Penalty-like additional tax cannot be included in Kar Vivad Samadhan Scheme calculations, the court confirmed.

Additional tax could not be included in the amount payable under the Kar Vivad Samadhan Scheme, 1998, because the levy was treated as bearing the characteristics of a penalty rather than an automatic tax liability. The court examined the meaning of tax arrears and the treatment of additional tax under the Income-tax Act, and applied the controlling principle that a Supreme Court ruling recognising the penal imprint of such levy prevails over earlier contrary decisions. On that basis, the Revenue could not add additional tax under the Scheme, and the assessee succeeded on the substantive issue.

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Issues: Whether additional tax could be included and levied while determining the amount payable under the Kar Vivad Samadhan Scheme, 1998.

Analysis: The Scheme was examined in the light of the meaning of tax arrears and the treatment of additional tax under the Income-tax Act. The controlling principle applied was that additional tax bears the characteristics of a penalty and cannot be treated as an automatic levy in the manner sought by the Revenue. Once the Supreme Court had held that such levy carries the imprint of penalty, contrary earlier decisions could not govern the issue.

Conclusion: Additional tax was not permissible to be added under the Scheme on the facts of the case, and the assessee succeeded on the substantive issue.

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