[Analysis] Direct Tax Vivad Se Vishwas Scheme, 2024 [PPT] | India Tax Litigation Settlement

The "Direct Tax Vivad Se Vishwas Scheme, 2024 (VsV 2.0)" is an initiative by the Indian government aimed at reducing litigation and providing a mechanism for the settlement of pending tax disputes. This scheme is essentially a reboot or continuation of the earlier Vivad-Se-Vishwas scheme introduced in 2020. The VsV 2.0 encourages taxpayers to settle their outstanding tax disputes by paying a portion of the disputed amount, thereby waiving penalties, interest, and prosecution, with the goal of unburdening the legal and administrative system of pending cases.

By Mr Pankaj Jindal – Joint Secretary [TPL-II – CBDT] | Ministry of Finance, Government of India, Rohinton Sidhwa – Partner, Karishma R. Phatarphekar – Partner & Sobhan Kar – Senior Advisor | Deloitte India

1. VSV 2.0 Background and Overview
2. Appeals Covered, Amounts Payable and Salient Features
3. VSV 2.0 Rules and Forms
4. Practical Considerations for VSV 2.0
5. Non-tax Considerations for Opting VSV 2.0

1. Vivad Se Vishwas 2.0 Background and Overview

• Pendency before CIT(A) was around 5.44 lacs appeals at the start of this year
• Whereas pendency before ITAT was 20,266, High Courts 37,436, and Supreme Court 5,544 cases
• Tax certainty and reducing litigation are focus areas for the Government
• With the above objective, monetary thresholds for revenue appeals are increased
• ITAT – Rs. 60 Lacs, High Court – Rs. 2 Crores, Supreme Court – Rs. 5 Crores
• SC had recently disposed 500 cases having low tax effect – huge relief for litigants
• Success of VSV 1.0 has given the Government confidence to attract taxpayers for the settlement option
• Scope of VSV 2.0 is limited as compared to VSV 1.0
• Majority guidance will come in shape of FAQs and Circulars that will be issued by the CBDT

2. Appeals Covered, Amounts Payable and Salient Features

2.1 Applicability

Eligible Cases

1. Appeals or Writ Petitions or Special Leave Petition pending as on 22 July 24
2. Where objections are filed with the Dispute Resolution Panel and directions are not issued as on 22 July 24
3. Dispute Resolution Panel has issued its direction, but final assessment order is not passed as on 22 July 24
4. Sec. 264 application pending on 22 July 24

Ought to have been included

1. Cases where orders are passed and appeal is not filed, but time to file an appeal has not elapsed on 22 July 24
2. Cases that are remanded back to the file of the Assessing Officer, except de-novo adjudication

Excluded Appeals/Petition

1. Arising from assessment or reassessment based on search initiated under Section 132 or Section 132A
2. Relating to AYs where prosecution has been initiated
3. Relating to undisclosed asset outside India
4. Arising from assessment or reassessment based on information received as per Sec. 90 and 90A

Excluded Persons

1. Order of detention under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974
2. Prosecution has been instituted or conviction has taken place under certain Acts
3. Prosecution by Incometax authorities for offences punishable by BNS, 2023, or enforcement of civil liability or convicted of any such offence

2.2 Amounts Payable

Amount payable would be reduced to 50% in the following cases:

• Where the taxpayers appeal relates to an issue which has been decided in his favor by a higher appellate forum, i.e., ITAT, HC or SC
• Appeal has been filed by tax authorities

No interest shall be granted on refunds arising from VSV 2.0
In cases where the dispute relates to the reduction of MAT/AMT credit or loss/depreciation, an option will be available to include the amount of tax related to such tax credit/loss/depreciation in the disputed taxes or carry forward the reduced MAT/AMT credit or loss/depreciation

Read Also: Direct Tax Vivad Se Vishwas Scheme, 2024, Will Be Effective from October 1, 2024 | CBDT

2.3 Salient Features

• Immunity #1: Order passed by the designated authority to be conclusive as to matters mentioned therein and such matters cannot be reopened in any other proceedings
• Immunity #2: No institution of any proceedings in respect of an offence (prosecution), penalty or interest
• Immunity #3: Settlement cannot be treated as a precedent
• Caution: The amount paid pursuant to declaration is not refundable
• Clarifications: CBDT may issue directions or orders to income-tax authorities as it may deem fit – matters of collection, procedure to be followed as necessary in the public interest, remove difficulties
• End date: Will be notified by the Government in the due course

3. Vivad Se Vishwas Scheme 2.0 Rules and Forms

3.1 Vivad Se Vishwas Scheme 2.0 Rules

Step 1: Filing declaration in Form 1, giving details of dispute along with an undertaking waiving right to pursue any remedy

Step 2: The Designated Authority to issue certificate within 15 days from receipt of declaration in Form 2 determining the amount payable

Step 3: The Declarant to file an intimation in Form 3 within 15 days of date of receipt of certificate giving details of payment along with proof of withdrawal of appeal

Step 4: The designated authority to issue order in Form 4 for full and final settlement

Read Also: CBDT Notifies Direct Tax Vivad Se Vishwas Rules, 2024

3.2 Manner of Computation of Disputed Tax

Manner of computing disputed tax in cases where loss or unabsorbed depreciation is reduced:

Option 1: Include the tax, including surcharge and cess, payable on the amount by which loss or unabsorbed depreciation is reduced and carry forward losses/unabsorbed depreciation ignoring the reduction

Option 2: Carry forward the reduced amount of loss or unabsorbed depreciation

Where option 2 is exercised, the declarant would be liable to pay tax, surcharge, cess and interest, if any as a consequence of carrying forward the reduced amount of loss or unabsorbed depreciation in subsequent years.

Manner of computing disputed tax in cases where MAT credit is reduced:

Option 1: Include the amount by which MAT credit to be carried forward is reduced in disputed tax and carry forward the MAT credit by ignoring such amount of reduction

Option 2: Carry forward the reduced MAT credit

Where option 2 is exercised, the declarant would be liable to pay tax, surcharge, cess and interest, if any as a consequence of carrying forward the reduced MAT credit in subsequent years.

Read Also: Government announces “Vivad Se Vishwas II” to resolve contractual disputes

4. Practical Considerations for VSV 2.0

• Fin 48 Rules: Cases where taxpayers have made provisions pursuant to Fin 48 rules thus resulting in no significant shocks to business accounts
• Mergers and Acquisitions (M&A): Lends certainty to target entities currently being evaluated for M&A related activity
• Response to Tax Department: VsV analysis required to equip CEOs/CFOs who may be invited by Tax department for discussion on VsV
• Focus on Business Aspects: Allows tax teams to focus on business tax planning by freeing up time involved in litigation
• Audit clearance & reporting: Clearance of outstanding litigation results in faster audit clearances and reduced reporting requirements
• Analysis for listed entities: In case of listed entities, Company Board may request for evaluation of VsV scheme

4.1 Benefits of  Vivad Se Vishwas Scheme 2.0

• Avoids protracted litigation
• Provides certainty from a tax and financial disclosure perspective
• Significant savings in litigation costs
• Waiver of interest and penalty
• Utilization of losses or MAT credit already lapsed/likely to lapse
• Settlement under scheme will not be viewed as a precedence for future cases
• Trust building measure between taxpayer and tax department

4.2 Caution Points of  Vivad Se Vishwas Scheme 2.0

• No option for partially availing the scheme i.e., option to only settle some grounds and pursue litigation for others
• Results in cash outflow in near future and likely to cause diversion of cash resources away from budgeted expenses
• Does not provide relief from double taxation. If that is the objective, then taxpayers may opt for APA or MAP in such cases
• Secondary adjustment impact

5. Non-tax Considerations for Opting VSV 2.0

• Relief from protracted litigation
• Cleaner balance sheets
• Improved liquidity position
• Mitigation of reputational risk
• Improved compliance position
• Smooth facilitation of M&A transactions/IPO