The Direct tax Dispute Resolution Scheme, 2016

Narendra Jain Partner

NNMS & Co, Chartered Accountants

BACKGROUND

FM Budget Speech – There are about 3 Lakh tax cases pending with the

first Appellate Authority with disputed amount of 5.5 Lakh Crores.

Budget 2016 therefore proposes to introduce Direct & Indirect Tax

Dispute Resolution Scheme.

As per Fin Min Annual Report, 2014-15, total direct tax outstanding

demand in FY 2013-14 is at Rs. 674,916 crores. Total amount locked

up in appeal pending at CIT(Appeals) upto October 2014 is Rs. 383, 920

Crores.

The Finance Bill, 2016 has proposed to introduce ‘The Direct Tax

Dispute Resolution Scheme, 2016’ in respect of the appeals pending

before the Commissioner of Income tax/Wealth Tax- Appeals, the first

appellate authority. The scheme also applies to dispute pending in

respect of tax determined in consequence of retrospective amendment

in the Income Tax Act or Wealth Tax Act.

The above scheme intends to settle the pending cases by way of giving

an opportunity to the assessees to pay the disputed tax, interest &

penalty thereon and resultant withdrawal of the pending appeal.

Sections 199 to 208 of the Bill contains the proposed scheme. The

Central Government has powers to issue instructions for proper

administration and removing difficulties.

(A) “designated authority” means an officer not below the rank of a

Commissioner of Income-tax and notified by the Principal Chief

Commissioner for the purposes of this Scheme;

(B) “tax arrear” means, the amount of tax, interest or penalty determined

under the Income-tax Act or the Wealth-tax Act, 1957 in respect of

which appeal is pending before the Commissioner of Income-tax

(Appeals) or the Commissioner of Wealth-tax (Appeals) as on the

29.02.2016;

(C) ‘‘specified tax’’ means a tax—

(i) the determination of which is in consequence of or validated by any

amendment made to the Income-tax Act or the Wealth-tax Act with

retrospective effect and relates to a period prior to the date on which the

Act amending the Income-tax Act or the Wealth-tax Act, as the case may

be, received the assent of the President; and

(ii) a dispute in respect of such tax is pending as on the 29.02.2016.

Section 199 of the Bill provides for filing declaration on or after

01.06.2016, but before notified date.

In respect of tax arrear, or specified tax, the amount payable by the

declarant shall be determined as follows:

◦ In case of pending appeal related to tax arrear being:

◦ Tax & interest –

Where disputed tax is not more than Rs 10 Lakhs, whole of such disputed tax

& interest till the date of assessment or reassessment;

In any other case, whole of disputed tax + 25% of minimum penalty leviable

+ interest on disputed tax till the date of assessment or reassessment

◦ Penalty – 25% of minimum penalty leviable + tax & interest payable on

total income finally determined.

◦ In case of specified tax, the amount of such tax determined

Where the declaration is in respect of tax arrear, appeal in respect of the

disputed income, disputed wealth and tax arrear pending before the

CIT(Appeals) or the CWT(Appeals), shall be deemed to have been

withdrawn.

Where the declaration is in respect of specified tax and the declarant has

filed any appeal before CIT(A), CWT(A), Tribunal, High Court or Supreme

Court; or any writ petition is pending before High Court/Supreme Court

against such order; or the assessee initiated any

arbitration/conciliation/mediation the same should be withdrawn & the

assessee should furnish proof of withdrawal along with declaration. The

withdrawal should be prior to making declaration under the scheme.

Also the declarant to furnish an undertaking, in the prescribed form and

manner, waiving his right, to seek or pursue any remedy or any claim.

As per Section 200(5),

◦ where any material furnished in the declaration is found to be false; or

◦ declarant violates conditions of the scheme; or

◦ declarant acts in manner not being in accordance with the scheme

it shall be presumed as if the declaration was never made under the

Scheme and all the consequences under the Income-tax Act or the

Wealth tax Act, under which the proceedings against the declarant are or

were pending, shall be deemed to have been revived.

Further Amount paid in pursuance of declaration is not refundable.

As per Section 201, the designated authority shall, within a period of

sixty days from the date of receipt of the declaration, determine the

amount payable by the declarant in accordance with the provisions of

this Scheme and grant a certificate to the declarant stating the sum

payable.

The declarant shall pay the sum so determined within thirty days of the

date of receipt of the certificate and intimate the fact of such payment to

the designated authority along with proof and the designated authority

shall thereupon pass an order stating that the declarant has paid the

sum.

Such Order passed shall be conclusive as to the matters stated therein

and no matter covered by such order shall be re-opened in any other

proceeding under the Income-tax Act or the Wealth-tax Act or under

any other law for the time being in force, or under any agreement.

As per Section 202, immunity shall be granted from:

◦ Instituting any proceedings in respect of an offence under the

Income-tax or wealth Tax Act; or;

◦ Imposition or waiver of penalty under the Income-tax Act or the

Wealth-tax Act, as the case may be, in respect of specified tax or tax

arrear; or

◦ Waiver of interest under the Income-tax Act or the Wealth-tax Act in

respect of specified tax or tax arrear to the extent the interest

exceeds the amount of interest referred Section 199.

As per Section 205, the scheme is not applicable in the following cases:

◦ In respect of tax arrear or specified tax:

relating to assessment or reassessment made in consequence of a

search;

relating to an assessment or reassessment in respect of which a survey

is conducted;

relating to an assessment year in respect of which prosecution has

been instituted on or before the date of filing of declaration under

section 199;

relating to any undisclosed income from a source located outside India

or undisclosed asset located outside India;

relating to an assessment or reassessment made on the basis of

information received under DTAA or EOI;

To any person in respect of whom an order of detention has been made

under the provisions of the Conservation of Foreign Exchange and

Prevention of Smuggling Activities Act, 1974: (sub. to conditions)

To any person in respect of whom prosecution for any offence

punishable under the provisions of the Indian Penal Code, the Unlawful

Activities (Prevention) Act, 1967, the Narcotic Drugs and Psychotropic

Substances Act, 1985, the Prevention of Corruption Act, 1988 or for the

purpose of enforcement of any civil liability has been instituted on or

before the filing of the declaration or such person has been convicted of

any such offence punishable under any of those Acts;

To any person notified under section 3 of the Special Court (Trial of

Offences Relating to Transactions in Securities) Act, 1992.

The scheme shows Government’s resolve to reduce pending litigation.

However, expecting 100% tax plus interest and 25% penalty would only

attract cases where taxpayer’s appeal was on weaker grounds.

Assessee’s expecting relief from appellate authority may not opt for the

scheme.

May not attract taxpayers who want to buy peace by paying part of

demand and waiver of penalty.

Scheme could have been extended to appeals pending before ITAT or

appeals filed subsequently.

N N M S & Co Mahaveer Arcade, No.180,

II Floor, 2nd Main Road, Chamarajpet,

Bangalore – 560 018.

Ph : + 91 80 22410026/46,

Email : narendra@nnms.in

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