Entities against whom prosecution has not been instituted even though a notice has been issued can avail the Direct Tax 'Vivad Se Vishwas' scheme, the income tax department said on Wednesday.
The Central Board of Direct Taxes (CBDT) had on March 4 issued a detailed FAQ on the scheme. In a circular issued on Wednesday, the department has modified answer to a question in relation to prosecution cases with a view to "reflect the correct intent of law".
"It has now been clarified that where only notice for initiation of prosecution has been issued without prosecution being instituted, the assessee is eligible to file declaration under Vivad se Viswas," the CBDT said.
In cases where prosecution has been instituted for an assessment year, the prosecution will have to be compounded before filing declaration under the scheme.
In the FAQ issued on March 4, the CBDT said that where notice for initiation of prosecution has been issued with reference to tax arrears, the taxpayer has a choice to compound the offence and opt for Vivad se Vishwas. However, the scheme will not cover cases where prosecution has already been instituted and is pending in the court.
Nangia Andersen LLP Director Sandeep Jhunjhunwala said this is a significant departure from the previous circular.
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"A number of cases where notices proposing initiation of prosecution proceedings have been issued, could now find shelter under Vivad Se Vishwas scheme. The compounding route remains open for cases where prosecution proceedings have already been instituted," Jhunjhunwala said.
Consulting firm AKM Global Tax Partner Amit Maheshwari said that earlier, there was a lack of clarity on applying for the Vivad Se Vishwas scheme when prosecution proceedings had been initiated and instituted.
He said, "Now, the CBDT has clarified that the taxpayer can opt for the Vivad se Vishwas scheme where the notice for the initiation of prosecution has been issued but the prosecution itself has not been instituted. However, in cases where the prosecution has been instituted, the scheme can only be opted after prosecution has been compounded," he added.
The Vivad Se Vishwas scheme was launched to settle direct tax disputes locked up in various appellate forum.
In cases where a taxpayer's appeals are pending before appellate forums, high courts and the Supreme Court, he will have the option to settle the dispute on payment of 100 per cent tax (125 per cent in search cases) and get complete waiver of interest and penalty if he pays by June 30.
Further, where arrears are related to disputed interest or penalty only, then 25 per cent of disputed penalty or interest will have to be paid if the payment is made by June end.
As many as 4.83 lakh direct tax cases involving Rs 9.32 lakh crore in disputed taxes are locked in various appellate forums. This amount is the equivalent of 82 per cent of the government's direct tax revenue in 2018-19.
The scheme will cover appeals pending before the appellate forum [Commissioner (Appeals), Income Tax Appellate Tribunal (ITAT), High Court or the Supreme Court], and writ petitions pending before High Court or the Supreme Court or special leave petitions (SLPs) pending before the SC as on the January 31, 2020.
The scheme can also be availed in cases of search and seizure operations where the cumulative recovery is less than Rs 5 crore and also those which are pending arbitration, but would not cover those cases where the dispute is under the foreign black money act, benami property act and PMLA, among others.
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