Vivad Se Vishwas, 2024 is a welcome measure which provides opportunities to settle pending disputes thereby facilitating ease of doing business. Pramod Achuthan, Partner and Shraddha Mandlecha, Senior Consultant, Global Compliance and Reporting for Direct Tax, Ernst & Young LLP will delve into the applicability, procedural aspects and manner of settlement of disputes under the newly launched Vivad se Vishwas Scheme 2024 brought in by the Hon’ble Finance Minister vide Finance Budget 2024.

Considering the encouraging response received from the taxpayers towards the Vivad se Vishwas Scheme 2020 and the mounting pendency of litigation at various levels of appellate forums due to pendency of appeals, VSVS 2024 has been launched for settling the disputed tax, interest, penalty and prosecution pending as on 22 July 2024 under the Income-tax laws after payment of certain normative amount determined under the VSVS 2024. The date from which the taxpayers can begin to settle their disputes as well as the sunset date, are yet to be notified by the Central Government.

Who is eligible to opt for VSVS 2024?

VSVS 2024 covers those cases wherein appeals, writ petitions and special leave petitions are  pending as on 22 July 2024 whether filed by the tax payer or by the tax authorities before any of:

-        Commissioner (Appeals) or Joint Commissioner (Appeals); 

-        Dispute Resolution Panel (DRP);

-        Income Tax Appellate Tribunal;

-        High Court; and

-        Supreme Court.

It covers assessments pending after the issue of directions by DRP and pending applications for revision filed by taxpayer before the Commissioner.

It also covers disputes relating to taxes determined under the provisions relating to Tax Deducted at Source (TDS) and Tax Collected at Source (TCS).

What amount is payable to settle disputes?

*In case appeal, writ petition or SLP is filed by the tax authority on any issue which is to be settled then amount payable shall be 50% of the amount in the above table.

*In case appeal or objections filed by the taxpayer are to be settled and if the taxpayer has already got a decision on any issue in its favour by the appellate authority or the High Court and the same has not been reversed by any higher authority or court, the amount payable shall be reduced to 50% of the amount in the above table.

How to calculate disputed amounts?

Where the settlement of the dispute results in reduction of Minimum Alternate Tax (MAT)/Alternate Minimum Tax (AMT) credit, losses, depreciation, the taxpayer can opt for either of the following:

-        Include tax related to reduction of MAT/AMT credit, loss, depreciation in the disputed tax; or

-        Carry forward the reduced MAT/AMT credit, loss, depreciation without payment of disputed tax

What is the procedure to opt for VSVS 2024?

Step 1: File a declaration to the designated authority (‘DA’) on or before a notified date

Step 2: Within 15 days of receipt of the declaration, DA to certify tax arrears and amount payable under VSVS 2024

Step 3: Pay the amount as per DA’s certificate within 15 days from the receipt of such certificate and intimate DA about the payment

Step 4: DA shall pass an order to conclude the dispute and no matter covered by such order shall be re-opened in any other proceedings under the income tax laws or any other laws.

Appellate Forum not to proceed to decide any issue relating to order passed by DA.

In case where the taxpayer or tax authorities appeal is pending before CIT(A)/ JCIT(A)/ ITAT then the appeals so pending are deemed to be withdrawn from the date of issue of certificate from DA determining the amount payable under VSVS 2024. However, the appeal will stand restored if the declarant exits VSV due to breach of conditions (eg. Non-payment of tax payable as per DA’s certificate).

In case where the appeal is pending before HC/ SC then the taxpayer should withdraw such appeal with leave of the court and the proof of withdrawal of the appeal is to be furnished to DA along with intimation of payment.

Who is ineligible to opt for VSVS 2024?

1)         A person in respect of disputed tax, interest, penalty, or fee relating to: 

-     Tax year in respect of which an assessment or reassessment has been made on the basis of search 

-     Tax year in respect of which prosecution has been instituted

-     Any undisclosed income from a source located outside India or undisclosed asset located outside India

-     An assessment/reassessment made basis information received pursuant to tax information exchange agreements.

2)       A person in respect of whom prosecution has been instituted or he has been convicted under the provisions of Unlawful Activities (Prevention) Act, 1967, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Prohibition of Benami Property Transactions Act, 1988, the Prevention of Corruption Act, 1988, the Prevention of Money-Laundering Act, 2002

3)       A person in respect of whom prosecution has been initiated by an income-tax authority for any offence punishable under the provisions of the Bharatiya Nyaya Sanhita, 2023 or for the purpose of enforcement of any civil liability under any law for the time being in force. A person who has been convicted of any offence punishable under Bharatiya Nyaya Sanhita, 2023.

4)       A person in respect of whom a detention order is passed under The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 and such detention order is not revoked or set aside by a higher authority

5)       A person notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992

Concluding thoughts

This is a one-time opportunity for taxpayers to clean up their balance sheets by opting for VSVS 2024 in terms of those cases which are eligible to be disposed off. Disputes where merits are not strong (e.g. cases where there is a Supreme Court decision against the Assessee) or where documentation supporting the case of Assessee are not adequate should be evaluated for filing under the scheme. Issues where there is multiplicity of litigation (eg TDS issues with appeals by both the tax deductor and tax deductee) need careful planning in deciding which appeals should be filed under VSVS 2024. In terms of fact sensitive cases, considering the time limit to make the payment of taxes, the taxpayers should proactively consult tax professionals in order to evaluate the facts and take appropriate actions.

The Government’s initiative of introducing VSVS 2024 is in the right direction to help taxpayers settle past litigations. In order to further instil confidence among the taxpayers, it is expected that the CBDT would shortly issue FAQs/clarifications to address the some of the debatable aspects around VSVS 2024.  To end, the following quote seems appropriate “Learn the wisdom of compromise, for it is better to bend a little than to break”.

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About the authors:

Pramod Achuthan, Partner (Global Compliance and Reporting), Direct Tax at Ernst & Young LLP, India

Shraddha Mandlecha, Senior Consultant (Global Compliance and Reporting), Direct Tax at Ernst & Young LLP, India