Tax litigations are vexatious, both for the assessees and the Government. One of the ambitious schemes introduced by FM in the Union Budget 2020 to tackle this, is the dispute settlement scheme known as ‘Vivad se Vishwas’ (From Dispute to Trust). Also, CBDT has issued FAQs last week to clarify certain issues.
In this regard, while commenting that “the scheme is introduced for a very short period and at the fag end of the year”, R.Krishnan (Rangamani & Co, Chartered Accountant) further believes that “The FAQs released by the department seems to give rise to more questions than resolutions.” The author attempts to highlight various grey areas in Scheme and interalia, remarks that, “There is no guarantee that the additions accepted by the taxpayer under the scheme will be taken up for action under other Acts like Benami Act, Companies Act etc, on which the scheme is silent.”
Further, stating that the scheme does not cover the assessments reopened u/s 147, the author opines that “There are several instances where assessments are reopened on the basis of audit objections, for which the assessee should have been given an option treating the income escaping assessment as the basis for determining the disputed tax for the scheme, something similar to cases covered by show cause notices in the case of SabkaViswas Scheme.” Also, the author is of the firm belief that a special reduced tax rate should be available for ‘demonetisation’ related cases which “would have ensured collection and reduction in considerable number of appeals.”. While signing off, the author concludes that “Nevertheless, this scheme appears to be a golden opportunity to settle disputes, particularly old ones,..”
"Vivad se Vishwas – A Road Swarmed with Impediments?"
Litigation is a nightmare in India. Tax litigations are vexatious, both for the assessees and the Government. One of the ambitious schemes introduced by the Finance Minister Smt. Nirmala Sitaraman in the Union Budget 2020 to tackle this is the dispute settlement scheme known as ‘Vivaad se Viswas’ (From Dispute to Trust). The objective of the Government is to bring down the number of pending dispute cases (laudable) which is roughly around 4,83,000 piled up at various levels, with a collective locked up tax of 9.32 lakh crores,which is almost equivalent to a year’s tax collection of the country.However, the way the scheme is drafted and introduced is something that surprises the stakeholders.
The scheme is introduced for a very short period and at the fag end of the year.To complicate matters,the scheme had to be amended, as the original version did not take care of several eventualities and the amended bill was tabled in the Lok Sabha only on 4th March.Similar schemes in the past viz Income Disclosure Scheme, Sabka Vishwas Scheme etc reaped the outcome expected since these schemes were simple,attractive and announced far ahead of the due dates. The recent Sabka Vishwas Scheme was also reasonably successful,though not a run away success,since the scheme demanded only less than half of the disputed tax and was attractive.
The VsVs which was originally designed for settlement of disputes, has now turned out to be one,pressuring the taxpayers to take the scheme.IT officials have been directed to resolve most of the tax dispute cases through the scheme and failure to do so will have direct bearing on their appraisals and promotions.And the way it’s being administered,it seems, it’s an alternative to the falling tax collections for the year, due to the economic slowdown.
The scheme seems to be vague in many areas. The FAQs released by the department seems to give rise to more questions than resolutions. The attractiveness of the scheme is further dampened by the fact that the taxpayers have to arrange the funds by Mar 31 to make best use of the scheme; else the quantum of tax will increase by 10%. The scheme is silent, if part payment of disputed tax is paid by the taxpayer before 31st March, and balance tax is paid beyond this date. Whether the increased rate of tax is applicable on the amount paid after 31st March or on the full tax is unanswered, though logically increased tax is on the shortfall as on 31st March.
Another concern is, once the declaration to opt the scheme is filed by the taxpayer, the designated authority is given 15 days’ time to determine the amount payable. Once the order is passed, the taxpayer is given 15 days’ to pay the amount determined. Hence, for all practical purposes, the last date of filing declaration would be 15th of March if one were to take full benefit of the deadline of payment by 31st March. The time given is too short as compared to the Sabka Viswas Scheme. Moreover, the amount so determined by the designated authority is considered as final and cannot be challenged further, which would make it difficult in cases where the department has made an error in determining the amount payable, especially since the computation of disputed tax is very complex and prone to errors.
The scheme should be opted for an entire appeal even in cases where the taxpayer has a very high chance of winning certain grounds in an appeal. In such cases, the taxpayer is forced to accept the additions/disallowances and pay the disputed tax even on grounds likely to be won by the taxpayer. Also, there may be instances where the Supreme court would have given a favorable decision in respect of an issue in an appeal in taxpayer’s own case or other case. Since there is no option for the taxpayer to opt the scheme on an issue basis, taxpayers are left with no option but to pay the disputed tax on issues which are even hundred percent sure to succeed.
There is no guarantee that the additions accepted by the taxpayer under the scheme will be taken up for action under other Acts like Benami Act, Companies Act etc, on which the scheme is silent. The scheme does not provide any assurance to the taxpayer in respect of other associated laws for which declaration is given and tax is paid under Income tax Act. This will hamper the taxpayers to come forward, as there is still the risk of being proceeded under other laws.
The scheme makes it clear that the taxpayers will be given a refund if the tax already paid in the AY under the appeal is more than the tax determined by the designated authority upon opting the scheme. However, there may be cases where the taxpayer has opted the scheme for several Assessment Years. Whether the refund arising for a particular Asst.Year can be set off against tax payable in the case of another AY is not clarified in the FAQ.
There are many disputes pending with the department for cases where carry forward of losses were reduced by disallowance. The scheme makes it clear that the taxpayer needs to pay notional tax on the disallowance for enabling him to carry forward the entire loss or to pay nothing and accept the disallowance. Even in cases where department had filed an appeal, the quantum of payment of notional tax remains the same. For all other cases where the department has filed an appeal, the quantum of payment of disputed tax/penalty/interest is reduced to half of the payment mentioned in the scheme. What would be the carry forward available in case of departmental appeal is not mentioned anywhere in the scheme, which puts the taxpayer in a dilemma.
The taxpayers cannot opt the scheme if the dispute relates to Wealth tax, Securities transaction tax, Commodity transaction tax and equalization levy. This should have been covered as well.
The scheme does not cover the assessments reopened u/s 147. There are several instances where assessments are reopened on the basis of audit objections, for which the assessee should have been given an option treating the income escaping assessment as the basis for determining the disputed tax for the scheme,something similar to cases covered by show cause notices in the case of SabkaViswas Scheme. This would have made the scheme more attractive.Also there are several instances of Miscellaneous applications for rectification u/s 154 pending before ITAT and CIT(A) on orders passed by them.Pending outcome of these applications, the assessees would not have carried the matter further in appeal. Technically, there is some pendency before the respective appellate authorities. An opportunity to put a quietus to the issues would have been a booster to the scheme and a relief in appropriate cases to the taxpayers.
Similarly, in a case where appeal is pending and the Assessing Officer has rectified some of the issues, the rectified order will show a lesser amount of tax payable, whereas the taxpayer under the scheme would be forced to offer all the points under appeal, including the ones rectified. There does not seem to be a remedy for this in the scheme.
As the scheme follows the assessments consequent on Demonetisation for Asst.year 2017-18, it would have been in fitness of things, if a special reduced tax rate was introduced for assessments completed u/s 115BBE. The effective tax rate including interest for such assessments exceed 110% of the income assessed. If only a window was available for such assessees, it would have ensured collection and reduction inconsiderable number of appeals.
Nevertheless, this scheme appears to be a golden opportunity to settle disputes,particularly old ones,by just paying the disputed taxes and getting away from the rigors of interest which would in many cases be many times more than the tax itself and of course complete immunity from penalty and prosecution.
Similarly, settlement of Penalty is attractive @25%.
The department is all out to see that the scheme succeedsboth in mopping up additional revenue and in reducing the number of appeals.Only time will tell.