BACKGROUND

In 2020, the Direct Taxes Vivad se Vishwas Scheme (VsV 2020) was enacted with a view to speedy resolution of pending disputes and thereby reduce pending litigation. Please click here to read our detailed alert on VsV 2020. Taking note of the success of VsV 2020, Finance (No.2) Act, 2024 (Finance Act) introduced the Direct Tax Vivad Se Vishwas Scheme 2024 (VsV 2024) to tackle the backlog of pending tax litigation. As per VsV 2024, it shall be applicable to all appeals that are pending as on 22 July 2024 (Specified Date). The taxpayers will be required to pay a specified amount if they opt to settle the dispute under the VsV 2024. Recently, the Central Board of Direct Taxes (CBDT) has issued a Notification¹ to notify "Direct Tax Vivad se Vishwas Rules, 2024" (VsV Rules).
We, at BDO in India, have analysed and summarised the key provisions of VsV Rules:

1. What is the effective date of the VsV Rules?
   VsV Rules are effective from the date of their publication in the Official Gazette i.e. 20 September 2024.

2. What constitutes ‘Dispute’?
   The term ‘Dispute’ has been defined to mean:

• Appeal, writ or special leave petition filed by the taxpayer or the tax authority before the Appellate Forum; or

• Objections filed before the Dispute Resolution Panel (DRP) under section 144C of the Income-tax Act, 1961 (IT Act) and the DRP has not issued any direction; or

• DRP has issued direction under section 144C(5) of the IT Act and the tax officer has not completed the assessment under section 144C(13) of the IT Act; or

• Application filed under section 264 of the IT Act.

3. When are issues said to be covered in favour of the “declarant”?
   In following instances, the matter is said to be in favour of the declarant:

• An appeal or writ or special leave petition is filed by the tax authority before the appellate forum; or

• An appeal is filed before the Commissioner (Appeals) or the Joint Commissioner (Appeals) [CIT(A)], or objections are filed before the DRP by the declarant, on which he has already got a decision in his favour from the Tax Tribunal [where the decision on such issue is not reversed by the High Court (HC) or the Supreme Court (SC)] or the HC (where the decision on such issue is not reversed by the SC); or

• An appeal is filed by the declarant before the Tax Tribunal on which he has already got a decision in his favour from the HC (where the decision on such issue is not reversed by the SC)

4. How will the disputed tax be computed if the dispute includes matters covered in favour of declarant?
   

5. What are the relevant forms prescribed under VsV Rules?

Form	Purpose
Form 1	For filing declarations for any dispute and undertaking
Form 2	Certificate by Designated Authority
Form 3	Intimation of payment of taxes
Form 4	Confirmation from the designated authority for payment of the entire tax demand.

 

6. How will the disputed tax be calculated in cases where there is a reduction in loss or unabsorbed depreciation?
   Where the dispute in relation to a fiscal year relates to a reduction in loss or unabsorbed depreciation to be carried forward under the IT Act, the declarant shall have an option to –

• Include the tax (plus surcharge and cess0, payable on the amount by which loss or unabsorbed depreciation is reduced in the disputed tax and carry forward the loss or unabsorbed depreciation by ignoring such amount of reduction in loss or unabsorbed depreciation; or

• Carry forward the reduced amount of loss or unabsorbed depreciation, after payment of tax (plus surcharge and cess), along with interest.

Further, if such reduction relates to issues covered in favour of declarant, only 50 per cent of the amount by which loss or unabsorbed depreciation is reduced shall be considered for reduction.

7. Whether the written down value (WDV) of Block of Asset undergo any change if the declarant opts to carry forward the reduced amount of unabsorbed depreciation?
   No, the WDV of the block of asset as on the last day of the year, in respect of which unabsorbed depreciation has been reduced, shall not be increased by the amount of reduction in unabsorbed depreciation.

8. How will the disputed tax be computed in cases where Minimum Alternate Tax (MAT) credit is reduced?
   Where the dispute in relation to an FY relates to reduction in MAT credit to be carried forward, the declarant shall have an option to:

• 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, or

• Carry forward the reduced MAT credit after payment of tax, including surcharge and cess, along with interest.

Further, if such reduction relates to issues covered in favour of declarant, only 50 per cent of the amount by which MAT credit is reduced shall be considered for reduction.

BDO IN INDIA COMMENTS

Under the erstwhile VsV 2020, CBDT had issued FAQs through Circulars 7 and 8 of 2020 to address various issues faced by the taxpayer. These FAQs did not contain clarification with regard to payment of any tax for foregoing the loss/ MAT.

These rules provide clarity where the declarant opts to carry forward the reduced MAT credit or unabsorbed depreciation or loss. Further, a relaxation in payment of disputed tax, calculation of reduced amount of unabsorbed loss, depreciation and MAT credit is also provided in cases where it relates to issues covered in favour of the declarant. It is also pertinent to note that in one of the FAQ issued for VsV 2020, it was clarified that the matters where the time limit for filing appeal as of the effective date of VsV 2020 had not expired would also come within the ambit of VsV 2020. A similar clarification for VsV 2024 may help in giving clarity on such type of matters.

 

¹ Notification No. 104/2024, F. No. 370142/16/2024-TPL, dated 20 September 2024