Settlement application pending: appellate proceedings stay in abeyance, and revival on rejection does not require surrender of merits challenge.

Appellate proceedings revive under Section 245HA of the Income-tax Act only when a settlement application is rejected without terms of settlement, and the assessee need not abandon the challenge to the assessment order on merits in that event. The Tribunal's condonation of delay, setting aside of the Commissioner (Appeals) order, and restoration of the first appeal were upheld on the peculiar facts. Where the settlement application remained pending and an order under Section 245D(4) was awaited, the appellate proceedings were directed to remain in abeyance until disposal of the settlement application.

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Issues: (i) Whether appellate proceedings revive only if the settlement application is rejected without terms of settlement and whether the assessee must forgo the challenge to the assessment order on merits in that situation; (ii) whether the Tribunal was justified in condoning the delay, setting aside the order of the Commissioner (Appeals), and restoring the first appeal; (iii) whether the appellate proceedings should remain in abeyance pending disposal of the settlement application.

Issue (i): Whether appellate proceedings revive only if the settlement application is rejected without terms of settlement and whether the assessee must forgo the challenge to the assessment order on merits in that situation.

Analysis: The statutory consequence under Section 245HA of the Income-tax Act, 1961 arises only upon rejection of the settlement application without terms of settlement. In that event, the pending appellate proceedings stand revived. The assessee is not required to abandon the right to contest the assessment order on merits merely because the settlement application is rejected in that manner.

Conclusion: The stand of the Revenue was rejected, and the assessee's right to pursue the appeal on merits was preserved.

Issue (ii): Whether the Tribunal was justified in condoning the delay, setting aside the order of the Commissioner (Appeals), and restoring the first appeal.

Analysis: In the peculiar facts of the case, the Tribunal found sufficient justification for condonation of delay and for restoring the appeal after setting aside the order of the Commissioner (Appeals).

Conclusion: The Tribunal's order was upheld as justified.

Issue (iii): Whether the appellate proceedings should remain in abeyance pending disposal of the settlement application.

Analysis: Since the settlement application had not yet been decided and an order under Section 245D(4) of the Income-tax Act, 1961 was awaited, the appellate proceedings were directed to remain stayed in the meantime.

Conclusion: The appellate proceedings were directed to be kept in abeyance until disposal of the settlement application.

Final Conclusion: The special leave petition failed, while protecting the assessee's right to pursue the statutory appeal after the settlement proceedings are concluded.

Ratio Decidendi: Appellate proceedings revive under Section 245HA of the Income-tax Act, 1961 only upon rejection of the settlement application without terms of settlement, and pending appellate remedies need not be abandoned while the settlement application remains undecided.

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