Demystifying Tax Dispute Resolution

India has a significant amount of pending direct tax litigation – 483,000 appeals and tax arrears of Rs 9.32 lakh crores locked-up in litigation. This has not reflected well on India’s scorecard for attracting foreign investments and ease of doing business. India’s overall rank for ease of doing business has improved to 63, but the rank for paying taxes is still at 115. In March this year, the Direct Tax Vivad se Vishwas Act, 2020 (VsV scheme) was enacted to encourage the taxpayers to resolve pending tax disputes, which would generate timely revenues for the Government and the taxpayers could deploy their time, energy and resources saved by opting for the VsV Scheme, towards business activities. The VsV scheme provides a single window to the taxpayers to resolve pending tax disputes and also potentially leads to faster processing of refunds, opportunity to close pending rectifications, appeal effects and clean-up of financial statements (e.g. provisions, contingent liabilities).

While the Central Board of Direct Taxes has attempted to clarify various aspects in respect of the VsV scheme, there are several interpretation issues that are still unclear illustratively involving MAT credit, interplay of tax liability under normal provisions and MAT, covered issues for the purposes of the VsV scheme etc. Additionally, several practical challenges needs to be addressed in terms of eligibility of case under the VsV scheme, quantification of disputed tax, impact of multiple appeals for the same year etc. The resolution plan also needs to be strategized considering the technical merits, potential tax payouts and practical/ implementation related aspects. In this context, it is imperative for the taxpayers to have clarity to take a conscious and well-informed “Go” or “No-go” decision.

In the above backdrop, FICCI and Dhruva Advisors organised a webinar, wherein Dhruva Partners shared their practical insights, including case studies dealing with certain interesting and peculiar issues while implementing the resolution plan and their experience of dealing with the regulators under the VsV scheme.