Provisions of Section 245D (2C) can be invoked only if the assessee does not deposit income tax payable on income disclosed

Issue before court:

• Whether assessee has defaulted in payment in payment of additional amount of income-tax payable on the income disclosed in the original application and provision of section 245D (2C) can be invoked in such circumstances.

Brief facts:

• A search u/s 132 was conducted in the premises of K.C. Group of cases on 5.10.2001. During the search beside cash of Rs. 2,16,500/- and stock worth Rs. 53,21 ,218/- ,a number of incriminating documents and books of accounts were seized.
• Notice u/s 158BC of the Act was served upon these assessees on 8.10.2002. In response, assessee filed return for the block period ending 5.10.2001 on 10.12.2002 declaring nil undisclosed income.
• Immediately thereafter on 11.12.2002, applications u/s 245C(1) of the Act were filed before the Settlement Commission, disclosing income of Rs. 10,00,000/- in the hands of each of the four assessees i.e an amount of Rs. 40,00,000/- @2% of the turnover of Rs. 20 crores.
• The applications were admitted u/s 245D(1) of the Act vide the order dated 23.10.2003.
• Subsequently , these assesses deposited tax of Rs. 6,12,000/- each on 26.12.2003 in terms of aforesaid order dated 23.10.20030.
• Later, assesse deposited Rs. 12,240/- on 24.07.2007. After admission of the application u/s 245D(1) of the Act, the Commission called for a report under Rule 9 of the Settlement Commission Rules, from the concerned CIT. In the light of said report, the Settlement Commission passed and an order u/s 245D(4) of the Act on 26.03.2010.
• The final order directed the revenue to accept the offer of additional income of Rs. 1,48,16,160/- referred to in the body of settlement commission’s order.
• Consequently, interest under Section 220(2) in terms of Section 245D(2C) was directed to be recovered. While computing the amounts payable, the AO passed in his consequential order dated 4.5.2010, Rs. 13,03,211/- as interest recoverable for the period between 1.1.2004 and 26.3.2010.

Contention of the revenue:

• The assessees suo motu offered additional income to tax before the Settlement Commission, the AO was justified in levying interest u/s 245D (2C) of the Act.

Contention of the assessee:

• In terms of provisions of sec. 245I of the Act, the AO had merely to give effect to the order of Settlement Commission and could not impose interest, which did not form part of the order of the Settlement Commission.
• Interest u/s 158BFA(2) of the Act is mandatory in nature and hence could not be waived. Settlement Commission, in his order, directed AO to charge interest as per law. Nowhere in the said order, Settlement Commission directed levy of interest u/s 245D(2C).

Held by the Court:

• The question of levying any additional interest over and above what is permissible under Chapter XIX-A would not arise in the given circumstances of the case
• The ITAT has elaborately considered the provisions of Chapter XIX-A, more particularly the scope of the settlement commission’s jurisdiction. It also took into consideration several authorities as well as the judgment of the Supreme Court in Ajmera Housing Corporation & Anr. Vs CIT 234 CTR (SC) 118. The ITAT thereafter concluded as follows : “…..In view of the foregoing, especially when the Revenue did not place any material before us controverting the aforesaid findings of the Id. CIT(A) nor referred us to any contrary decision, so as to enable us to take a different view in the matter, we are not inclined to interfere. Therefore, ground nos.l & 2 in the appeal are dismissed.”

Conclusion:

It is evident from the procedure laid u/s 245 D that once the application is admitted, the assessee is required to pay the additional demand on the basis of income disclosed in the application within 35 days of the order of the Commission u/s 245D(1) and in case the demand is not paid within the time allowed interest at prescribed rate is chargeable under 245D(2C). There is no material in this case produced by revenue and nor there is anything to suggest that in the order of the Settlement Commission that the assessee did not comply with aforesaid order u/s 245D(1) of the Act. It is also important to note that there is no direction regarding levy of interest was given to the revenue by settlement commission. So AO is not authorised to invoke provision of section 245D (2C).