Vivad Se Vishwas – Direct Tax Dispute Settlement Scheme 2020: A Month of Opportunity

published on 2 December 2020 | reading time approx. 4 minutes

In the latest round of clarification issued by the Indian government pertaining to the Direct Tax Vivad Se Vishwas Dispute Settlement Scheme, 2020 (‘Scheme’), vide notification S.O. 3847(E) dated 27 October 2020, the government has extended the last date for payment to be done without additional amount from 31 December 2020 to 31 March 2021. The last date for filing declaration under the Scheme continues to be 31 December 2020. As such, it presents the last month of opportunity to settle the disputed direct tax matters under the Scheme.

Further, vide Circular No. 18/2020 dated 28 October 2020, the government has also clarified that all applications filed under the Scheme on or before 31 December 2020 would be eligible for payment of taxes on or before 31 March 2021. In order to provide more time to taxpayers to settle disputes, earlier the date for filing declaration and making payment without additional amount under the Scheme was extended from 31 March 2020 to 30 June 2020. Later again, this date was extended to 31 December 2020. Therefore, earlier both the declaration and the payment without additional amount under the Scheme were required to be made by 31 December 2020. The payment date has since been extended to 31 March 2021.

As per latest news reports, a total of 45,855 declarations have been filed under the Scheme until 17 November 2020, involving disputed tax demands of INR 317,340 million. One of the prime reasons for the Scheme finding favour with the taxpayers is the immunity granted under the Scheme from levy of interest, penalty and institution of any proceeding for prosecution for any offence under the Indian Income Tax Act, 1961 in respect of matters covered in the declaration.

While a brief update on the Scheme was included in our Newsletter issue for April 2020 (Read here), salient features of the Scheme are captured below for ready reference:

1. Who is eligible to settle disputes under the Scheme?

All taxpayers, in whose cases, the dispute was pending on 31 January 2020 before the following appellate forums are eligible to opt for the Scheme:

Commissioner of Income Tax (Appeals)
Income-tax Appellate Tribunal
High Court
Supreme Court

Further, the Scheme also covers the situations, where, as on 31 January 2020:

Time limit for filing an appeal had not expired.
Cases were pending before the Dispute Resolution Panel (‘DRP’) or where DRP's direction had been passed but final order of assessment was awaited.
Revision petition was pending before the Commissioner of Income Tax.
Search & Seizure cases, where the disputed demand is less then INR 50 million.

2. Are there any exclusions under the Scheme?

In case there are tax disputes in respect of following situations, the same shall be ineligible to apply under the provisions of the Scheme:

Where assessment is made as a result of search under section 132 of Income Tax Act, 1961 and disputed tax is more than INR 50 million.
Where the case is concerned with undisclosed foreign income.
Where the assessment is made as a result of exchange of information with a foreign jurisdiction for the prevention of evasion or avoidance of income-tax, in accordance with provisions of section 90 of Income Tax Act, 1961.
Where prosecution proceedings are initiated before filing declaration under the Scheme.

The Scheme also excludes following cases from its ambit:

Selective issue from an appeal.
Cases pending under any other acts (Wealth Tax, Security Transaction Tax, Commodity Tax).
Order passed under conservation of Foreign Exchange and Preservation of Smuggling Act.
Prosecution initiated or convicted under any act like Prevention of Corruption Act, Prevention of Money Laundering Act etc.

3. How much tax is required to be paid, if a taxpayer opts for the Scheme?

Reduced tax payable:

The amount payable by taxpayer shall be restricted to 50% of the amount indicated in above table, in the following scenarios:

In a case, where an appeal or petition is filed by the income-tax authority on any issue before the appellate forum.
Where appeal is filed before Commissioner of Income Tax (Appeals) or objections are filed before DRP on any issue on which the taxpayer has already got a decision in its favour from the Income-tax Appellate Tribunal (where the decision on such issue is not reversed by the High Court or the Supreme Court) or the High Court (where the decision on such issue is not reversed by the Supreme Court).
Where an appeal is filed on any issue before the Income-tax Appellate Tribunal, on which taxpayer has already got a decision in its favour from the High Court (where the decision on such issue is not reversed by the Supreme Court).

4. Compliance dates under the Scheme

5. Details of the forms notified under the Scheme

6. Steps to be undertaken

All the above steps shall be undertaken in an online manner (through Income Tax e-filing portal).

7. Important points

Picking and choosing issues for settlement of a dispute is not allowed. With respect to one assessment order, the taxpayer must choose to settle all issues and then only he would be eligible to file declaration under the Scheme.
Refund of excess tax paid by taxpayer (if any), over the amount determined as payable under the Scheme, shall be granted.
Filing of declaration will not set any precedence and it cannot be claimed in any other proceedings that the taxpayer or the Department has conceded its tax position by settling the dispute.
The Department would withdraw the appeal/writ for settling the dispute.
Settling of dispute regarding Transfer Pricing adjustment would not have any effect on the secondary adjustment, and the taxpayer would be required to repatriate fund to India in respect of settled Transfer Pricing adjustment.