Miscellaneous

M/s. Damani Brothers

ITSC Special Bench
    238 ITR(AT) 36       
154 CTR 1              

(a) Was the Special Bench of the Settlement Commission right in holding in the case of Om Metals and Minerals Pvt. Ltd. (193 ITR 57- ITSC) that the assessment order passed by the Assessing Officer before the admission of the settlement application subsisted and recovery proceedings continued even after the admission of the said application, especially after the judgement of the Supreme Court in the case of CIT Vs. Express Newspapers Ltd. (206 ITR 443) ?

That the Special Bench in the case of Om Metals and Minerals Pvt. Ltd. (supra) was right in holding that the assessment orders passed by the Assessing Officer (AO) before the admission of the settlement application subsisted only in so-far-as such finding applies to assessment order passed before the date of filing of application u/s 245C(1).

The Special Bench of the Settlement Commission was not right in holding that the orders passed by the AO subsisted in so-far-as the finding applies to orders passed after the date of application but before the application is allowed to be proceeded with.

The Special Bench was not right in holding that the recovery proceedings based on the order of assessment can be continued even after the admission of the said application. In our view, recovery proceedings cannot be continued after the application has been admitted except in the matter of self assessment tax and in the manner laid down in section 245DD for safeguarding any likely future demand.

(b) Is the answer to (a) is in the affirmative would it be correct to say that once the Settlement Commission determines a liability of the applicant for tax, penalty and interest u/s 245D(4), the orders of the lower authorities would automatically stand set aside and consequently there will be no liability u/s 220 (2) of the Act ?

The orders of the lower authorities do not automatically stand set aside by the Commission's order u/s 245D(4). The order of assessment stands modified to give effect to the order u/s 245D(4) by the theory of merger applying to such order.

In cases where assessment orders were passed before filing of application, the liability of interest u/s 220(2) if any, will be upto the date of order u/s 245D(1). There will be no liability for interest u/s 220(2) thereafter. In cases where assessment orders were passed after filing of application, there will be no liability of interest u/s 220(2).

(c) If the answer to (a) is in the affirmative and (b) in the negative, has the Settlement Commission powers to waive interest 220 (2) of the Act ?

Yes, the Commission has the power to reduce/waive interest chargeable u/s 220(2).

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Gulraj Engineering Construction Co. & Others

ITSC Special Bench  
215 ITR (AT) 1 (1995)
76 Taxman 463         

The Income-tax Settlement Commission was constituted by the Central Government for settlement of cases in pursuance of Chapter XIX-A of the Income-tax Act 1961 (Sections 245A to 245M -section 245M later omitted with effect from June 1, 1987), inserted by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976. The scheme of settlement permits an assessee to make an application for settlement of his case to the Commission at any stage of pendency of proceedings concerning the assessment or reassessment of his income in view of sub-section (1) of section 245C read with clause (b) of section 245A of the Income-tax Act 1961. The settlement application can be filed even where the return of income has been furnished and no further action has been taken thereon by the Assessing Officer (AO) or, in the case of a reassessment, only a notice u/s 148 has been issued to the assessee. A settlement application can be filed for more than one assessment year and once it is admitted under sub-section (1) of section 245D, the proceedings pending before any income-tax authority relating to the admitted years get transferred to the Commission which, under sub-section (2) of section 245F, is vested with "exclusive jurisdiction to exercise the powers and perform the functions of an income-tax authority under this Act in relation to the case".

Section 234B was inserted by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989. As stated in sub-section (5), it is applicable to the assessment year 1989-90 and onwards. Up to the assessment year 1988-89, section 215 of the Act read with rule 40 of the Income-tax Rules, 1962, governed the charging of interest for such defaults in the payment of advance tax.

The following issues was referred to the Special Bench by the Chairman of the Settlement Commission concerning interest payable u/s 234B of the Income-tax Act, 1961, for defaults in payment of advance tax under each of the five situations mentioned therein : "The period up to which the interest under section 234B of the Act is payable for an assessment year in an order u/s 245D(4) read with section 245D(6) in respect of each of the following situations existing at the time of the order passed u/s 245D(1) of the said Act:

(i) The income is determined under section 143(1) but no regular assessment u/s 143(3) or 144(4) is made with or without there being a notice u/s 143(2) and / or 142(1).

(ii) A regular assessment is made under section 143(3) or 144 in addition to the determination of the income u/s 143(1) and an appeal is pending before the first appellate authority.

(iii) Only a return of income is furnished without or in pursuance of a notice u/s 142(1) or section 148 and the income is neither determined u/s 143(1) nor u/s 143(3) or 144.

(iv) The assessment made under section 143(3) or 144 is reopened under section 147 and neither any return of income is furnished in response to the notice under section 148 nor is the order of reassessment made by the Assessing Officer.

(v) A reassessment is made under section 147 read with section 143(3) or section 144 and an appeal is pending before the first Appellate Authority".

Held by the full Bench, that Explanation 1 to sub-section (1) read with sub-section (4) of section 234B of the Income-tax Act 1961, requires computation of assessed tax at four stages : 

(i) On the basis of income shown in the return,
(ii) Total income determined under section 143(1) 
(iii) Regular assessment, 
(iv) Modification as a result of rectification, appeal, revision or settlement.

Thus, even if interest payable at each of the first three stages is zero, it can be increased to any amount which may be found just and proper. In every case, where on the basis of the Commission's order, assessed tax results in the liability for interest, it will be payable by the assessee even though earlier, at any of the three stages of computation of assessed tax mentioned above, no interest was payable. Assessed tax can only mean the correct tax as finally determined.

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