Detailed Analysis of Amendments Proposed in the Finance (No. 2) Bill 2024 on Appeal Assessment and Vivaad se Vishwas

The Finance (No. 2) Bill 2024 introduces several significant amendments aimed at rationalizing and streamlining the provisions related to appeal assessment and the Direct Tax Vivad se Vishwas scheme. These changes are intended to enhance efficiency, ensure better compliance, and address various procedural difficulties faced by taxpayers and tax authorities alike. This article provides a comprehensive overview of these proposed amendments.

1. Rationalisation of Provisions Relating to Period of Limitation for Imposing Penalties

Section 275 of the Income-tax Act, 1961, which specifies the period of limitation for imposing penalties, is proposed to be amended to eliminate ambiguities in calculating the number of days for penalty imposition. Currently, the period for imposing penalties is linked to the receipt date of the order by the Principal Chief Commissioner or Chief Commissioner. This reference is ambiguous and complicates the calculation. To address this, the amendment proposes to omit the reference to the date of receipt by the Principal Chief Commissioner or Chief Commissioner. This change will take effect from October 1, 2024.

2. Amendment in Provisions Relating to Set-Off and Withholding of Refunds

Section 245 of the Act deals with the set-off and withholding of refunds in certain cases. The Finance Act, 2023, integrated sections 241A and 245 into a single provision under section 245, empowering the Assessing Officer (AO) to adjust refunds against outstanding tax demands and to withhold refunds during pending assessment or reassessment proceedings.

From the bare reading of the provision, it is seen that there are two requirements which the Assessing Officer is supposed to fulfill. One is that he should form opinion that the grant of refund is likely to adversely affect the revenue and the second is that he has to record the reasons in writing for withholding the refund. The second condition of recording of reasons takes care of the first condition as even if an opinion is formed, it has been expressed in terms of reasons recorded in writing. Thus, for the phrase “is of the opinion that the grant of refund is likely to adversely affect the revenue”, the phrase “he may, for reasons to be recorded in writing and with the previous approval of the Principal Commissioner of Income-tax or Commissioner of Income-tax” is proposed to be retained.

The proposed amendment aims to streamline the conditions under which refunds can be withheld by eliminating redundant requirements and extending the withholding period from the date of assessment to 60 days post-assessment, thus ensuring adequate time for demand realization. This amendment, along with a consequential amendment to section 244A regarding non-payment of additional interest up to the date till which such refund is withheld under the provisions of sub-section (2) of section 245 of the Act., will take effect from October 1, 2024.

“In section 245 of the Income-tax Act, in sub-section (2), with effect from the 1st day of October, 2024,—

(a) the words “is of the opinion that the grant of refund is likely to adversely affect the revenue,” shall be omitted;

(b) after the words “withhold the refund up to”, the words “sixty days from” shall be inserted.”

3. Rationalisation of the Time-Limit for Filing Appeals to the Income Tax Appellate Tribunal (ITAT)

Section 253 outlines the provisions for filing appeals with the ITAT against orders from various tax authorities. The proposed amendments include:

• Allowing appeals against orders under section 158BFA (penalty on undisclosed income for block periods).

• Extending the appeal filing period to two months from the end of the month in which the order is communicated, addressing the procedural challenges posed by the Faceless Appeal system where orders are uploaded daily, making it difficult for tax authorities to track deadlines. These amendments will streamline the appeal process and ensure better compliance, effective from October 1, 2024. 

4. Direct Tax Vivad se Vishwas Scheme, 2024

Given the success of the previous Vivaad Se Vishwas scheme launched in 2020, which significantly reduced litigation and garnered substantial revenue, the Finance Bill proposes introducing the Direct Tax Vivad se Vishwas Scheme, 2024. This new scheme aims to provide a mechanism for settling disputed tax issues, thereby reducing litigation and easing the burden on appellate authorities. The specifics of the scheme, including the start date and last date, will be notified by the Central Government. This initiative is expected to have a substantial impact on reducing the backlog of appeals and facilitating a more efficient resolution of tax disputes.

5. Powers of the Commissioner (Appeals)

The existing powers of the Commissioner (Appeals) under section 251 include confirming, reducing, enhancing, or annulling assessments and penalties. The proposed amendment introduces a provision allowing the Commissioner (Appeals) to set aside best judgment assessments made under section 144 and refer them back to the Assessing Officer for a fresh assessment. This measure addresses the issue of non-responsive taxpayers who directly appeal without engaging with the Faceless Assessing Officer. Additionally, a consequential amendment to section 153(3) provides a time limit for disposing of cases set aside by the Commissioner (Appeals), effective from October 1, 2024.

6. Rationalisation of Provisions Related to Time-Limit for Completion of Assessment, Reassessment, and Re-computation

The existing provisions of section 153 specify various time limits for the completion of assessment, reassessment, and re-computation under different circumstances. The Finance Bill 2024 proposes several amendments to this section to address procedural difficulties and ensure a more streamlined process.

a. Introduction of Sub-section (1B):

• Current Provisions: Sub-section (1) of section 153 provides that assessments under sections 143 or 144 must be completed within twelve months from the end of the assessment year in which the income was first assessable. 

• Proposed Amendment: A new sub-section (1B) is proposed, which will allow for the completion of assessments, where a return of income is furnished in consequence of an order under section 119(2)(b), within twelve months from the end of the financial year in which such return is furnished. This amendment aims to provide a clear and reasonable timeframe for assessing such returns. 

b. Amendment to Sub-section (3):

• Current Provisions: Sub-section (3) outlines the time limit for passing fresh assessment orders following an order under sections 254, 263, or 264 that sets aside or cancels an assessment. The current time limit is twelve months from the end of the financial year in which the relevant order is received by the tax authorities. 

• Proposed Amendment: The amendment proposes to explicitly include references to section 250, which deals with orders passed by the Commissioner (Appeals), thereby providing a clear time limit for cases set aside by the Commissioner (Appeals). This amendment is in line with the amendment in Section 250 which allows Commissioner (Appeals) to set aside best judgment assessments made under section 144 and refer them back to the Assessing Officer for a fresh assessment. 

c. Amendment to Sub-section (8):

• Current Provisions: Sub-section (8) provides that orders of assessment or reassessment relating to any assessment year, which stands revived under sub-section (2) of section 153A, shall be completed within one year from the end of the month of such revival or within the period specified in sub-section (1) of section 153B, whichever is later. 

• Proposed Amendment: The proposed amendment to sub-section (8) aims to provide a timeline for passing orders in the case of revived assessment or reassessment proceedings resulting from the annulment of block assessments under Chapter XIV-B of the Act. 

d. Amendment to Clause (xii) of Explanation 1:

• Current Provisions: Clause (xii) of Explanation 1 excludes a period (not exceeding 180 days) from the date of initiation of a search to the date on which the seized materials are handed over to the Assessing Officer, when computing the period of limitation. 

• Proposed Amendment: The amendment proposes the insertion of a sixth proviso to clause (xii), ensuring that the limitation period for such cases ends at the end of the month, after accounting for the exclusion period. This change aims to provide greater clarity and efficiency in processing these cases, ensuring that the time limits are adhered to accurately. 

e. Consequential Amendment to Section 139:

• Current Provisions: Section 139 mandates that every person, including companies and firms, whose total income exceeds the non-taxable threshold, must file a return of income. 

• Proposed Amendment: A consequential amendment is proposed to ensure that the provisions of section 139 apply to cases where any return of income is furnished in pursuance of an order under clause (b) of sub-section (2) of section 119. This aligns the procedural requirements and ensures consistency across different sections of the Act. 

These amendments will take effect from October 1, 2024, and are expected to address procedural difficulties, enhance the efficiency of the assessment and reassessment processes, and provide clear timelines for various stages of the tax assessment process.

Conclusion

The amendments proposed in the Finance (No. 2) Bill 2024 reflect a significant effort to simplify and streamline the tax assessment, appeal, and dispute resolution processes. By rationalizing the provisions related to penalty imposition, refund set-off, appeal filing, and assessment timelines, the government aims to create a more efficient and taxpayer-friendly environment. The introduction of the Direct Tax Vivad se Vishwas Scheme, 2024, underscores the government`s commitment to reducing litigation and fostering a more conducive tax compliance culture.

However, while these changes are expected to have a positive impact on both taxpayers and the overall tax administration in India, there remains an element of uncertainty regarding their long-term effectiveness. The practical implementation of these provisions may present challenges, and the actual reduction in litigation and improvement in compliance will need to be closely monitored. The success of these amendments will largely depend on how effectively they are executed and whether they can adapt to the evolving needs of taxpayers and the tax administration system. As with any significant legislative change, only time will tell if these reforms achieve their intended outcomes.