CBDT Clarifications/ FAQs (Part 1 & 2) on DTDRS, 2016

CBDT Clarifications/ FAQs (Part 1 & 2) on Direct Tax Dispute Resolution Scheme(DTDRS), 2016

The CBDT has issued Circular No. 42/2016 dt. 23 Dec. 2016 (Part-2) for clarifications, by way of 8 FAQs, based on queries received from stakeholders on certain provisions/ procedures under the Direct Tax Dispute Resolution Scheme 2016. Earlier also CBDT had issued Circular No. 33/2016 dt. 12 Sept. 2016 (14 FAQs – Part 1) for clarifications of the issues raised by stakeholders.

A. CBDT Clarifications/ 8 FAQs on ‘Direct Tax Dispute Resolution Scheme, 2016’ (Part-2)

CBDT Circular No. 42/2016 dt. 23 Dec. 2016

The Direct Tax Dispute Resolution Scheme, 2016 (hereinafter referred to as ‘the Scheme’) incorporated as Chapter X of the Finance Act, 2016 provides an opportunity to tax payers who are under litigation to come forward and settle the dispute in accordance with the provisions of the Scheme. The provisions of the Scheme have been clarified vide Circular No.33 of 2016 dated 12.09.2016. Subsequently, further queries have been received from the field authorities and other stakeholders. The Central Government has considered the queries and decided to clarify the same in the form of questions and answers as follows.-

Question No.1: There are cases where the Assessing Officer (AO) has made addition on account of provisions under section 9 of the Income-tax Act, 1961 (the Act), which was later retrospectively amended, especially with regard to royalty and fees for Technical Services. What would be the position of the case of an assessee vis-à-vis the Scheme, where an addition has been made by AO before such retrospective amendment? Whether the case would be treated as one being in consequence of retrospective amendment and accordingly whether the assessee would be eligible to avail the benefit of the Scheme?

Answer: As per clause (g) of sub-section (1) of section 201 of the Finance Act, 2016, ‘specified tax’ includes a tax which is validated by an amendment made to the Income-tax Act with retrospective effect. Hence, a case where an addition has been made by AO before such retrospective amendment and the addition has got validated by such amendment, is eligible to avail the Scheme provided a dispute in respect of such addition/tax is pending as on 29.02.2016.

Question No.2: There are assessees who have filed writ petitions in Courts against the constitutional validity of retrospective amendment to the Income-tax Act. Can the assessees who have filed such writs in Courts still contest the constitutional validity of such amendments, even after availing the benefit under the Scheme?

Answer: As per section 203(3)(a) of the Finance Act, 2016, where the declaration under the Scheme is in respect of specified tax and the declarant has filed any writ petition before the High Court or the Supreme Court against any order in respect of the specified tax, he shall withdraw such writ petition with the leave of the Court wherever required and furnish proof of such withdrawal along with the declaration filed under the Scheme. It is hence clear that if the assessee avails the Scheme, he cannot contest the constitutional validity of retrospective amendment in the High Court or Supreme Court.

Question No.3: There are cases where assessees are in different stages of appeal for different years on similar issue(s). In such a situation, if an assessee avails the benefits of the Scheme for a particular year/years, whether the revenue would withdraw its appeal against the assessee, in the year(s) in which the assessee has got the relief? If such is the case, at what stage would the revenue withdraw its appeal?

Answer: In respect of ‘tax arrear’, the Scheme is available only if dispute is pending before Commissioner (Appeals). Hence the question of withdrawal of appeal by revenue does not arise in such cases. In respect of ‘specified tax’, section 203(3) of the Finance Act, 2016 states that the declarant before opting for the said Scheme has to withdraw his pending appeal or writ petition. It also states that in a case where the declarant has initiated or given notice for proceeding of arbitration, conciliation or mediation, he shall withdraw such notice or claim prior to filing of the declaration under the Scheme. The Scheme nowhere speaks of withdrawal of any appeal or proceeding by the revenue. Hence, the question of withdrawal of appeal by the revenue owing to opting of the Scheme by the assessee in some other year(s) on a similar issue does not arise.

Question No.4: Can the tax payments under the Scheme be allowed to be made in instalments, as granted under IDS, 2016?

Answer: Since, the date of making payment under the Scheme is provided in Section 204 of the Finance Act, 2016 itself, the tax payments under the Scheme cannot be allowed to be made in instalments.

Question No.5: Whether an assessee is eligible to make a declaration in respect of ‘specified tax’ where a dispute was pending as on 29.02.2016 in form of a reference made by AO before the Committee constituted by CBDT on 28.08.2014 under section 119 of the Act, but the final order determining the ‘specified tax’ thereon was passed after 29.02.2016, and the appeal/writ/arbitration/conciliation/ mediation etc. in respect of the same was filed before commencement of the Scheme i.e. 01.06.2016?

Answer: As per the provisions of the Scheme, a declarant may make a declaration in respect of a ‘specified tax’ for which a dispute was pending as on 29.02.2016. The term ‘dispute pending as on 29.02.2016’ refers to the tax determined under the Income-tax Act or the Wealth-tax Act which has been disputed by the assessee. In the above referred case, the specified tax has been determined by AO after 29.02.2016; hence the question of dispute pending in respect of such tax as on 29.02.2016 does not arise. Therefore, the assessee in the present case is not eligible to avail the Scheme.

Question No.6: Whether a penalty order under section 271C or 271CA of the Income-tax Act for which an appeal is pending with CIT(Appeals) is covered under the Scheme?

Answer: As per the Scheme, ‘tax arrear’ in case of penalty is linked to the total income finally determined. Since, penalty order under section 271C or 271CA is not linked to the assessment proceedings, such orders are not covered under the Scheme.

Question No.7: Whether the cases in which, consequent upon search, assessments have been completed under section 143(3) of the Act shall be eligible to avail the Scheme?

Answer: As the search cases are not eligible for the Scheme, an assessment made consequent to search under section 143(3) read with section 153B of the Act is not eligible to avail the Scheme.

Question No.8: Clause(5) of section 203 of the Finance Act, 2016, refers to deemed revival of ‘consequences’ under the Income-tax Act or the Wealth-tax Act, as the case may be, under which proceedings against the declarant are or were pending. There is no explicit reference to deemed revival of ‘proceedings’. Please clarify?

Answer: Clause (5) of section 203 provides that in a case where the conditions specified therein are not fulfilled, it shall be presumed as if the declaration was never made under the Scheme; therefore, in case of rejection of declaration, the proceedings pending against the assessee before issuance of certificate under 204(1) shall stand revived.

B. CBDT Clarifications/ 14 FAQs on ‘Direct Tax Dispute Resolution Scheme, 2016’ (Part-1)

CBDT Press Release dt. 15 Sept. 2016 on Direct Tax Dispute Resolution Scheme, 2016

The Direct Tax Dispute Resolution Scheme, 2016 incorporated as Chapter X of the Finance Act, 2016 provides an opportunity to tax payers who are under litigation to come forward and settle the dispute in accordance with the provisions of the Scheme. The Direct Tax Dispute Resolution Scheme Rules, 2016 have also been notified.

Litigation is a scourge for a tax friendly regime. In order to reduce the pending litigation, the Scheme has come into force from 1st June, 2016 and can be availed upto 31st December, 2016. The Scheme is available to the cases pending with the first appellate authority [i.e. CIT(A)] as on 29th February, 2016, subject to certain conditions. It also extends to the cases pending litigation owing to retrospective amendment at different levels.

Under the Scheme, if the amount of disputed tax is

i) Up to Rs.10 lakh, complete waiver from levy of penalty and from initiation of prosecution is provided on payment of assessed tax along with the interest.

ii) More than Rs.10 lakh, the declarant is required to pay only 25% of the minimum penalty leviable along with the due tax and interest.

In respect of penalty appeals, the declarant shall get waiver of the 75% of the penalty levied and immunity from prosecution. In respect of specified tax, the declarant gets complete waiver of/ immunity from levy of penalty and immunity from prosecution.

CBDT Circular No. 33/2016 dt. 12 Sept. 2016 F.No.142/11/2016-TPL

In regard to the Direct Tax Dispute Resolution Scheme, 2016, various queries have been received by the CBDT from the stakeholders seeking further clarity on certain provisions. Accordingly, the CBDT has clarified the same in the form of FAQs/ questions and answers.

Question No.1: In a case an appeal was pending before CIT(Appeals) as on 29.02.2016. However, before making declaration under the Scheme the appeal is disposed of by CIT(Appeals). Is the assessee eligible to avail the Scheme? 

Answer: In such a case where the appeal was pending before CIT(Appeals) as on 29.02.2016 and the CIT(Appeals) has already disposed of the same before making the declaration, the declaration under the Scheme cannot be filed.

Question No.2: In a case where the appellant has filed a declaration under the Scheme or has intimated the CIT(Appeals) his intention to file declaration under the Scheme, whether the CIT(Appeals) will dispose-off the appeal? 

Answer: The CIT(Appeals) have been instructed vide letter F.No.279/Misc./M-30/2016 dated 30.3.2016 that appeals where the appellants have expressed their intention to avail the Scheme should be kept pending. Further, vide letter F.No.279/Misc./M-74/2016-ITJ dated 19.07.2016, the designated authority have been instructed to obtain an endorsement from CIT(Appeals) concerned that the appeal for which declaration has been filed was pending on 29.2.2016 and has not yet been disposed. Therefore, in a case where the declaration has been made under the Scheme or an intention to avail the Scheme has been made by the appellant, the CIT(Appeals) shall not dispose the pending appeal.

Question No.3: Appeal against quantum as well as penalty under section 271(1)(c) is pending before CIT(Appeals). If the assessee files a declaration in respect of the quantum appeal under the Scheme, what would be the fate of penalty appeal? 

Answer: As per the Scheme, in a case where disputed tax in quantum appeal is more than Rs. 10 lakh, the declarant has to pay the disputed tax, interest and 25% of minimum penalty leviable. Further, in a case where the disputed tax in quantum appeal does not exceed Rs. 10 lakh, the declarant is required to pay only the disputed tax & interest and there is no requirement for payment of any amount in respect of penalty leviable.

Section 205(b) of the Act provides immunity from imposition or waiver of penalty under the Income-tax Act or the Wealth-tax Act in respect of tax arrear covered in the declaration to the extent the penalty exceeds the amount of penalty referred to in section 202(I) of the Act. Hence, in both the situations (i.e. whether disputed tax in quantum appeal exceeds Rs. 10 lakh or not), where a valid declaration under the Scheme is made in respect of quantum appeal, the appeal against penalty levied under section 271(1)(c) of the Income-tax Act, relating to the quantum appeal pending before the Commissioner (Appeals) shall be deemed to be withdrawn and the penalty or the balance amount of penalty, as the case may be, shall be deemed to be waived.

Question No.4: Section 203(2) reads that consequent to the declaration in respect of tax arrear, the appeal pending before Commissioner (Appeals) shall be deemed to be withdrawn. From what point of time does the provision become operative? 

Answer: The appeal pending with Commissioner (Appeals) shall be deemed to be withdrawn from the date on which the certificate under section 204(1) is issued by the designated authority.

Question No.5: The addition made in assessment has the effect of reducing the loss but penalty has been initiated under section 271(1)(c) of the Income-tax Act. Is the assessee eligible to avail the Scheme? 

Answer: The Scheme is applicable to cases where there is disputed tax. Since in the case of reduction of loss, there is no disputed tax the assessee shall not be eligible to avail the Scheme. However, if an appeal is pending before Commissioner (Appeals) in respect of penalty order framed as a result of variation in quantum loss, the declarant may file a declaration in respect of such penalty order.

Question No.6: In a case the time period specified under section 249 of the Income-tax Act for filing of appeal expired on 29.2.2016. The assessee filed an appeal in this case on 5.4.2016 with a request to condone the delay in filing of appeal. The Commissioner (Appeals) condoned the delay in filing of the appeal. Is the Scheme available to the assessee in such a case?

Answer: In condonation cases, a declarant shall be eligible for the Scheme, if:

(i) the time limit for filing of appeal under section 249 of the Income-tax Act, 1961 has got barred by limitation on or before 29.02.2016;

(ii) the appeal and condonation application has been filed before Commissioner (Appeals) before 01.06.2016; and

(iii) the delay in filing of such appeal is condoned by the Commissioner (Appeals)

Hence, in the present case the Scheme is available to the assessee.

Question No.7: In a case the Commissioner (Appeals) has given a notice of enhancement. Is such a case eligible for availing the Scheme? 

Answer: A case where notice of enhancement has been received by the declarant before the date of commencement of the Scheme i.e. 01.06.2016 shall not be eligible for the Scheme.

Question No.8: A survey was conducted during F.Y. 2013-14. Incriminating documents relating to assessment year 2011-12 were found and assessment under section 147 of the Income-tax Act for the said year was made based on these documents and other enquiries conducted. Is the assessee’s case for A.Y. 2011-12 which is pending with Commissioner (Appeals) eligible for the Scheme?

Answer: As per section 208 of the Act, the Scheme shall not be available for assessment or reassessment on which survey conducted under section 133A of the Income-tax Act has a bearing. Hence, in the present case, A.Y. 2011-12 is not eligible for the Scheme.

Question No.9: In a case, appeal against penalty order under section 271(1)(c) is pending before Commissioner (Appeals) and appeal against quantum addition is pending with higher appellate authority. As per the Scheme, the amount payable is 25% of the minimum penalty leviable and the tax and interest payable on the total income finally determined. What should be construed as ‘total income finally determined’ for computing the quantum of tax, interest and penalty payable under the Scheme? Further, what would be the effect of any variation in quantum addition as a result of appellate order(s) passed subsequent to filing of declaration?

Answer: In case of an appeal relating to penalty under section 271(1)(c), the amount payable under the Scheme is 25% of the penalty amount and also the tax and interest payable on the total income finally determined. For this purpose the total income finally determined shall be the total income as determined after giving effect to the last appellate order passed on or before the date of filing declaration under the Scheme.

Any variation to the total income as a result of any appellate order passed subsequent to the date of declaration shall be ignored for the purposes of computing the amount of penalty payable under the Scheme.

Question No.10: Where certain income has been charged to tax in the hands of two different persons or where it has been charged to tax in the case of same person in two different assessment years, one on substantive basis and the other on the protective basis, will the declarant or the other person get advantage in respect of additions made both substantively and protectively?

Answer: The assessees are advised to make declarations in cases or for assessment years where the additions are made on substantive basis. The protective demand is not subjected to recovery unless it is finally upheld. Once the declaration in a substantive case or year is accepted, the tax arrears in protective case/ year would no longer be valid and will be rectified by suitable orders in the normal course.

Question No.11: By filing declaration under the Scheme for one assessment year, does the taxpayer forego his right of appeal on the same issue in another assessment year?

Answer: No. The order under the Scheme does not decide any judicial issue. It only determines the sum payable under the Scheme with reference to tax arrears or specified tax, as the case may be. It only provides for a dispute resolution mechanism in respect of cases for which declaration has been made.

Question No.12: The declarant has not paid the tax payable under the Scheme within 30 days of the order under section 204(1) for any reason including the non realisation of the cheque presented to the bank. Will the declarant be eligible for the relief under the Scheme?

Answer: No. The tax payable under the Scheme should be paid to the credit of the Government on or before the due date as specified in the Scheme. The assessees are advised to pay the tax well on time so as to avail the relief under the Scheme.

Question No.13: There is no time limit specified for intimating the payments made by the declarant in accordance with the certificate issued in Form-3. Further, there is also no time limit specified for issuance of order under section 204(2) of the Act by the designated authority. Please clarify?

Answer: The declarant shall intimate the fact of payment along with the proof of the same to the designated authority within one month from the date on which time limit for making payment under the Scheme expires. The designated authority shall issue the order under section 204(2) of the Act within one month from the end of the month in which intimation regarding payment is received in Form-4 from the declarant.

Question No.14: Whether refund will be granted in cases where the assessee has already paid the penalty amount in full or in part while the appeal is still pending at CIT(A) stage and the assessee opts for this Scheme?

Answer: As per section 202(I)(b) of the Scheme, in case of pending appeal related to penalty, 25% of the minimum penalty leviable along with tax and interest on the total income finally determined is required to be paid. Therefore, if an assessee who has already paid an amount over and above the amounts referred to in section 202(I)(b) opts for the Scheme, he shall be eligible for refund of the excess payment already made. However, the declarant shall not be eligible for claim of interest on such refund under section 244A of the Income-tax Act, 1961.