Facts of the Case

  • A search operation was conducted on the premises of K.C. Group on 05.10.2001.
  • During the search proceedings, cash amounting to ₹2,16,500 and stock valued at ₹53,21,218 along with books of account and other documents were seized.
  • Notices under Section 158BC of the Income Tax Act were issued to the assessees.
  • The assessees filed block returns declaring Nil income.
  • Subsequently, applications under Section 245D(1) were filed before the Settlement Commission on 11.12.2002 and additional income of ₹10 lakh in respect of each person was disclosed.
  • The Settlement Commission admitted the applications on 23.10.2003.
  • Ultimately, by order dated 26.03.2010, the Settlement Commission accepted additional income aggregating to ₹1,48,16,160.
  • The Assessing Officer, while giving effect to the order, levied interest of ₹13,03,211 under Section 245D(2C) for the period from 01.01.2004 to 26.03.2010.
  • The assessees challenged the levy before the Commissioner of Income Tax (Appeals), who deleted the interest demand and the order was subsequently upheld by the ITAT.

Issues Involved

  1. Whether interest under Section 245D(2C) of the Income Tax Act could be levied where the assessee had already deposited admitted tax liability within the prescribed time.
  2. Whether the pendency period before the Settlement Commission could be treated as a period for charging additional interest.
  3. Whether the Assessing Officer was justified in imposing interest amounting to ₹13,03,211 during the pendency of Settlement Commission proceedings.

Petitioner’s Arguments (Revenue)

  • The Revenue contended that the decisions passed by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal were erroneous.
  • It argued that the Assessing Officer had correctly levied interest amounting to ₹13,03,211.
  • The Revenue further submitted that reliance upon the decision in Ajmera Housing Corporation & Anr. v. CIT was misplaced in the facts and circumstances of the present case.

Respondent’s Arguments (Assessee)

  • The assessees argued that tax on the income disclosed before the Settlement Commission had already been deposited within the prescribed statutory time.
  • It was submitted that Section 245D(2C) becomes applicable only in cases where tax payable on admitted income remains unpaid within the prescribed period.
  • Since the admitted tax liability had already been discharged, additional interest for the period during which the application remained pending before the Settlement Commission could not be imposed.

Court Order / Findings

The Delhi High Court dismissed the Revenue’s appeals and upheld the concurrent findings of the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal.

The Court observed that:

  • The assessees had deposited admitted tax liability immediately after filing settlement applications.
  • Upon admission of the applications, the requisite amounts were deposited within the statutory time prescribed under the Act.
  • The tax liability finally determined by the Settlement Commission was also subsequently paid.
  • In these circumstances, charging additional interest for the period during which settlement proceedings remained pending was wholly unjustified.
  • The appeals did not involve any substantial question of law.

Accordingly, the appeals filed by the Revenue were dismissed.

Important Clarification

The Delhi High Court clarified that where an assessee has deposited tax liability disclosed before the Settlement Commission within the time prescribed under the statutory provisions, no additional interest under Section 245D(2C) can be imposed merely because proceedings before the Settlement Commission remained pending.

The Court further clarified that additional interest beyond what is permissible under Chapter XIX-A cannot be imposed in such circumstances.

Sections Involved

  • Section 158BC – Procedure for Block Assessment
  • Section 245C(1) – Application for Settlement of Cases
  • Section 245D(1) – Admission of Settlement Application
  • Section 245D(2A)
  • Section 245D(2C) – Levy of Interest
  • Section 245D(4) – Settlement Order
  • Section 245D(6A)
  • Section 220(2)
  • Chapter XIX-A of the Income Tax Act, 1961

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2015:DHC:4585-DB/RKG21052015ITA4042013.pdf

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