By TIOL News Service

AHEMDABAD, AUG 16, 2017: THE ISSUE BEFORE THE COURT IS - Whether computation of interest u/s 234B would be indispensible, in case amount determined by Settlement Commission while passing order u/s 245D(4) exceeds the disclosure made at time of filing application u/s 245C(1). YES is the verdict.

Facts of the case:

During the subject year, a search and seizure operation was carried out by Income Tax Department at the office and the residential premises of T Group and its partners. The assessee is one of the firm which forms part of M/s. T Group of Business. Assessee preferred settlement application before the Settlement Commission u/s 245C(1). Similar other 13 applications were also preferred belonging to M/s. T Group. In the applications, additional income assessment yearwise was disclosed on account of onmoney receipts, disallowance of interest on entry loans and scrap sales in case of the applicant firms and in the case of three individual applicants, additional income was disclosed in the Statement of Facts / settlement applications on account of income from investment in land i.e. income from onmoney receipts in respect of land transactions, unexplained opening balance of capital account and further income on account of cash received occasionally as gift / gratitude from other developers for business advices rendered by the individual applicants. All the applications were admitted and allowed to be proceeded further vide common order passed u/s 245D(1). During the course of the hearing before the Settlement Commission, the applicants placed on record a written submission with regard to the offer of further income as follows alongwith the working of further income offered in the hands of each applicant and assessment yearwise. The applicants prayed that the immunity may be granted to them, its partners and officers from all penalty and prosecution under the I-T Act. The applicants also prayed that time may be granted to make payment of further sum due as per order u/s 245D(4). Settlement Commission passed the final order u/s 245D(4). The Settlement Commission passed an order to charge the interest u/s 234B after taking into consideration the provisions of Section 234B(2A).

On appeal, the HC held that,

++ there is no doubt that Settlement Commission is absolutely justified in directing to compute the interest u/s 234B after considering the provisions of section 234B(2A). While submitting the application u/s 245C(1), a duty is cast upon the concerned applicant to make the disclosure truly and correctly. At the time of making application u/s 245 and at the stage of the proceedings before the Settlement Commission u/s 245C(1), an applicant is required to make the true and correct disclosure and is required to pay the tax liability on such disclosure with interest upto the application u/s 245C(1). However, thereafter, when the Settlement Commission passes an order u/s 245D(1) and 245D(4) and it is found that there is a difference in the disclosure made at the time of making the application u/s 245C(1) and the amount determined while passing the order u/s 245D(4) and it exceeds the amount disclosed, in that case, the question with respect to the interest on such difference of amount will arise. Therefore, as such the concerned applicant / assessee is liable to pay the interest on such difference of amount till it is actually paid. If submission on behalf of the petitioners is accepted, in that case, there shall not be any interest liability during the interegnum period i.e. from the date of the order under Section 245C(1) and till the actual amount is determined under Section 245D(1) or 245D(4). As observed hereinabove while submitting the application u/s 245C(1), the applicant is required to make true and correct disclosure. If the submission on behalf of the petitioners is accepted and interest during the interegnum period is not charged, in that case, it will be giving the premium to such applicant who did not make true and correct disclosure, which he was supposed to at the time of approaching the Settlement Commission u/s 245C(1). Under the circumstances also, the concerned applicant / assessee is liable to pay the interest under Section 234B. As per the decision of the Supreme Court in the case of Anjum H Ghaswal, charge of interest u/s 234B is mandatory;

++ levy of interest / computation of interest shall arise only at the stage of order u/s 245D(4) and when the actual amount is determined, after following due procedure u/s 245. Therefore, the relevant date would be the date on which the Settlement Commission passes the order u/s 245D(4). Liability under Section 234B, which is mandatory was already there which further came to be clarified with respect to the application before the Settlement Commission by way of section 234B(2A). When after the amount is determined by passing the order under Section 245D(4) and the amount so determined exceeds the amount disclosed in the Settlement Commission, in that case, the Settlement Commission is authorized to pass an order of interest. Therefore, challenges to the impugned order/s passed by the Settlement Commission insofar as directing to pay the interest u/s 234B, deserve to be dismissed.

(See 2017-TIOL-1552-HC-AHM-IT)