Settlement certificate computation fails where interim deposit is adjusted against tax demand and penalty or interest lacks proper basis

Where a sum deposited under an interim stay was appropriated towards the underlying tax demand, further penalty and interest could not be sustained on the same liability without a legally supportable computation linked to the relevant period. The Bombay High Court also held that a settlement certificate computing penalty and interest in a lump sum, without specifying the basis and period of calculation after such adjustment, was unsustainable. The certificate was quashed, and any surviving liability was directed to be reworked in accordance with the amount already adjusted against the tax demand.

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Issues: (i) Whether the amount deposited pursuant to the interim order could be appropriated towards the assessee's tax liability for the relevant assessment year and whether, after such adjustment, further liability for penalty and interest could still be fastened under the settlement scheme. (ii) Whether the Certificate of Intimation issued under the settlement scheme, computing penalty and interest for the assessment year in a lump sum, was sustainable.

Issue (i): Whether the amount deposited pursuant to the interim order could be appropriated towards the assessee's tax liability for the relevant assessment year and whether, after such adjustment, further liability for penalty and interest could still be fastened under the settlement scheme.

Analysis: The deposit of Rs. 6,00,000 was made to secure stay of recovery in respect of a composite demand notice covering two assessment years. The Revenue adjusted the deposited amount against the tax demand for the relevant assessment year. Once that adjustment was made, the assessee could not be subjected to a further demand for penalty and interest on the same tax liability without proper linkage to the period and basis of computation. The Court treated the tax liability as already met from the deposited amount and found that the subsequent levy of interest and penalty over and above that adjustment was not justified.

Conclusion: The issue was answered in favour of the assessee, and the further levy of penalty and interest on the adjusted tax amount was held to be unsustainable.

Issue (ii): Whether the Certificate of Intimation issued under the settlement scheme, computing penalty and interest for the assessment year in a lump sum, was sustainable.

Analysis: The Certificate of Intimation was based on the settlement scheme and quantified penalty and interest for the relevant assessment year. However, it did not specify the precise period for which such liability had been computed and it proceeded on a lump sum basis despite the earlier adjustment of the tax demand from the deposited amount. In these circumstances, the computation could not be upheld.

Conclusion: The Certificate of Intimation was set aside and the issue was decided in favour of the assessee.

Final Conclusion: The petition succeeded to the extent that the settlement certificate was quashed and the Revenue was directed to rework any surviving liability, if any, in accordance with the adjustment already made from the deposited amount.

Ratio Decidendi: Where a sum deposited pursuant to an interim stay order has already been appropriated towards the underlying tax demand, penalty and interest cannot thereafter be sustained on the same amount without a legally supportable computation tied to the relevant period and basis of liability.

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