Facts of the Case

A search and seizure operation under Section 132 of the Income-tax Act, 1961 was conducted in the Radico Khaitan Group, in which the respondent-assessee, Dalip Kumar Banthiya, was the Chief Financial Officer. Pursuant to the search, proceedings under Section 153A were initiated.

Before completion of assessment, the respondent filed an application for settlement under Section 245C(1) before the Income Tax Settlement Commission (ITSC). The application was admitted on 08 February 2013 under Section 245D(1).

While passing the final settlement order under Section 245D(4), the ITSC directed that interest under Section 234B would be chargeable only up to the date of admission of the settlement application, relying on the Constitution Bench decision in Brij Lal & Ors. v. CIT.

Aggrieved by the restriction on levy of interest, the Revenue filed the present writ petition.

 

Issues Involved

Whether interest under Section 234B is payable up to the date of final settlement order under Section 245D(4) or only up to the date of admission under Section 245D(1).

Whether the Income Tax Settlement Commission erred in limiting the levy of interest.

Applicability of the Constitution Bench decisions in Brij Lal and Anjum M.H. Ghaswala.

 

Petitioner’s Arguments

The Revenue contended that:

Interest under Section 234B should be levied up to the date of final determination of settlement under Section 245D(4).

Section 234B(4), as it stood at the relevant time, envisaged interest liability till completion of settlement proceedings.

The Settlement Commission incorrectly restricted interest only up to the admission stage.

 

Respondent’s Arguments

The assessee submitted that:

The issue is squarely covered by the Constitution Bench judgment in Brij Lal, which clearly holds that interest under Section 234B is payable only up to the stage of admission under Section 245D(1).

Chapter XIX-A of the Act contemplates two distinct stages—admission and final settlement—and interest liability does not extend beyond admission.

Subsequent legislative amendments (Finance Act, 2015) themselves acknowledge the absence of a statutory mechanism for charging interest beyond admission prior to that amendment.

 

Court Order / Findings

The Delhi High Court upheld the order of the Income Tax Settlement Commission and held that:

The law on the subject is conclusively settled by the Constitution Bench in Brij Lal.

Interest under Sections 234A, 234B and 234C is payable only up to the date of admission of the settlement application under Section 245D(1).

The final order passed under Section 245D(4) is not an order of regular assessment, and therefore cannot extend interest liability.

The decision in Anjum M.H. Ghaswala reinforces that interest is mandatory where applicable, but only within the framework of the statute.

The Settlement Commission correctly applied binding precedent and committed no error.

 

Important Clarification

The Court clarified that:

Chapter XIX-A provides a special settlement mechanism distinct from regular assessment.

Interest provisions applicable to settlement proceedings must be interpreted strictly in accordance with statutory language and binding judicial precedent.

Subsequent legislative amendments cannot be used to retrospectively alter settled legal positions.

 

Final Outcome

Writ Petition Dismissed
 Order of the Income Tax Settlement Commission Upheld
 Interest Under Section 234B Held Payable Only up to Date of Admission under Section 245D(1)
 No Interference with Settlement Commission’s Determination

 

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770191992_COMMISSIONEROFINCOMETAXCENTRALIIIVsINCOMETAXSETTLEMENTCOMMISSIONANR.pdf   

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