Natural justice under tax settlement schemes limits additional liability and excludes remanded additions from disputed tax treatment

Under the Kar Vivad Samadhan Scheme, liability cannot be fastened without disclosure of the basis and an effective opportunity of hearing, because natural justice applies where the authority seeks to quantify and recover further amounts beyond the declaration filed. Additions that had been set aside in appeal and remanded for de novo assessment could not be treated as disputed tax or tax arrears on the relevant date, since the Scheme presupposes a subsisting unpaid determination. Items sent back for fresh adjudication fall outside that category until reassessed, and inclusion of such remanded items in the demand was therefore unsustainable.

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Issues: (i) Whether the demand and certificate issued under the Kar Vivad Samadhan Scheme were vitiated for want of opportunity and violation of natural justice; (ii) Whether additions that had been set aside in appeal and remanded for fresh assessment could be treated as disputed tax or tax arrears for invoking the Scheme.

Issue (i): Whether the demand and certificate issued under the Kar Vivad Samadhan Scheme were vitiated for want of opportunity and violation of natural justice.

Analysis: The fixation of liability under the Scheme fastened an additional tax burden on the assessee without disclosure of the basis and without affording an effective hearing. The principles of natural justice were held to apply to proceedings under the Scheme, especially where the authority proposed to quantify and recover further amounts beyond the declaration filed by the assessee.

Conclusion: The action was held to be vitiated by violation of natural justice and arbitrary fastening of liability.

Issue (ii): Whether additions that had been set aside in appeal and remanded for fresh assessment could be treated as disputed tax or tax arrears for invoking the Scheme.

Analysis: Where the appellate authority had set aside the additions in respect of two items and remanded the matter for de novo consideration, there was no subsisting determination on the crucial date for those items. Under the Scheme, disputed tax and tax arrears presuppose an existing determination remaining unpaid, and a matter sent back for fresh adjudication does not fall within that category until reassessed. The authority therefore misapplied the Scheme by including the remanded items in the demand.

Conclusion: The remanded items could not be treated as disputed tax or tax arrears under the Scheme, and the demand on that basis was unsustainable.

Final Conclusion: The impugned proceedings were set aside and the matter was remitted for fresh consideration in accordance with law, with opportunity to the assessee and regard to the relevant developments under the Scheme.

Ratio Decidendi: A tax settlement scheme cannot be invoked to recover amounts on issues that have been set aside in appeal and remitted for de novo assessment, and any liability fixed under such a scheme must comply with natural justice and rest on a subsisting determination.

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