Tax arrears on declaration date support full interest waiver under settlement scheme absent proof of prior valid adjustment.
Tax arrears shown to exist on the date of declaration under the Kar Vivad Samadhan Scheme can trigger complete waiver of balance interest when the prescribed payment is made. If the Revenue cannot produce a speaking order or other material proving a prior valid adjustment of those arrears under the Income-tax Act, an adverse inference may be drawn against it. On that basis, interest collected outside the scheme is not retainable, and the settlement certificate must be amended to reflect full interest waiver and refund of the amount collected towards interest.
Issues: Whether the certificate issued under the Kar Vivad Samadhan Scheme had to be amended so as to grant complete waiver of interest on the basis that tax arrears existed on the date of the declaration and no valid prior adjustment under the Income-tax Act had been shown.
Analysis: The petitioner's declaration disclosed tax arrears on the relevant date, and the Revenue failed to produce any speaking order or material showing that the arrears had been validly adjusted before the declaration. In the absence of proof of a prior adjustment under Section 245 of the Income-tax Act, 1961, the Court drew an adverse inference against the Revenue. Once tax arrears were shown to exist on the date of declaration and the prescribed payment under the scheme was made, the statutory consequence was waiver of the balance interest. The collected interest was therefore outside the scheme and could not be retained.
Conclusion: The certificate was required to be amended to grant complete waiver of interest, and the amount collected towards interest was directed to be refunded.
Ratio Decidendi: Where tax arrears exist on the date of declaration under the settlement scheme and the Revenue does not establish a prior valid adjustment of those arrears, the assessee is entitled to the scheme's full interest waiver on compliance with the prescribed payment condition.
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AI Drafter ✕
TaxTMI 
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