Brief about case
The assessment of the respondent-assessee was made on 30.01.2002 determining undisclosed income of Rs.1,40,02,500/- u/s 158BD of the Income Tax Act. During the course of assessment proceedings, the assessee had filed application before the Settlement Commission on 11.5.2001 which was admitted u/s 245D(1) on 16.09.2002. Final order assessing the undisclosed income to Rs.32,20,000/- was passed by settlement commission on 30.09.2005. The Assessee paid the demand within 30 days. On 14th December, 2005 the ACIT issued a demand levying interest under Section 220(2) of Income-Tax Act, 1961 from the date of assessment order – 30.01.2002 to 30.09.2005-to the date of order passed by the Settlement Commission. On an appeal by the assessee, CIT(A) concurred with the submissions on behalf of the assessee that order of the A.O. does not survive after application u/s 254D(1) is admitted, which was appealed by the Revenue before the ITAT. The Tribunal purported to correct the order of the CIT(A) and held that assessment order passed by the A.O. prior to the admission of the application for settlement will subsist and recovery proceedings will continue. 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).
Question of Law
Whether on the facts and circumstances of the case and in law, the Tribunal was right in holding that the interest under Section 220(2) will 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 by the Court
Taking the views expressed by the Supreme Court in the case of CIT vs. Damani Brothers reported in 259 ITR 478, which was relied upon by the Tribunal and also in the decision of the Hon’ble Supreme Court in the case of Brij Lal and Ors v. Commissioner of Income-tax reported in  328 ITR 477 (SC) which is a case relating to levy of interest under section 234B of the Income Tax Act, 1961, relied upon by the assessee, it was held that the position that interest can be charged pursuant to proceedings in normal course up to the date of decision u/s 245D(1) of the Income Tax Act to proceed with the application appears to be prevailing. Hon’ble SC in the aforesaid judgments observed that 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. The case is covered by the decisions referred to hereinabove of the Hon’ble Supreme Court. Thus, appeal is dismissed.