Reboot Appellate Forums - Direct Tax Vivad-Se-Vishwas Scheme 2024

Imagine dealing with the dreaded blue screen of death on your computer. Now, picture a similar frustration faced by taxpayers, who have been waiting on their computer screens for a hearing by the faceless appellate officers, for years. This has led to a staggering 5.44 lakh pending appeals before the first appellate forum in income-tax, i.e., the CIT(A). In past, when the Government was faced a similar problem, they introduced a Direct Tax Vivad-Se-Vishwas Scheme in 2020 (VsV 1.0), which was a huge success. A whopping 1,46,701 disputes were settled, and the Government settled tax disputes over almost 1 lakh Crores. This time to solve this problem, the Union Budget 2024 has introduced a hopeful solution: the Direct Tax Vivad-Se-Vishwas Scheme 2024 (VSV 2.0). This scheme aims to reduce the backlog of tax disputes, offering a fresh chance for resolution. 

With this background now let's explore what VSV 2.0 entails and what it means for taxpayers.

What is VSV 2.0?

It is designed to address various pending income-tax disputes, covering appeals, writ petitions, and special leave petitions as of July 22, 2024. Whether these cases are filed by taxpayers or income-tax authorities, they can be pending before the Supreme Court, High Court, Income Tax Appellate Tribunal, Commissioner (Appeals), or Joint Commissioner (Appeals). The scheme also includes cases where objections have been filed before the Dispute Resolution Panel (DRP) but where the DRP has not issued any direction as of July 22, 2024. It also covers situations where the DRP has issued directions, but the final assessment order is still pending as of the same date. Additionally, pending revision applications filed by taxpayers before the Commissioner are included.

Interestingly, taxpayers who missed out on VSV 1.0 can now benefit from VSV 2.0 if their appeals are still pending in the same forum, although they must pay a slight premium. However, those who received orders and had not yet filed an appeal by July 22, 2024, are not covered. This might be rectified in future discussions on the Finance Bill.

Does it have any exclusions?

Some disputes and taxpayers are excluded from VSV 2.0:

- Disputes involving assessments or reassessments from a search under Section 132 and 132A, undisclosed income or assets outside India, and information received under international agreements.

- Taxpayers involved in serious legal issues, such as those under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, Unlawful Activities (Prevention) Act, Narcotic Drugs and Psychotropic Substances Act, Prevention of Corruption Act, Prevention of Money Laundering Act, or the Bhartiya Nyaya Sanhita 2023.

How much payment does it entail?

The amount required to settle disputes varies based on the timing of the appeal and whether the tax authority or taxpayer filed it:

- For cases involving disputed tax, interest, or penalties, the percentage ranges from 100% to 120% of the disputed tax.

- For cases involving only interest, penalties, or fees, the percentage ranges from 25% to 35%.

The required amount is halved in certain situations, such as when the tax authority has filed an appeal or when the taxpayer’s case has been favorably decided by a higher forum.

What is the process of availing VSV 2.0?

The process for settling tax disputes under VSV 2.0 is straightforward:

1. Declaration: Taxpayers intending to settle their disputes must file a declaration with the Designated Authority.

2. Undertaking: Taxpayers must waive their rights to seek further remedies for the settled issues.

3. Certification: The Designated Authority will determine the payable amount and issue a certificate within 15 days.

4. Payment: Taxpayers must pay the certified amount within 15 days of receiving the certificate.

5. Withdrawal: Taxpayers must withdraw their appeals or petitions from the courts and provide proof of withdrawal and payment to the Designated Authority.

What protection does VSV 2.0 grant?

VSV 2.0 ensures that once a settlement order is passed, the matters cannot be reopened, and no further proceedings for offences, penalties, or interest related to the settled issues can be instituted. However, taxpayers should evaluate the scheme carefully, considering the strength of their case, litigation costs, implications on losses, and cash flow.

The success of VSV 1.0 has led to the introduction of VSV 2.0, providing a valuable opportunity for taxpayers to resolve their disputes and obtain tax certainty.

This scheme ought to be certainly analyzed by taxpayers who may have already created a provision for tax in their accounts or are likely to undergo M&A / liquidation or where precedents are adverse or where the cost of litigating outweigh the cost of settlement under this scheme. Another interesting case where VsV would make commercial sense is where companies have carried forward of losses which would be lapsing or large refunds due. In such cases the amounts of tax payable under the VsV can be offset against such losses or refunds due, without creating any further cash outflow for taxpayers. Of course, there is no one-size fit all answer for whether one should consider this scheme or not and would depend on the facts and merits of each case. 

While the statistics for VSV 2.0 may not match its predecessor, it represents a significant step towards reducing the backlog of tax appeals, easing the burden on both taxpayers and tax authorities and overall providing the much-needed tax certainty and improving the ease of doing business. 

By Karishma R Phatarphekar, Partner, Deloitte India

Views are personal.