification on the settlement of appeal relating to the disputed tax

If the appeals against penalties that are not related to quantum assessment like penalty under section 271B, 271BA, 271DA of the Act are also waived upon settlement of appeal relating to disputed tax, appeal against such penalty order is required to be settled separately.

Vivad se Vishwas is not an amnesty scheme. It only provides an option to settle appeals on contentious issues that are neither accepted by the Department nor the taxpayer.

Clarification on immunity from prosecution

If an issue has been settled under Vivad se Vishwas, the immunity from prosecution concerning that issue will also extend to the director or partner of the company (being the declaring) in respect of the same issue under section 278B of the DTVSV Act.

Clarification on income and order under section 201

If appeal involving the issue of disallowance under section 40(a)(i)/(a) of the DTVSV Act is settled under the Scheme,  no consequential relief will be available in proceedings under section 201 of the Act initiated qua the same payment or deduction

  • If the deductor has settled his appeal (or arbitration) and paid the tax he would get a waiver from interest and penalty under Vivad se Vishwas. Deductee will not be required to pay the tax under Vivad se Vishwas concerning the income and he will get credit for tax paid by the deductor.
  • The taxpayer will be required to pay interest and penalty, if any, concerning the income and if such interest or penalty qualifies for Vivad se Vishwas, he can settle the same by paying the applicable amount (25% or 30%).

If the taxpayer has settled his appeal (or arbitration) and paid the tax he would get a waiver from interest and penalty. Deductor will not be required to pay tax under Vivad se Vishwas concerning non-deduction of income tax. However, he will be required to pay interest and penalty concerning the income and if such interest or penalty qualifies for Vivad se Vishwas, he can settle the same by paying the applicable amount (25%/30%).

Clarification on the Tax credit

Tax credit in the hands of deductee cannot be more than 100% of disputed tax, even if the payment of more than 100% of disputed tax is required to be made by the deductor settling his section 20 appeal.

Clarification on double Deduction

If the taxpayer has already claimed deduction of the same amount under section 40(a)(i)/(a) of the Act in the subsequent year on account of payment of such sum, be shall not be entitled to again claim the deduction based on the settlement under Vivad se Vishwas.

Clarification on Declaration for a disputed penalty

Once the required amount of disputed penalty has been paid by the declaring, interest relating to such penalty would be waived.

Tax credit in the hands of deductee cannot be more than 100% of disputed tax, even if the payment of more than 100% of disputed tax is required to be made by the deductor settling his section 20 I appeal

Clarification on Appeal Filing Procedure under DTVSV Act

Once the appeal against an order under section 201(1) of the Act is settled under Vivad se Vishwas Act, there will be a 100% waiver of interest levied. It is applicable in following all conditions:

  • Separate orders were passed under section 201(1) & 201(JA) of the DTVSV Act 2020 for a particular assessment year.
  • The taxpayer has filed two separate appeals for the principal portion under section 201(1) of the Act and interest portion under section 201(lA) of the DTVSV Act.

The official notification about the Clarification on Direct Tax Vivad se Vishwas Act, 2020 is attached here for reference:

FAQ ON VsV Scheme-Circular-No.-21-second-FAQ-on-VsV

 

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