Settlement application and appeal abeyance under income tax law: merits challenge need not be abandoned before disposal.

Appellate proceedings should remain in abeyance until the Settlement Commission disposes of an application under Section 245D(4) of the Income-tax Act, 1961. Section 245HA applies only if the settlement application is rejected without any terms of settlement, in which event the appellate proceedings revive. The assessee is not required to abandon its challenge on merits merely because the settlement application may be rejected. On the facts noted, the Tribunal was justified in condoning delay, setting aside the CIT(A)'s order, and restoring the first appeal.

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Issues: Whether appellate proceedings are required to remain in abeyance pending disposal of the settlement application, and whether the assessee is bound to abandon its challenge on merits merely because the settlement application may be rejected without terms of settlement.

Analysis: The order records that Section 245HA of the Income-tax Act, 1961 applies only where the settlement application is rejected without any terms of settlement, in which event the appellate proceedings revive. The Revenue's position that the assessee must forgo its right to contest the assessment on merits was found to be misconceived. On the peculiar facts, the Tribunal was held justified in condoning the delay, setting aside the order of the Commissioner of Income Tax (Appeals), and restoring the first appeal. It was also clarified that the appellate proceedings should remain in abeyance until the Settlement Commission disposes of the application under Section 245D(4) of the Income-tax Act, 1961.

Conclusion: The challenge failed; the appellate proceedings were directed to await the Settlement Commission's decision, and the Revenue's objection was rejected.

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