Tax litigation: If your case is weak, opt for Vivad se Vishwas Scheme

The government introduced the Vivad se Vishwas Scheme earlier this year to settle tax disputes pending before any appellate forum. The government’s aim in introducing it is to reduce pending litigation. A taxpayer can opt for it by filing a declaration on or before December 31, 2020, and paying the disputed tax amount by March 31, 2021. 

Lukewarm response: This scheme has evoked a poor response so far. Gopal Bohra, partner, NA Shah Associates says, “This is evident from the data on declarations submitted till date. The scheme has only 20 more days to go. Currently, more than 400,000 cases are pending before various appellate forums involving a disputed amount of more than Rs 9 trillion. Yet, the government has been able to collect only Rs 72,480 crore tax under this scheme so far.” One possible reason for the poor response could be the ongoing pandemic. 

The Sabka Vishwas Scheme of 2019 for indirect taxes had received a better response chiefly because it provided an incentive in the form of tax waiver. It mandated payment of only 50 per cent tax, waiver of the balance amount, along with immunity from prosecution. Archit Gupta, founder and chief executive officer (CEO), ClearTax says, “The Vivad Se Vishwas Scheme provides no waiver for disputed tax, only a waiver from payment of interest and penalties, besides immunity from prosecution.” 

Recently, the payment term for the scheme was modified. Only 50 per cent of disputed tax needs to be paid in cases where an appeal has been made by the Income-Tax (I-T) Department. Yet, some experts say taxpayers have minimal incentive to apply for it. Gupta adds, “This being a one-time resolution scheme, the taxpayer has very little incentive to opt for it.”

The scheme also does not cover all disputed matters. Litigation relating to search and seizure is covered only if the disputed tax amount does not exceed Rs 5 crore. 

Weigh the merits of the scheme: Other experts, however, emphasise that the scheme offers several concrete benefits. Bohra says, “It provides complete waiver of interest, penalties and immunity from future prosecution. It will result in the saving of time, litigation cost and will provide mental peace.” 

The scheme provides a simple way to resolve disputes without having to move any court or government office. Naveen Wadhwa, deputy general manager, Taxmann says, “A taxpayer who wants to settle a dispute is only required to file an online declaration on the e-filing website of the I-T Department. Further, disputes pending at any level of the appellate forum, i.e., Commissioner Of Income-Tax (Appeals), Income-tax Appellate Tribunal (ITAT), High Court or Supreme Court can be settled.” Bohra adds, “This is a great scheme to settle disputes, especially if the taxpayer’s case is weak on merit; she does not have the relevant documents to justify her claim; or a similar dispute has been decided against the taxpayer in another case.”

The dispute resolution mechanism in India is multi-layered and time-consuming. Wadhwa says, “Since the scheme provides an instant resolution of a pending tax dispute, taxpayers should grab this opportunity.”

Consider factors like your chances of winning, cost of litigating, consequences of losing, implications of carrying forward losses, and so on and then decide whether to participate in the scheme.

Select the right forms under Vivad Se Vishwas Scheme

Form No	Despcription
Form 1	For filing declaration and information relating to dispute
Form 2	Undertaking to waive taxpayer's right to pursue any other claim
Form 3	Certificate from Authority determining the final amount payable

Form 4

Intimation of payment of dispute amount 

Form 5

Order for full and final settlement of tax arrears

Source: www.incometaxindia.gov.in