Setting the context for the session, Ms. Neetu Vinayek talked about the background of VSV scheme which effective from 1st October, 2024 aimed at resolving pending direct tax litigations. Further, she also mentioned that considering compliances becoming the forefront of all the corporates and the vigilance from the tax authorities in terms of ensuring that the compliance was being done on timely basis, Finance Minister announced revised guidelines for compounding of offences under the Income Tax Act 1961, effective from 17th October 2024. These revised guidelines aim to reduce complexities arising out of existing multiple guidelines, simplify the compounding procedure and lower the compounding charges.

She said that the pendency of litigation at various appellate authorities in the last 4 years has been on the rise due to larger number of cases going for appeal than the no. of disposals. Thus, keeping in view of success of VSV 2020, and the mounting pendency of appeals, the VSV 2024 has been introduced.

Mr. Hiten Sutar, Partner, EY then talked about the various parameters related to VSV scheme, 2024. He said this scheme is for resolution of tax areas which includes taxation, interest, and penalty thereof, and the appeal should be pending as on 22nd July 2024. He mentioned that once the taxpayer opts for this scheme, then there is a complete immunity from prosecution, and the assessee does not have to pay interest or penalty which are vis-a-vis quantum appeals which are pending before the tax authorities. If the appeals are with respect to interest and penalty, then assessee has to pay a portion of those interests’ penalty, and there is a complete immunity from prosecution to the assessee. He also said that if the taxpayer has losses in those years, then either he can accept the reduced loss, or he can pay the notional amount on the additions, so that the benefit of scheme is available to him.

Further, he mentioned that it is applicable only for the appellant for which the appeal is pending on 22nd July, 2024, and the appeal should be pending before Commissioner (Appeals) or Joint Commissioner (Appeals) or the matter should be before Dispute Resolution Panel or the before Income tax Appellate tribunal, High Court, or Supreme Court.

He then talked about some cases where the assessee is ineligible, either for all assessment years or for specific assessment years. The cases, where all assessment years are disqualified, are cases which are majorly related to prosecution, which is initiated under the Indian penal code, or for enforcement of any Civil Liability or prosecution under Unlawful Activities Prevention Act or Narcotic Drugs Act, or Prohibition of Benami Property Act or Prevention of Corruption Act. Further, if a detention order is issued against the assessee under the Foreign Exchange reservation of the Smuggling Activities Act and such detention order is not revoked, then assessee is not eligible.

Also, he highlighted that if the tax arrears or the tax payments are related to any undisclosed income from a source located outside India or from undisclosed assets located outside India, then those assessment of tax arrears are not covered under the scheme.

He then highlighted the benefits arising from the VSV scheme 2024, mentioning that if the scheme is availed on or before 31st December 2024 (1st case), then the assessee has to pay disputed tax as compared to the case when the scheme is availed on or after 1st January 2025 (2nd Case); where it is disputed tax + 10% of the disputed tax. Also, for interest or penalty, 25% of the disputed interest or penalty is to paid in 1st case as compared to 30% of the disputed interest or penalty in 2nd case. The payment of disputed tax further changes if the pending appeal pertains to a period before 31 January 2020 and is pending before the same appellate authority. In certain prescribed cases, the eligible assesses are required to pay only 50% of disputed tax.

He further mentioned about the procedural mechanism of the scheme wherein various forms are notified on 20th September 2024 for filing of declaration and undertaking by the assessee.  The declaration contains the details of the dispute and the computation of the tax arrears, while the undertaking is given that if the application in scheme succeeds, then the assessee will not take any advantage of tax arrears under the Income Tax Act and the dispute will be settled once and for ever.

He further spoke about the types of cases to opt for VSV scheme 2024- such as mounting interest cost, any adverse judicial development, cases covered by adverse retrospective amendment or in case of certain matters where the assessee has kept it alive to avoid penalty or prosecution, but has weak merits, the documentation is not adequate.

The EY team then presented various scenarios to showcase practical examples in various situations where VSV scheme could be applicable. This exercise would help the participants to look at their pending cases and then take an informed decision about whether they would opt for VSV 2024 or want to continue to litigate under the old approach.

Hiten Sutar then talked about the revised compounding guidelines, which is an option available under the income tax Act, whereby the taxpayer can agree to make payment for some compounding fees, so that prosecution which is to be initiated, or which is already initiated and pending can be waived off. The process involves the taxpayer making an application to the competent authority and requesting  compounding by paying the prescribed compounding charges.  The revised guidelines include- all applications post 17th October 2024 will be governed; all applications which were already filed but were pending for disposal will be governed; and the application where compounding charges are determined and intimated, but those are not paid, will also be covered.

Ms. Neetu Vinayek and Mr. Hiten Sutar from EY, then conducted the Q&A session and provided their views and opinions on various queries posted by participants.

Lastly, Mr. Vivekanand, Director (Finance, Taxation & Legal), FIPI in his vote of thanks complimented EY team for an elaborative presentation on the topic covering the VSV scheme and revised guidelines on compounding offences and various fit cases for settlement of tax disputes.  He said that as the date for declaration related to tax dispute to the concerned appellate is approaching (31st December, 2024), the topic discussed during the webinar will be informative and beneficial for many individuals. He also thanked the participants from the taxation unit of various oil and gas companies for their active participation during the webinar. 

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