2015 (3) TMI 13 - HC - Income Tax

Interest under Section 220(2) - Power of settlement commission - whether be legally leviable from the date of default in payment of demand by the assessee till the date of admission of application by the assessee by settlement Commission under section 245D(1) and not till the final order of settlement commission under section 245D (4)? - Held that - Section 220 and 245D and the legal position as emerging from the decision referred to above namely, CIT vs Damani Brothers reported 2002 (12) TMI 11 - SUPREME Court , held that interest under Section 220 (2) would be legally leviable from the date of demand raised in assessment before admission of application for settlement under section 245D (1). However, if the demand stands reduced under order of Settlement Commission, interest would undergo revision correspondingly. The position as far as charging interest under Section 220 (2) is concerned is no longer res integra. It has been made clear under the decision in the case of Damani Brothers (supra) as also in the decision of Brij Lal and Ors v. Commissioner of Incometax reported in 2010 (10) TMI 8 - SUPREME COURT observing till the Settlement Commission decides to admit the case under section 245D (1) the proceedings under the normal provisions remain open. But, once the Commission admits the case after being satisfied that the disclosure is full and true then the proceedings commence with the Settlement Commission. In the meantime, the applicant has to pay the additional amount of tax with interest without which the application for settlement would not be maintainable. Thus, interest under section 234B would be payable up to the stage of section 245D (1) - Decided against revenue.

Summary

Issues:
1) Interpretation of the legal position regarding the levy of interest under Section 220(2) of the Income-Tax Act.
2) Determination of the correct timeline for the levy of interest in a case involving application before the Settlement Commission under section 245D(1).

Analysis:
1) The appellant questioned whether the interest under Section 220(2) should be levied from the date of default in payment of demand by the assessee until the admission of the application by the Settlement Commission under section 245D(1) or until the final order of the Settlement Commission under section 245D(4). The relevant facts revealed that the assessment was made on the assessee determining undisclosed income, and the application before the Settlement Commission was admitted on a later date, resulting in a decrease in the undisclosed income. The issue arose when the Assistant Commissioner levied interest from the date of the assessment order to the date of the final order by the Settlement Commission.

2) The Commissioner of Income Tax (Appeals) agreed with the assessee that interest should not be levied from the date of the assessment order to the final order of the Settlement Commission. The Commissioner relied on the decision of the Hon'ble Supreme Court in the case of CIT vs. Damani Brothers, stating that the Assessing Officer's order does not survive after the application under Section 245D(1) is admitted. The Tribunal, after thorough consideration of the legal provisions and precedents, upheld the position that interest under Section 220(2) would be leviable from the date of demand raised in assessment before the admission of the application for settlement under section 245D(1). However, if the demand is reduced under the Settlement Commission's order, the interest would be revised accordingly.

3) The Tribunal clarified that until the Settlement Commission decides to admit the case under section 245D(1), the proceedings under normal provisions remain open, and interest can be charged up to the decision under Section 245D(1) to proceed with the application. The Tribunal emphasized that the assessment does not get automatically set aside on the admission of the application for settlement. The judgment concluded that the legal position on charging interest under Section 220(2) was well-established by previous decisions of the Hon'ble Supreme Court, and no further decision from the Court was required. Consequently, the appeal was dismissed, and no costs were awarded.