Settlement Commission power to reopen concluded orders under Section 154 barred; rectification quashed and interest demand set aside

Supreme Court precedent prohibits reopening concluded settlement orders by invoking rectification provisions to impose interest; consequently, a rectification order that sought to levy interest on a concluded settlement was quashed and the consequent demand set aside. The Settlement Commission's power to rectify its own admission order was held not available to revisit settled liability or to impose interest that was not determined in the original settlement; therefore directing payment of interest from intimation to admission was rejected and the writ petition allowed.

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Issues: (i) Whether the Settlement Commission could invoke Section 154 of the Income-tax Act, 1961 to reopen concluded settlement proceedings and levy interest under Section 234B; (ii) Whether the Petitioner is liable to pay interest under Section 234B from the date of intimation under Section 143(1) up to the date of the admission order under Section 245D(1).

Issue (i): Whether the Settlement Commission could invoke Section 154 to reopen concluded settlement proceedings and levy interest under Section 234B.

Analysis: The Court analysed the statutory scheme distinguishing Chapter XIV (procedure for assessment, where section 154 applies) from Chapter XIX-A (settlement proceedings under sections 245C and 245D). It relied on the precedent of the Constitution Bench in Brij Lal holding that settlement proceedings are final and conclusive and that section 154 is not available to reopen concluded settlement orders; the Court applied that ratio to the rectification order dated 23-3-2004 which sought to invoke section 154 to levy interest.

Conclusion: The rectification order dated 23-3-2004 passed by the Settlement Commission under Section 154 is without jurisdiction and is quashed and set aside; consequential demand notices are quashed.

Issue (ii): Whether the Petitioner must be directed to pay interest under Section 234B from the date of intimation under Section 143(1) up to the date of the admission order under Section 245D(1).

Analysis: Having held that section 154 cannot be used to reopen concluded settlement proceedings, the Court considered the Revenue's submission that interest should nonetheless be payable up to the admission order date. The Court found that giving such a direction would amount to indirectly permitting what the Supreme Court has proscribed, and that the Supreme Court has fixed the terminal point for levy of interest in the context of settlement proceedings.

Conclusion: The Petitioner is not liable to be directed to pay interest from the date of intimation under Section 143(1) up to 22-8-1996 (date of admission under Section 245D(1)).

Final Conclusion: The Writ Petition is allowed: the rectification order and consequential demand notices are quashed, the Petition succeeds and is disposed of; no order as to costs.

Ratio Decidendi: The Settlement Commission cannot invoke Section 154 to reopen or rectify concluded settlement orders under Chapter XIX-A; interest under Section 234B in settlement matters cannot be levied by reopening concluded settlement orders and the terminal point for such interest is governed by the rules applicable to settlement proceedings as held by the Constitution Bench.

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