Settlement under Kar Vivad Samadhan Scheme includes statutory interest and may be confined to specified assessment years only.
Under the Kar Vivad Samadhan Scheme, statutory interest under Section 220(2) of the Income-tax Act could be included in the settlement computation and calculated up to the settlement date, even if not separately quantified earlier, because the demand notice with challan was treated as sufficient compliance with Section 156 read with Section 220. The settlement order was also confined to assessment years 1988-89, 1989-90 and 1991-92, as the demands for 1986-87 and 1987-88 were asserted to have already been paid and were not specifically denied; those earlier years were therefore treated as not considered, leaving the authorities free to proceed according to law, subject to limitation.
Issues: (i) Whether the designated authority was justified in including interest under Section 220(2) of the Income-tax Act, 1961 while processing the declaration under the Kar Vivad Samadhan Scheme. (ii) Whether the declaration and the impugned order could validly be confined only to the assessment years 1988-89, 1989-90 and 1991-92, treating the assessment years 1986-87 and 1987-88 as not considered.
Issue (i): Whether the designated authority was justified in including interest under Section 220(2) of the Income-tax Act, 1961 while processing the declaration under the Kar Vivad Samadhan Scheme.
Analysis: Interest under the Act was held to follow the tax demand as a statutory consequence and could be computed up to the settlement date under the Scheme, even if it had not been quantified earlier. The existence of a demand notice with challan was treated as sufficient compliance with the demand mechanism under Section 156 of the Income-tax Act, 1961, read with Section 220 of the Income-tax Act, 1961.
Conclusion: The inclusion of interest under Section 220(2) in the settlement computation was upheld.
Issue (ii): Whether the declaration and the impugned order could validly be confined only to the assessment years 1988-89, 1989-90 and 1991-92, treating the assessment years 1986-87 and 1987-88 as not considered.
Analysis: The petitioner's case was that the demands for the earlier two assessment years had already been paid and should not have been included in the declaration. That assertion was not specifically denied, and the order was therefore clarified so that it operated only in respect of the three later assessment years. The earlier two years were treated as not having been considered, leaving the authorities free to proceed in accordance with law, subject to limitation.
Conclusion: The impugned order was confined to the assessment years 1988-89, 1989-90 and 1991-92, and the inclusion of the assessment years 1986-87 and 1987-88 was treated as non-est.
Final Conclusion: The writ petition did not succeed on the challenge to inclusion of interest, but the settlement order was limited to the three assessment years for which the demand was sustained, with the earlier two years excluded from consideration.
Ratio Decidendi: Under the settlement scheme, statutory interest attached to the demand could be computed up to the settlement date, and a demand notice with challan was sufficient to support such computation.