2005 (10) TMI 50 - HC - Income Tax

Rectification of Mistakes - Kar Vivad Samadhan Scheme - petitioner is challenging, exhibit P11(a) issued by the first respondent demanding differential amount payable by the petitioner under the Kar Vivad Samadhan Scheme, 1998, - since apparent or patent mistakes can be corrected by virtue of section 154 even in proceedings issued under the Kar Vivad Samadhan Scheme as approved by the Supreme Court in the very same decision, I uphold the demand of interest under section 220(2) under exhibit P11(a) for the years 1990-91 and 1991-92. So far as 1993-94 is concerned, in view of the controversy as to whether there was tax liability as on March 31, 1998, I direct the first respondent to verify records and to settle actual liability under the scheme. There will be direction to the first respondent to revise the demand for 1993-94 in accordance with the Kar Vivad Samadhan Scheme, 1998, granting eligible benefit to the petitioner, adjust reduction, if any, granted against demand for other years and issue fresh demand notice for all the years

Summary

Issues:
Challenge to demand under Kar Vivad Samadhan Scheme, 1998 for assessment years 1990-91, 1991-92, and 1992-93. Authority of the Commissioner to modify the settlement order. Discrepancies in interest demands and settlements under the Income-tax Act.

Analysis:
The petitioner contested a demand issued under the Kar Vivad Samadhan Scheme, 1998 for the assessment years 1990-91, 1991-92, and 1992-93. The petitioner argued that the first respondent lacked the authority to alter the settlement order (exhibit P7) previously accepted and paid by the petitioner. The petitioner relied on a Supreme Court decision to support the claim that the Commissioner cannot modify a settlement order issued under the Kar Vivad Samadhan Scheme, 1998.

The Court observed discrepancies in the interest demands and settlements under the Income-tax Act. The initial settlement order (exhibit P7) did not include 50% of the interest payable up to March 31, 1998, under section 222 of the Income-tax Act. The Department's revised demand (exhibit P11(a)) revealed that the settlement originally covered interest under sections 234B and 234C for all years and also included interest under section 234A for the year 1993-94. However, interest under section 220(2) for all years was not included in the settlement, rendering the declaration defective as the full liability was not disclosed.

The Court noted that the Department did not demand tax for the assessment year 1993-94 despite the petitioner declaring a tax liability for that year. The discrepancies between the declaration furnished by the petitioner and the settlement order issued by the Department raised concerns about the actual tax liability for 1993-94. The Court rejected the petitioner's argument that the settlement order cannot be modified, citing the Supreme Court's allowance for rectification of mistakes and errors in the interest of justice.

Ultimately, the Court upheld the demand of interest under section 220(2) for the years 1990-91 and 1991-92. For the year 1993-94, the Court directed the first respondent to verify records and determine the actual liability under the Kar Vivad Samadhan Scheme, 1998. The first respondent was instructed to revise the demand for 1993-94 in accordance with the scheme, granting eligible benefits to the petitioner and issuing a fresh demand notice for all years within six weeks.