Kar Vivad Samadhan Scheme computation depends on subsisting adjustment orders, and an unchallenged refund adjustment cannot be ignored.

Under the Kar Vivad Samadhan Scheme, 1998, the amount payable is to be computed on the basis of the subsisting adjustment order unless it has been set aside by a competent forum. The assessee's refund had already been adjusted against an earlier tax demand under an order under section 155 of the Income-tax Act, and that adjustment had attained finality. The court noted that an order does not become void or a nullity merely because it is alleged to be irregular or illegal, so it cannot be ignored for Scheme purposes unless overturned. The designated authority was therefore justified in granting relief only in relation to the interest component.

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Issues: Whether the designated authority was justified in granting relief only to the interest component under the Kar Vivad Samadhan Scheme, 1998, and whether the earlier adjustment of refund by the assessing authority could be treated as non-existent so as to alter the amount payable under the Scheme.

Analysis: The Scheme under the Finance (No. 2) Act, 1998 distinguishes between disputed tax and tax arrears consisting only of interest or penalty. The assessee's refund for the relevant year had already been adjusted against the tax demand for the earlier assessment year under an order passed under section 155 of the Income-tax Act, 1961. Since that adjustment order had not been successfully challenged and had attained finality, the amount remaining payable on the date of declaration was only the interest component. An order that may be irregular or even illegal is not, for that reason alone, void or a nullity, and it cannot be ignored for the purposes of the Scheme unless set aside by the competent forum.

Conclusion: The designated authority correctly applied section 88(a)(iv) of the Finance (No. 2) Act, 1998, and the challenge to the adjustment and the relief granted under the Scheme failed.

Ratio Decidendi: A subsisting assessment or adjustment order, unless set aside, must be given effect for computing liability under the Kar Vivad Samadhan Scheme, and an irregular or illegal order is not void or a nullity merely because it is alleged to contravene section 245 of the Income-tax Act, 1961.

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