Settlement Commission's Decision on Assessment Orders & Interest: Clarity on Enforcement & Modification

The Special Bench clarified that assessment orders passed before the filing of a settlement application remain in force but cannot be enforced until the final settlement order under section 245D(4) is issued. Lower authorities' orders are not automatically set aside by the Settlement Commission's decision but are modified to align with the Commission's order. Interest under section 220(2) is applicable until the date of the order under section 245D(1), and the Settlement Commission has the authority to waive or reduce such interest. Vice-Chairman G. S. Sidhu partially dissented, emphasizing the recoverability of valid tax demands and the chargeability of interest up to the final settlement order date.

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Issues Involved:

1. Validity and subsistence of assessment orders passed by the Assessing Officer before the admission of a settlement application.
2. Impact of the Settlement Commission's determination of liability on the orders of lower authorities and liability under section 220(2) of the Income Tax Act.
3. Settlement Commission's power to waive interest under section 220(2) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity and Subsistence of Assessment Orders:
The Special Bench addressed whether assessment orders passed by the Assessing Officer before the admission of a settlement application subsist after such admission. The Bench reviewed the decision in Om Metals and Minerals (P.) Ltd., In re [1992] 193 ITR 57 (ITSC) and the Supreme Court's judgment in CIT v. Express Newspapers Ltd. [1994] 206 ITR 443. It concluded that valid orders passed before the filing of a settlement application subsist after the admission of the application, but they are not to be enforced until the Settlement Commission passes a final order under section 245D(4). Orders passed after the filing of the application but before its admission are considered without jurisdiction and do not subsist.

2. Impact on Lower Authorities' Orders and Liability under Section 220(2):
The Bench opined that the orders of lower authorities do not automatically stand set aside by the Settlement Commission's order under section 245D(4). Instead, the order of assessment stands modified to give effect to the order under section 245D(4) by the theory of merger. The liability of interest under section 220(2) is chargeable up to the date of the order under section 245D(1), and no liability for interest under section 220(2) arises thereafter. The Bench emphasized that the assessment orders passed before the date of application subsist but remain inoperative until the final settlement order is passed.

3. Settlement Commission's Power to Waive Interest under Section 220(2):
The Bench held that the Settlement Commission has the power to waive or reduce interest under section 220(2) of the Income Tax Act. This power is derived from the Commission's authority to pass orders on matters covered by the application, including the reduction or waiver of statutory interest. The Bench referred to the Supreme Court's observation in CIT v. Express Newspapers Ltd. [1994] 206 ITR 443, which clarified that the Commission could direct the waiver of penalty and interest.

Conclusion:
The Special Bench concluded that:
(i) Assessment orders passed before the filing of a settlement application subsist but are not enforceable until the final order under section 245D(4) is passed.
(ii) The orders of lower authorities do not automatically stand set aside by the Commission's order under section 245D(4); they are modified to give effect to the Commission's order.
(iii) The liability of interest under section 220(2) is chargeable up to the date of the order under section 245D(1), and the Commission has the power to waive or reduce such interest.

Separate Judgment:
Vice-Chairman G. S. Sidhu partially dissented, agreeing with parts of the majority's conclusions but differing on the enforceability of recovery proceedings and the charging of interest under section 220(2) after the admission order. Sidhu emphasized that valid tax demand should be recoverable and interest chargeable up to the date of the final settlement order under section 245D(4).

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