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Practical Case Studies on Tax Payable under the Vivad se Vishwas Scheme, 2020

In view of the outbreak of Novel Corona Virus (Covid-19), the Ministry of Finance has brought in an Ordinance called as “The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance 2020”, on 31.3.2020, in order to provide several relief measures relating to statutory and regulatory compliance matters.

As per Clause No. 5 in Chapter IV of The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance 2020, an amendment in section 3 of the Direct Tax Vivad se Vishwas Act, containing the provisions relating to the specified due dates for payment of tax payable by the declarant under the Vivad se Vishwas scheme, has been made and accordingly the due date of making payment of disputed tax (without any additional amount), was extended from the originally stipulated due date of 31.3.2020 to 30.6.2020. However, in view of the extended lockdown conditions, an announcement was being made by the honourable FM, regarding the further extension of this extended due date of 30.6.2020, to 31.12.2020. However, no corresponding amendment in the Direct Tax Vivad se Vishwas Act, 2020, was being made.

Now, “The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020”, (hereinafter referred to as “The Taxation Amendment Act, 2020”), has been passed by the Parliament and it has replaced the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020, promulgated in March, 2020.

As per Clause No. 5 in Chapter IV of ‘The Taxation Amendment Act, 2020, an amendment in section 3 of the Direct Tax Vivad se Vishwas Act, 2020, containing the provisions relating to the specified due dates for making payment of tax payable by the declarant under the Vivad se Vishwas scheme, has been made as under,

“5. In section 3 of the Direct Tax Vivad Se Vishwas Act, 2020,—

(a) in the opening portion, for the words, "under the provisions of this Act on or before the last date" the words "under the provisions of this Act on or before such date as may be notified" shall be substituted and shall be deemed to have been substituted;

(b) in the Table,—

1. 1. 1. in third column, in the heading, for the figures, letters and words 40 "31st day of March, 2020", the figures, letters and words "31st day of December, 2020 or such later date as may be notified" shall be substituted and shall be deemed to have been substituted;
      2. in fourth column, in the heading, for the figures, letters and words

"1st day of April, 2020", the figures, letters and words "1st day of January, 2021

or such later date as may be notified" shall be substituted and shall be deemed to have been substituted;

Therefore, now the formal effect of the announcement of our Hon’ble FM concerning the extension of making payment of disputed tax (without any additional amount), to 31.12.2020, has been incorporated in the governing “Direct Tax Vivad se Vishwas Act, 2020, and the revised due dates for making payment of disputed tax payable under section 3 of the Direct Tax Vivad se Vishwas Act 2020, by the Declarant, are being tabulated as under:

(I) Where the Appeal/Writ Petition/SLP has been filed by the Declarant

Nature of Tax Arrear	Amount payable on or before 31.12.2020 or such later date as may be notified	Amount payable on or after 01.01.2021, or such later date as may be notified
Aggregate of disputed tax, interest chargeable and penalty on such disputed tax, in cases other than search/block assessments	100% of the amount of disputed tax	110% of the amount of disputed tax.
Aggregate of disputed tax, interest chargeable and penalty on such disputed tax, in cases of block assessment u/s 153A/153C, assessment u/s143(3), reassessment u/s 148, pursuant to a search action u/s 132, where disputed tax is less than Rs 5 crores	125% of the amount of disputed tax	135% of the amount of disputed tax.
Aggregate of disputed tax, interest chargeable and penalty on such disputed tax, in cases where the declarant/assessee has got a favourable decision in earlier assessment years from the higher appellate authorities and such favourable decisions have not been reversed.	50% of the amount of disputed tax	55% of the amount of disputed tax
Aggregate of disputed interest, penalty and disputed fee	25% of such disputed interest, penalty or fee	30% of such disputed interest, penalty or fee

(II) Where the Appeal/Writ Petition/SLP has been filed by the Income Tax Authority

Nature of Tax Arrear	Amount payable on or before 31.12.2020 or such later date as may be notified	Amount payable on or after 01.01.2021 or such later date as may be notified
Aggregate of disputed tax, interest chargeable and penalty on such disputed tax, in cases other than search/block assessments	50% of the amount of disputed tax	55% of the amount of disputed tax.
Aggregate of disputed tax, interest chargeable and penalty on such disputed tax, in cases of block assessment u/s 153A/153C, assessment u/s143(3), reassessment u/s 148, pursuant to a search action u/s 132, where disputed tax is less than Rs 5 crores	62.5% of the amount of disputed tax	67.5% of the amount of disputed tax.
Aggregate of disputed interest, penalty and disputed fee	12.5% of such disputed interest, penalty or fee	15% of such disputed interest, penalty or fee

In order to understand and decipher the practicalities and nuances of the computation of ‘amount of actual tax liability’ under this tax amnesty scheme, the undermentioned real-time case studies are being discussed.

Practical Case Studies on ‘Tax Payable’ by the Declarant/Assessee under the Direct Tax Vivad Se Vishwaas Act 2020:

1. Case Study on Settlement of Dispute in OCM/Demonetisation under Vivad Se Vishwaas Scheme, 2020

Assessee Name:	Mr. P
Assessment Year:	2017-18
Nature & section under which order has been passed	Regular Assessment Order u/s 143(3)

Additions/Disallowances: The addition of Rs.50,00,000/- u/s 69A read with section 115BBE, taxable @ 78% (60% basic tax rate u/s 115BBE plus surcharge 25%), has been made, on account of considering the cash deposits made by assessee in his bank account during the demonetization period, from 9.11.2016 till 31.12.2016, as unexplained deposits.

Date of Passing of Order:	28.12.2019
Date of Receipt of Order & Demand Notice u/s 156:	28.12.2019

In ‘e-Proceedings’ window, the assessee receives the assessment order as soon as the order is uploaded by the AO in the registered e-filing a/c of the assessee.

The Computation of Income and Income Tax Demand u/s 156, pursuant to the said Regular Assessment Order for AY 2017-18:

Returned Income:	8,00,000/-
Addition on account of unexplained investment u/s 69A read with section 115BBE (taxable @ 78% as above)	50,00,000/-
Assessed Income:	58,00,000/-
Tax Liability (a):	39,87,370/-
Add: Interest u/s 234B/234C (b):	14,76,000/-
Total Tax Liability (c):	54,63,370/-
Less: Tax already paid (d):	87,370/-
Net Tax Liability (e):	53,76,000/-

Aggrieved by the said addition, the assessee Mr. P, has e-filed an appeal before CIT(Appeals), u/s 246A, in the prescribed Form 35, on 27.1.2020, i.e. within 30 days from the receiving of the assessment order u/s 143(3) on 28.12.2019.

Therefore, the appeal of the assessee Mr. P is pending on the specified date on 31.1.2020, before the specified appellate authority i.e. CIT(Appeals).

Therefore, this case is covered under section 2(1)(j)(A) of the Direct Tax Vivad Se Vishwaas Act 2020 and accordingly the Disputed Tax payable would be the amount of tax that is payable by the appellant Mr. P, if his appeal before the CIT (Appeals), was to be decided against him.

The assessee Mr. P has filed his appeal against the addition of Rs. 50,00,000/- made by the AO, u/s 69A read with section 115BBE of the Income Tax Act, on account of considering the cash deposits during the demonetisation period as unexplained investments, in the regular assessment order for AY 2017-18.

So, the ‘disputed tax’, in this case would be the income tax and surcharge payable (excluding interest u/s 234B/C), on the addition of Rs. 50,00,000/-, as if the appeal of the assessee Mr. P, before the CIT (Appeals), has been decided against him.

Computation of ‘Disputed Tax’ u/s 2(1)(j) of the Act, in this Case Study

 

Total Tax Liability (including Income tax & surcharge plus interest u/s 234B/234C) as per column (c) in Notice of Demand u/s 156, above:		Rs.54,63,370/-
Less: Tax Already Paid on Returned Income as per column (d) in Notice of Demand u/s 156, above		Rs.    87,370/-
Tax Arrears Payable u/s 2(1)(o)(i) of the Direct Tax Vivad Se Vishwaas Act 2020		Rs. 53,76,000/-
Less: Interest u/s 234B/234 C as per column (b) in Notice of Demand u/s 156, above, in respect of disputed tax.		Rs. 14,76,000/-
Disputed Tax u/s 2(1)(j)(A) of the Act		Rs.39,00,000/-

Tax Liability under the Scheme

(a) If Tax is paid on or before 31.12.2020, then by virtue of section 3(a) of the Direct Tax Vivad Se Vishwaas Act 2020, the tax payable under the scheme would be the amount of disputed tax. In the above case study, the amount of disputed tax as computed u/s 2(1)(j)(A) of the Act works out to Rs. 39,00,000/-.

So, if the assessee pays the tax on or before 31.12.2020, then the amount of tax payable by him under this tax amnesty scheme would be the amount of disputed tax of Rs. 39,00,000/-.

(b) If Tax is paid on or after 1.1.2021, then by virtue of section 3(a) of the Direct Tax Vivad Se Vishwaas Act 2020, the tax payable under the scheme would be equal to 110% of the amount of disputed tax. In the above case study, the amount of disputed tax as computed u/s 2(1)(j)(A) of the Act works out to Rs. 39,00,000/-.

So, if the assessee pays the tax on or after 1.1.2021, then the amount of tax payable by him under this tax amnesty scheme would be equal to 110% of the disputed tax of Rs. 39,00,000/-, which comes out to Rs. 42,90,000/-.

Conclusion: Thus, in the above Case Study, the income tax liability of the assessee Mr. P, as it existed before the opting of this amnesty scheme was Rs. 53,76,000/-. However, the disputed tax payable by him, if this amnesty scheme is being opted by him, comes out to Rs. 39,00,000/-. This reduction in tax liability under this amnesty scheme is on account of immunity from the payment of interest u/s 234B & 234C of the Income Tax Act of Rs. 14,76,000/-.

The assessee will also become immune from any penalty u/s 270A of the Income Tax Act.

2. Case Study on Settlement of Dispute concerning Long Term Capital Gains on Penny Stocks, under the Vivad Se Vishwaas Scheme 2020

Assessee Name	Mr. Y
Assessment Year	2014-15
Nature & section under which order has been passed	Re-Assessment Order u/s 147
Date of Passing of Order:	31.12.2017
Date of Receipt of Order & Demand Notice u/s 156:	5.1.2018

Additions/Disallowances resulting in Dispute: The addition of Rs.1,00,00,000/- u/s 68, has been made, on account of considering the long-term capital gain on sale of listed shares in the scrip Kappac Pharma, as bogus/accommodation entry.

The Computation of Income and Income Tax Demand u/s 156, pursuant to the Re-Assessment Order for AY 2014-15:

Returned Income:	15,00,000/-
Addition on account of bogus long-term capital gain on sale of a penny stock u/s 68 read with section 115BBE (taxable @ maximum marginal tax rate)	100,00,000/-
Assessed Income:	1,15,00,000/-
Income Tax Liability (including surcharge & education cess) (a):	36,49,250/-
Add: Interest u/s 234B/234C (b):	12,20,000/-
Total Tax Liability (c):	48,69,250/-
Less: Tax already paid (d):	2,83,250/-
Net Tax Liability (e):	45,46,000/-

Aggrieved by the said additions the assessee Mr Y has filed his appeal before the CIT(Appeals) on 2.2.2018. The CIT(Appeals) has decided the appeal against the assessee vide his appeal order dated 31.8.2018

Aggrieved by the appeal order of CIT (Appeals), the assessee has filed an appeal before the ITAT on 15.10.2018.

The ITAT has decided the appeal in favour of the assessee Mr Y, vide its order dated 15.2.2019.

Aggrieved by the said ITAT Order dated 15.2.2019, the Income Tax Department has filed its appeal before the Delhi High Court on 30.4.2019.

The appeal of the Income Tax Department has been admitted by the Delhi High Court on 31.10.2019 for hearing on merits.

The listing of this case before the Delhi High Court, for hearing on merits, is still pending on the specified date on 31.1.2020.

Analysis: The Delhi High Court in its judgement dated 8.3.2019, in the case of Udit Kalra vs. ITO, have decided the appeal against the assessee Udit Kalra in that particular case, and have categorically upheld the additions being made by the assessing authority on account of considering the long term capital gain on sale of listed shares of the same scrip Kappac Pharma, in which the assessee in this case study has done share transactions. Therefore, the assessee Mr. Y is foreseeing the adjudication of the appeal of the Income Tax Department in his case, to be adjudicated against him, on account of this recent binding legal precedent of the jurisdictional High Court in the case of Udit Kalra vs ITO, in the same scrip of Kappac Pharma.

So, even though the assessee Mr. Y has won his appeal in the ITAT, still he is willing to avail the benefit of the Vivad Se Vishwaas Tax Amnesty Scheme, in order to get immunity and waiver from the payment of interest and resultant penalty in the eventuality of his losing the case before the Delhi High Court.

The assessee Mr. Y shall be eligible to settle his tax dispute as per provisions contained in section 2(1)(a)(i) of the Direct Tax Vivad Se Vishwaas Act 2020, which covers those cases also within its ambit, where appeals have been filed by the Income Tax Authorities. However, even though the appeal of the Income Tax Department is pending before the Delhi High Court in this case study, in order to settle his tax dispute, the assessee Mr. Y shall file a declaration u/s 4 of the Direct Tax Vivad Se Vishwaas Act 2020, confirming his opting of this tax amnesty scheme.

Once the assessee Mr. Y files a declaration and opts for this scheme, he shall be required to pay only 50% of the disputed tax and shall get waiver of the interest u/s 234B/234C/221 and penalty u/s 271A of the Income Tax Act.  

Computation of ‘Disputed Tax’ u/s 2(1)(j) of the Act, in this Case Study

Total Tax Liability (including Income tax & surcharge plus interest u/s 234B/234C), as per column no. (c) in Notice u/s 156 of Income Tax Act, above:		Rs.48,69,250/-
Less: Tax already paid, as per column no. (d) in Notice u/s 156 of Income Tax Act, above:		Rs.    2,83,250/-
Tax Arrears Payable u/s 2(1)(o)(i) of the Direct Tax Vivad Se Vishwaas Act 2020		Rs. 45,46,000/-
Less: Interest u/s 234B/234C as per column no. (b) in Notice u/s 156 of Income Tax Act, above, in respect of disputed tax.		Rs. 12,20,000/-
Disputed Tax u/s 2(1)(j)(B) of the Act		Rs.33,26,000/-

Conclusion: Thus, in the above Case Study, the income tax liability of the assessee Mr. Y, as it existed before the opting of this amnesty scheme was Rs. 45,46,000/-.

However, the tax payable by him u/s 3 of the Direct Tax Vivad Se Vishwaas Act 2020, if this amnesty scheme is being opted by him, comes out to Rs. 16,63,000/- (50% of the disputed tax amount of Rs. 33,26,000).

This reduction in tax liability under this amnesty scheme is on account of immunity from the payment of interest u/s 234B & 234C of the Income Tax Act of Rs. 12,20,000/-, and the legislative provision for payment of 50% of the disputed tax, if the appeal has been filed by the Income tax Department.

3. Case Study illustrating Computation of Tax Payable in Block Assessment cases u/s 153A/153C, pursuant to search action u/s 132 of the Income Tax Act, under the Scheme.

 

Assessee Name	Mr. XYZ Pvt Ltd
Year of Search u/s 132	FY 2016-17
Block Assessment Years	AYs 2011-12, 2012-13, 2013-14, 2014-15, 2015-16, 2016-17
Nature & section under which order has been passed	Block Assessment Orders for AYs 2011-12, 2012-13, 2013-14, 2014-15, 2016-17 u/s 153A & Regular Assessment Order u/s 143(3) for AY 2017-18 (Year of Search u/s 132)

Additions/Disallowances: The undermentioned additions u/s 69A read with section 115BBE of the Income Tax Act, have been made, on account of unexplained cash and jewellery found and seized from business and residential premises, during the course of search action u/s 132 of Income Tax Act.

Assessment Years	Additions in Rs.
2011-12	5,00,00,000/- in Order u/s 153A
2012-13	6,00,00,000/- in Order u/s 153A
2013-14	6,50,00,000/- in Order u/s 153A
2014-15	7,00,00,000/- in Order u/s 153A
2015-16	8,00,00,000/- in Order u/s 153A
2016-17	9,00,00,000/- in Order u/s 153A
2017-18	10,00,00,000/- in Order u/s 143(2)

Date of Passing of Orders:	29.12.2019
Date of Receipt of Order:	31.12.2019

Aggrieved by the said addition, assessee company has e-filed an appeal before CIT(Appeals) u/s 246A in the prescribed Form 35, on 29.1.2020, which is pending for disposal by the CIT (Appeals) on the specified date on 31.1.2020.

Analysis of Scope, Coverage & Eligibility Parameters of the Vivad Se Vishwaas Tax Amnesty Scheme 2020, in this Case Study.

In this case study, the appeal of the assessee company M/s XYZ Pvt Ltd, against the block assessment orders for the six assessment years viz. AYs 2011-12, 2012-13, 2013-14, 2014-15 and 2016-17 u/s 153A, and the regular assessment order u/s 143(2) for the AY 2017-18 (year of search), before the specified appellate authority i.e. CIT (Appeals) is pending on the specified date on 31.1.2020.   

Section 9 of the Direct Tax Vivad Se Vishwaas Act 2020, contains provisions concerning the cases, where the benefit of this scheme is not available, and it provides as under:

“The provisions of this Act shall not apply-

(a) in respect of tax arrear, -

(i) relating to an assessment year in respect of which an assessment has been made u/s 143(3) or section 144 or section 153A or section 153C of the Income Tax Act on the basis of search initiated u/s 132 or section 132A of the Income Tax Act, if the amount of disputed tax exceeds five crore rupees.”

As a corollary, in the assessment cases u/s 153A/153C/144/143(3) of the Income Tax Act, pursuant to a search action u/s 132 of the Income Tax Act, where the amount of disputed tax in any assessment year is Rs. 5 crores or less, then the benefit of this scheme is available in such cases.

In this case study, the amount of additions being made by the AO in the block assessment orders u/s 153A of the Income Tax Act, for the six assessment years i.e. AY 2011-12, 2012-13, 2013-14, 2014-15 and 2016-17 and the regular assessment order for the AY 2017-18 (year of search action u/s 132), shall be considered as disputed tax, for the purpose of this scheme.

Therefore, the eligibility of each assessment year under the scheme, shall be determined on the basis of quantum of additions/disputed tax, being made by the AO in each assessment year.

The assessment years in which the quantum of additions is less than or equal to Rs. 5 crores, shall be eligible for the benefit of the scheme and the assessment years in which the quantum of additions is less than or equal to Rs. 5 crores,

The assessment years in which the quantum of additions is more than Rs. 5 crores, shall not be eligible for the benefit of the scheme.

AY	Additions (INR)	Disputed demand @78% u/s 115BBE (INR)	Eligibility under Vivad se Vishwaas Scheme 2020
2011-12	5,00,00,000	3,90,00,000	Yes
2012-13	6,00,00,000	4,68,00,000	Yes
2013-14	6,41,02,565	5,00,00,000	Yes
2014-15	7,00,00,000	5,46,00,000	No
2015-16	8,00,00,000	6,24,00,000	No
2016-17	9,00,00,000	7,02,00,000	No
2017-18	10,00,00,000	7,80,00,000	No

It is worthwhile to note here that in this case study, even the regular assessment order for the AY 2017-18 passed u/s 143(2) of the Income Tax Act, also gets disqualified to be eligible for the scheme, as this order has been passed in pursuance of search action u/s 132 of the Income Tax (Year of Search is FY 2016-17), and as such the qualifying threshold limit of disputed tax of Rs. 5 crores is also applicable on this order by virtue of provisions of section 9(a)(i) of the Direct Tax Vivad Se Vishwaas Act 2020.

For regular assessment orders u/s 143(2), not being passed in pursuance of any search action u/s 132, the qualifying threshold limit of disputed tax of Rs. 5 crores is not applicable.

Statement of Tax Payable by the Assessee Company M/s XYZ Pvt Ltd., when Appeal of Assessee is Pending on the Specified date i.e. 31.1.2020

AY	Disputed Tax (INR)	Tax Payable on or before 31.12.2020 equal to 125% of Disputed Tax (INR)	Tax Payable on or after 1.1.2021 equal to 135% of Disputed Tax (INR)
2011-12	3,90,00,000	4,87,50,000	5,26,50,000
2012-13	4,68,00,000	5,85,00,000	6,31,80,000
2013-14	5,00,00,000	6,25,00,000	6,75,00,000

Statement of Tax Payable by the Assessee Company M/s XYZ Pvt Ltd. (Assuming Appeal of the Income Tax Authority is Pending on the Specified Date i.e. 31.1.2020

AY	Disputed Tax (INR)	Tax Payable on or before 31.12.2020 equal to 62.5% of Disputed Tax (INR)	Tax Payable on or after 1.1.2021 equal to 67.5% of Disputed Tax (INR)
2011-12	3,90,00,000	2,43,75,000	2,63,25,000
2012-13	4,68,00,000	2,92,50,000	3,15,90,000
2013-14	5,00,00,000	3,12,50,000	3,37,50,000

Useful Reference: For more details and complete understanding of the nitty-gritties and nuances of the Direct Tax Vivad se Vishwas Scheme 2020, the updated & revised 3rd Edition of the Book titled “Case Studies & Procedures under Direct Tax Vivad se Vishwas Act 2020”, authored by the author of this article, Sh. Mayank Mohanka, FCA (Senior Partner in M/s S M Mohanka & Associates, Chartered Accountants & Founder Director in M/s TaxAaram India Pvt Ltd)  and published by Taxmann Publications, may be referred, which is a ready referencer and a user manual incorporating more than 50 Real-life practical Case Studies, to help and assist the assessees and the tax professionals in making wise, timely and informed decisions concerning the settlement of their income tax disputes under the Vivad se Vishwas Scheme, 2020.