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Section 220(2) in The Income- Tax Act, 1995
Section 245D(4) in The Income- Tax Act, 1995
Section 245C in The Income- Tax Act, 1995
Section 245D(1) in The Income- Tax Act, 1995
Section 245D in The Income- Tax Act, 1995

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Income Tax Appellate Tribunal - IT
In Re; Damani Brothers vs Unknown on 15 April, 1999
Equivalent citations: 1999 238 ITR 36 ITAT

ORDER

1. The Chairman, Settlement Commission, exercising power under section 245BA(5A) of the Income-tax Act, 1961, constituted a Special Bench vide his order dated September 18, 1998. The following issues were referred to the Special Bench :

"1. Was the Special Bench of the Settlement Commission right in holding in the case of Om Metals and Minerals (P.) Ltd., In re [1992] 193 ITR 57 (ITSC) (New Delhi) that the assessment order passed by the Assessing Officer before the admission of the settlement application subsisted and recovery proceedings continued even after the admission of the said application, especially after the judgment of the Supreme Court in the case of CIT v. Express Newspapers Ltd. [1994] 206 ITR 443 ?

[The court, inter alia, made the following observation :

It is equally evident that once an application made under section 245C is admitted for consideration (after giving notice to and considering the report of the Commissioner of Income-tax as provided by section 245D), the Commission shall have to withdraw the case relating to that assessment year (or years, as the case may be) from the assessing/appellate/revising authority and deal with the case, as a whole, by itself. In other words, the proceedings before the Commission are not confined to the income disclosed before it alone. Once the application is allowed to be proceeded with by the Commission, the proceedings pending before any authority under the Act relating to that assessment year have to be transferred to the Commission and the entire case for that assessment year will be dealt with by the Commission itself."]

2. If the answer to question No. 1 is in the affirmative, would it be correct to say that once the Settlement Commission determines a liability of the applicant for tax, penalty and interest under section 245D(4), the orders of the lower authorities would automatically stand set aside and, consequently, there will be no liability under section 220(2) of the Act ?

3. If the answer to question No. 1 is in the affirmative and question No. 2 in the negative, has the Settlement Commission powers to waive interest under section 220(2) of the Act ?"

2. The Special Bench of the Income-tax Settlement Commission in its decision in the case of Anjum Mohammed Hussein Ghaswala, In re [1998] 230 ITR (AT) 1 decided the question of the Commission's power to reduce or waive the interest chargeable under sections 234A, 234B and 234C of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). The issue of the Commission's power to waive or reduce the interest chargeable under section 220(2) of the Act was not within the ambit of the questions referred to that Bench and remained to be decided in view of the department's objection to the exercise of such power which, according to it, is the exercise of administrative function in respect of a post-assessment activity beyond the jurisdiction of the Settlement Commission (hereinafter referred to as "the Commission"). A larger issue of the very chargeability of interest under section 220(2) in a case settled by the Commission was raised by the applicants including Damani Brothers and others. The claim is based mainly on the argument that with the assumption of jurisdiction by the Commission with an order under section 245D(1) resulting eventually in the passing of order under section 245D(4), the orders of the lower authorities stand obliterated and, consequently there can be no case for levy of interest under section 220(2). The Department always held the opposite view that the orders passed and actions taken prior to the Commission's order under section 245D(1) continue to remain valid and effective even after the assumption of jurisdiction by the Commission and the interest on the amount as modified by the Commission's order under section 245D(4), remaining unpaid, is chargeable from the expiry of 35 days of the service of order of assessment, in accordance with the provisions of section 220(2) of the Act.

3. The question of the status of assessment orders, passed before the Commission's order under section 245D(1), was career considered by a Special Bench of this Commission in the case of Om Metals and Minerals (P.) Ltd., In re [1992] 193 ITR 57 (ITSC), in the context of the power of the Commissioner of Income-tax to make a petition to the Commission for ordering recovery of the existing demand raised in pursuance of orders passed prior to admission of the case. The said Special Bench, while upholding the Commissioner of Income-tax's right to move the Commission, held that the admission by the Commission does not render invalid the valid and legal orders passed before the admission of the settlement application. Although an oblique reference was made to the status of such order after the Commission's order under section 245D(4), it was not an issue referred to the Bench and the observation is claimed to be based solely on the reading of the proviso to section 220(2), without harmonising it with the scheme of Chapter XIX-A dealing with settlement of cases. Further, the said decision of the Special Bench created a situation of ambiguity in the face of a separate regime of charge of interest as laid down in Chapter XIX-A and allegedly resulted in a situation of double jeopardy in the matter of charging of interest for non-payment of taxes. Ambiguity was also highlighted with reference to the significantly different treatments meted out to the class of applicants who approach the Commission before the assessment order is passed and to those who approach it after the passing of the assessment order by the Assessing Officer. While in the former case, there is only one order which is that of the Commission, there are two orders in the latter case, requiring a decision as to whether the former order merges with the latter or whether it stands obliterated by the latter order. It was to settle this controversy that this Special Bench was set UP by the Chairman, Settlement Commission.

4. The seven-member Special Bench held its hearing at Mumbai on the 21th and 28th October, 1998. After recording the evidence of the parties, interveners and advisors, the case was adjourned, at the request of the department, for hearing on 23rd November at Delhi, where the hearing Was held and concluded on that day.

5. The Special Bench in the case of Om Metals and Minerals (P.) Ltd., In re [1992] 193 ITR 57 (ITSC) considered the question whether the assessment made by the Assessing Officer and the demand created thereby subsist even after the application made by the applicant under section 245C(1) has been admitted and allowed to be proceeded with. Question No. 1 referred to the present Bench, while seeking a review of the decision in that case, goes further when the background of the two cases [i.e., OM Metals and Minerals (P.) Ltd., In re [1992] 193 ITR 57 (ITSC) [SB] and Damani Bros.] is considered. The earlier Bench was seized of the issue of recoverability of demand created in pursuance of the order of assessment and, accordingly, the scope of consideration was confined to the status of the assessment order, during the pendency of proceedings before it. In the present reference, the issue involved is order in the sense that it requires determination of the legal status of the assessment order before as well as after an order of final settlement under section 245D(4) is passed because, in case it is held that an assessment order passed prior to admission under section 245D(1) subsists, the question will arise as to whether the said order ceases to exist after the Commission's order under section 245D(4), or it simply gets modified by such order. In the former case, with the assessment order ceasing to exist, there will be no basis left for charge of interest under section 220(2), whereas in the latter situation there will be liability to interest under section 220(2) in respect of the modified amount remaining unpaid.

6. The request for a review of the earlier decision of the Commission in the case of Om Metals and Minerals (P.) Ltd., In re [1992] 193 ITR 57 (ITSC) [SB] was justified on the plea that certain relevant provisions of Chapter XIX-A having an important bearing on the issue like sections 245J, 245D(2A), 245D(8), 245F(4), etc., were not brought to the notice of the earlier Bench, certain vital points connected with the specific provisions in sections 245DD(1), 245F(3). 245HA(1) and 245D(7) were not considered by the Bench and the purpose behind the amendment made in the proviso to section 220(2) was not properly argued and appreciated. Reliance was also placed on certain observations made by the Supreme Court in the case of CIT v. Express Newspapers Ltd. [1994] 206 ITR 443 and the apparent situation of double jeopardy in the matter of chargeability of interest, likely to arise as a consequence of the said decision. Learned counsel appearing for the applicants and as interveners and the learned Additional Solicitor-General appearing for the department made an incisive analysis of the above and other relevant provisions of the Act, judicial pronouncements and the administrative instructions and the lively discussion that followed was of valuable assistance to the Bench in answering the questions referred to it.

7. Opening the argument, Smt. Shobha Jagtiani, representing the applicant, Damani Bros., confined herself to the question whether interest under section 220(2) can be charged in a case where assessment was completed during the interregnum between the filing of the settlement application and its admission vide order under section 245D(1). In the concerned applicant's case, the assessment orders were passed by the Assessing Officer after submission of the application under section 245C, but before the application was allowed to be proceeded with. According to her, the Special Bench, in Om Metals and Minerals (P.) Ltd., In re [1992] 193 ITR 57 (ITSC) [SB], was not right in observing that recovery proceedings can be continued even after the order of admission. The proposition that, on passing an order under section 245D(1), the Commission is vested with exclusive jurisdiction to deal with the case as a whole and the view that the demand raised in pursuance to any earlier order can be enforced, are contradictory and require to be harmonized. The Commission cannot be asked to enforce two sets of demand - one raised by the Assessing Officer and another raised in pursuance of an order under section 245D(1) and subsequently under section 245D(4). According to her, the earlier demand ceases to exist and is enforceable only when section 245HA is invoked. Although, according to Smt. Jagtiani, it makes no difference whether the application under section 245C is filed before or after the order of assessment, she was emphatic that any order passed after the filing of application and before the order of admission is an order passed without jurisdiction, since the order of admission, whenever passed, relates back to the date of application. The Commission is vested with exclusive jurisdiction to deal with the case from the date of application and, hence, any order passed or action taken by any other authority after that date will be devoid of proper jurisdiction. Such order cannot survive after the order of admission. In the first instance, according to Smt. Jagtiani, the Assessing Officer should desist from passing the order after he comes to know about the filing of application under section 245C, because Explanation 1(v) to section 153 protects the assessments from being barred by limitation by excluding the period from the date of making the application to the date of receipt of the order rejecting the application. If, still, the order has been passed without waiting for the Commission's order under section 245D(1), it will cease to have validity, after the order of admission. As held by the Supreme Court in Express Newspapers Ltd.'s case [1994] 206 ITR 443, the Commissioner can carry on the investigation even after the filing of the application up to the date of the Commissioner's report. But once the application is admitted, the admission relates back to the date of application. In support of this proposition, she pointed out the provisions of the Act according to which the date of application only is relevant to determine the validity of actions taken. In this regard, she relied on the provisions of section 245H under which no immunity can be granted if prosecution is already launched on the date of application, section 245E under which a case can be reopened only if no pendency existed on the date of application, section 245DD under which provisional attachments made prior to application remain valid up to the date of application, unless revalidated by the Commission for the remaining term by its order. Further, it was pointed out that the additional tax payable in terms of section 245D(2A) read with section 245C(1A) is worked out not with reference to tax on the income as assessed but with reference to tax on returned income which also shows that the assessment framed is not taken cognizance of. With regard to charging of interest under section 220(2), she, inter alia, relied on the decision of the Calcutta High Court in the case of Birla Cotton Spinning and Weaving Mills Ltd. v. ITO [1995] 211 ITR 610 according to which no interest is chargeable if the demand is already paid or is no longer payable or subsisting. Since in the present case, the demand ceases to be payable, the question of charge of interest under section 220(2) does not arise.

8. In the case of Om Metals and Minerals (P.) Ltd. [1992] 193 ITR 57 (ITSC) [SB], it was argued from the side of the Department that there is nothing in Chapter XIXA which supports the view that the assessment orders passed before the admission of the settlement petition do not subsist after the petition is admitted. Similar views were expressed by one of the invitees, Shri Vinay Kant C. Shah, according to whom it is only axiomatic that valid and legal orders passed and actions taken by any authority exercising jurisdiction vested in it by law cannot be rendered invalid just because the authority passing/taking those orders/actions may subsequently cease to exercise jurisdiction for the reason that another authority has been made to succeed the former authority. This axiom is enshrined in section 129 of the Act and has not been displaced by any provision in Chapter XIXA. Referring to the provisions of section 245F which vests in the Commission's exclusive jurisdiction to exercise the powers and perform the functions of an income-tax authority, Shri Shah argued that all that happens when the Commission passes an order under section 245D(1) admitting the application is a mere change of jurisdiction by succession of the income-tax authorities by the Commission.

9. Shri Dhananjay Chandrachud, Additional Solicitor-General, pleaded that on passing an order under section 245D(1), the Commission steps into the shoes of the authority before whom proceedings were pending at the time of such order. If, therefore, at the relevant time, the Assessing Officer had already completed the assessments and proceedings were pending in the form of appeal, the Commission steps into the shoes of the appellate authorities and, consequently, the order of settlement passed under section 245D(4) partakes of the nature of an appellate order which operates to modify the order passed by the Assessing Officer, with conclusiveness attached to such order. Shri Chandrachud referred to the observation of the Supreme Court in Express Newspapers' case [1994] 206 ITR 443 in this regard (reproduced in the question) to say that once the application is allowed to be proceeded with by the Commission, the proceedings pending before any authority under the Act relating to that assessment year have to be transferred to the Commission. According to him, to say that earlier orders are invalidated is to circumscribe the powers vested in the Commission. It will also give an unfair advantage to an applicant approaching the Commission after the assessment order who, with an offer of additional income carrying tax implication of a mere one lakh of rupees, will be able to get earlier orders nullified and all consequences avoided, even if the same is ultimately approved by the Commission. Pointing out to various observations in the Supreme Court decision in the Express Newspapers' case [1994] 206 ITR 443, he argued that the said decision dealt with the question of admission in the particular facts of the case and cannot have much relevance to the issues before the present Bench.

10. As against the above views, arguments were advanced to the effect that the earlier orders do not subsist or, at least, do not remain operative. Even Shri Vinay Kant C. Shah, who favoured the view that they subsist, denied the enforceability of the orders for reasons discussed later. Shri R. P. Agarwalla, intervening on behalf of Bajrang Steel Sales, vehemently argued that any order passed by any income-tax authority automatically gets set aside with the assumption of jurisdiction by the Commission. According to him, such setting aside is in-built in the scheme of Chapter XIXA and the question of enforceability of that order, in any form, does not arise. Relying on the observations of the Supreme Court in Express Newspapers Ltd.'s case [1994] 206 ITR 443 (reproduced in Q. No. 1), he pointed out that, on admission of the application, the Commission has to withdraw the case relating, to that assessment year from the assessing/appellate/revising authority and deal with the case as a whole by itself. Dealing with the case as a whole would imply that the proceedings before the Commission not the continuation of the earlier proceedings, but are proceedings which result in a fresh order. He also referred to the provision of section 245HA which deals with a situation of non-co-operation by the applicant and provides for the matter to go back to the "Assessing Officer" (not "income-tax authority") as if no application under section 245C had been made. The provision results in a situation of restoration to the Assessing Officer akin to the setting aside of an assessment order. Shri Agarwalla, however, clarified that when he talked of the order getting set aside, he did not mean it in the sense of the order becoming dead but its becoming unenforceable by reason of its going into suspended animation. The suspended animation, according to him, comes to an end only in the circumstances provided for in section 245D(7) in terms of which, on an order becoming void due to fraud or misrepresentation of facts, the proceedings are deemed to have been revived from the stage at which the application was allowed to be proceeded with and the case is sent back to the income-tax authority before whom such proceedings were pending for completing the same within the prescribed time, With the provision existing for revival of proceedings, the assessment order cannot be said to have become dead. According to Shri Agarwalla, suspended animation can also come tc end if, during the proceedings, the provisions of section 245HA invoked when, on account of non-co-operation by the applicant, the case sent to the Assessing Officer to be completed as per law. In all other cases, suspended animation comes to an end with the passing of final order of settlement under section 245D(4), when the assessment order in question becomes non-est/annulled and no demand raised through notice under section 156 remains recoverable.

11. Shri T. M. Manoharan argued that the view that assessment orders do not survive is implied in the observations of the Supreme Court made in the case of Express Newspapers Ltd. [1994] 206 ITR 443 which is extracted under question No. 1. The Commission is an independent high-powered body which can settle matters once and for all. Its orders are more than assessment orders and comprehensive, as it can settle not only matters contained in the application but also other matters as may be referred to in the report of the Commissioner of Income-tax. It has exclusive jurisdiction over the case. Making an assessment or judging the correctness of the assessment already made is not the sole purpose of the Commission but while settling various matters, it settles the liability for tax, penalty, interest, etc. While the Commission is seized of the matters relating to a "case", no other authority can exercise any jurisdiction in relation to that "case". Even if the Assessing Officer comes in possession of material giving rise to the reason to believe that income has escaped assessment, he can only inform the Commission through the Commissioner of Income-tax's report. Its orders are conclusive as to the matters stated therein and no matters covered therein can be reopened in any proceeding under this or any other Act. According to Shri Manoharan, if there is an assessment order made prior to admission of the application, the Commission may use it as a piece of evidence in the course of settling matters but it cannot be construed that it is sitting in judgment over that assessment order. The unique characteristics of the scheme of settlement, when taken into account, make it clear that the assessment orders do not survive. Unless the order of the Assessing Officer gets set aside, it will not be possible for the Commission to exercise the original functions involved in the act of settlement, under its exclusive jurisdiction. Further, after the application is admitted, a fresh demand arises in the nature of tax on additional income disclosed, which is required to be paid within thirty-five days of the admission order. This demand is an independent one and is not in modification or substitution of any earlier demand. Chapter XIXA independently provides for charging of interest under sub-section (2C) of section 245D. This goes to establish that the question of any other demand subsisting for the same assessment year or years is ruled out. Referring to sub-section (3) of section 245F which saves only the operation of the provision requiring the applicant to pay tax on the basis of self-assessment, he pointed out that if the intention of the Legislature was that the demand raised by the Assessing Officer subsists, then such demand would also have been saved in this provision. He also referred to the provisions of section 245DD, the language of which clearly establishes that an order of provisional attachment passed by an income-tax authority prior to admission shall not survive once the application is admitted. It was also pointed out by him that there had been instances where, before admission of a settlement application, the pending proceedings crossed several stages. It is possible that apart from the assessment order, there may be an order passed by the Commissioner of Income-tax (Appeals) or even, in some cases, the order passed by the Income-tax Appellate Tribunal. If a view is taken that the assessment order survives, the corollary shall be that other orders passed by other authorities should also be construed as surviving. This conflicts with the underlying principles of settlement by the Commission, which exercises exclusive jurisdiction. In the light of the above arguments, Shri Manoharan expressed the view that the Commission's order under section 245D(1) sets aside the prior orders and renders them ineffective. Any matter considered and settled by the assessment order gets unsettled for fresh settlement by the Commission. Reliance was also placed on the language of section 245HA which requires the case to be sent back to the Assessing Officer only. He is entitled to use all the material and other information, results of enquiry held or evidence recorded by the Commission, thereby implying that a fresh order is required to be made by him in all such cases, which means that the earlier order did not subsist.

12. The Special Bench in the case of Om Metals and Minerals (P.) Ltd., In re [1992] 193 ITR 57 (ITSC) relied heavily on the amendment made in the first proviso to section 220(2) by the Direct Tax Laws (Amendment) Act, 1987, with effect from 1st April, 1989. While Shri Shah considered this amendment as a "thoughtless provision" and a "legislative mistake", there were others who tried to give some meaning to it. Smt. Jagtiani held the view that the impugned amendment requiring reduction of interest under section 220(2), as a result of reduction in the amount in respect of which interest was payable consequent to the Commission's order under section 245D(4), had the limited purpose of enabling the Department to grant refund of interest, if the same had already been collected, According to her, but for the specific provision of this nature, it would not have been possible for the Income-tax Department to refund the amount of interest already collected even if the demand does not subsist or gets reduced after the Commission's order under section 245D(4). Shri Agarwalla gave some further relevance to the amendment and pointed out two situations in which the amendment will be applicable. The first situation is where an income assessed in the hands of a person other than the applicant has been offered by the applicant as his own and is so accepted by the Commission in its order under section 245D(4). The Commission in such a case issues directions to the Assessing Officer under section 245D(8) to suitably amend the assessment of that other person. If any recomputation of the total income is made in the other person's case, after excluding that portion of income which is included in the income of the applicant, interest levied under section 2,20(2) on that person shall stand reduced, as per the amendment made in the proviso to section 220(2). The second situation mentioned by him is where the Commission comes to a finding that certain income of the applicant assessed in an assessment year which is not covered by the settlement application needs to be excluded from that year's computation and included in some other year, the case for which is admitted for settlement. In such a case, the income needs to be excluded from the year which is not before the Commission and directions are issued under section 245D(4) read with section 245D(8) to that effect. The proviso to section 220(2) will, in such a case, come to the rescue of the applicant who will be able to get the interest reduced for that year in consequence of the exclusion of income pursuant to the Commission's direction. In other words, what Shri Agarwalla wants to say is that the amendment is relevant for persons other than the applicants or for the assessment years other than those covered by the settlement application, if those persons/assessment years are affected by the Commission's finding in an order under section 245D(4). Shri Manoharan indicated another limited relevance to the proviso. According to him, this amendment will have relevance where a fresh intimation under section 143(1)(b) is to be issued, in respect of a year subsequent to the one for which the case has been settled, because of modification required to be made in carrying forward loss, deduction, allowance or relief in pursuance of the Commission's order under section 245D(4). If such modification results in reduced income, the amended proviso enables the reduction of interest. Similarly, if the share of a partner of a firm or a member of an association of persons is modified in pursuance of the Commission's order under section 245D(4) passed in the case of the firm/association of persons, the proviso becomes applicable for reducing the chargeable interest under section 220(2) in the case of partners/members. Shri Manoharan also submitted that, in substance, the proviso gives relevance in so far as the cases of persons other than the applicant and years other than the admitted years are concerned. According to both - Shri Agarwalla and Manoharan - the proviso cannot have application in any other situation.

13. More or less similar arguments were advanced by others. Shri R. R. Khosla, representing Omega Bright Steel Limited, pleaded that whatever is done prior to admission cannot be effectuated thereafter. The proceeding transferred to the Settlement Commission is not an extension of the assessment proceeding and the law provides for two completely different streams which do not merge. According to him, with the admission order, all earlier orders abate and with the final order under section 245D(4), they come to an end. Referring to the Supreme Court's decision in ITO v. Seghu Buchiah Setty [1964] 52 ITR 538, he argued that there cannot be two defaults for one liability. The order of reduction in appeal has the effect of wiping out the earlier notice of demand. According to Shri S. N. Rotho, the result of order under section 245D(1), admitting the settlement application is just a transfer of jurisdiction from one authority to another, having more power. It is an extraordinary transfer of jurisdiction. According to him, valid orders, passed prior to this change of jurisdiction, subsist but, on the passing of the order under section 245D(4), the earlier orders are to be treated as non est. The earlier orders are operative only under the circumstances mentioned in sections 245HA and 245D(7). Shri S. K. Tulsiyan, speaking for K. M. Khadim and Co., all intervener, argued that the proviso to section 220(2) is irrelevant. The assessment order plays no role, as the additional income is worked out on the basis of the return. The assessment order can only form part of the report of the Commissioner and the Commission's order extinguishes such an order, instead of merely suspending it. According to him, the use of the word "revived" in section 245D(7) indicates that the earlier order was not just suspended. Referring to the object of setting up the Commission, he pleaded that the body has been envisaged as a permanent authority before whom disclosure of undisclosed income can be made and on the analogy of VDIS and Kar Vivad Samadhan Scheme, the order of settlement overrides all other orders. Shri C. V. Kothari, representing the case of Shri M. L. Gupta, stated that the order of the Special Bench in Om Metals and Minerals (P.) Ltd., In re [1992] 193 ITR 57 (ITSC), of which he was one of the Members, stands impliedly overruled by the observation of the Supreme Court in the case of Express Newspapers Ltd. [1994] 206 ITR 443. The implication of this observation is that all the proceedings completed before the admission of the settlement application become non est on such admission. The Commission deals with the case afresh. It makes a fresh adjudication, giving rise to a fresh demand, which is totally unconnected with the demand created by the Assessing Officer. No consequences flow from any earlier order. Although the Commission is a Tribunal, it is not an Appellate Tribunal and the question of merger of orders does not arise. Without prejudice to the above argument, Shri Kothari, referring to the impact of the order under section 245D(4), on the orders of the income-tax authorities, opined that the Commission's order wipes out the assessment orders and other related orders, passed prior to such an order. Hence, no consequences can flow from these orders. Elaborating this point further, Shri Kothari stated that the charging of interest under section 245D(6A) on the non-payment of tax determined by the Commission shows that the applicant can be treated in default only for non-payment of such tax and not the tax demanded by the Assessing Officer earlier. He further stated that interest under section 220(2) cannot be charged in cases settled by the Commission, because once the assessment orders are considered as set aside either at the time of admission or at the time of passing of order under section 245D(4), no such interest can be charged. The only interest chargeable in the settlement cases is the interest under section 245D(2C) and 245D(6A). The interest chargeable under these special provisions will prevail over the interest chargeable under the general provisions of section 220(2). If this view is not accepted, a serious anomaly will arise in that interest under section 220(2) will also be chargeable for the grace period of thirty-five days, available to the applicant for payment of the tax determined under section 245D(4). According to him, an interpretation which gives rise to double jeopardy is to be avoided. Thus, Shri Kothari answered question No. 1 in the negative. Though questions Nos. 2 and 3 did not survive after the answer to question No. 1 being in the negative, he answered the questions Nos. 2 and 3 in the affirmative, in case his answer to the first question is not acceptable. In other words, according to Shri Kothari, the assessment orders passed prior to admission of an application do not survive after such admission; alternatively, the assessment orders get set aside at the time of passing the order under section 245D(4); and finally, the Commission does have the power to waive or reduce interest under section 220(2) in view of the Special Bench decision in the case of Anjum Mohammed Hussein Ghaswala [1998] 230 ITR (AT) 1.

14. Shri Arun P. Sathe was of the view that the Special Bench in Om Metals's case [1992] 193 ITR 57 (ITSC) went wrong in placing reliance on the proviso to section 220(2). Referring to the decision of the Bombay High Court in the case of CIT v. Ramchandra Shivnarain [1993] 201 ITR 862, he argued that a proviso cannot be treated as a charging section. The limited purpose of the proviso is to enable the department to issue refund of interest, already collected. Shri Chetan Karia, referring to the decision of the Patna High Court in Gunpat Rai Santu Lal v. CIT [1984] 147 ITR 224, was of the view that no specific provision was needed to revise the interest downward as a result of the Commission's order. He did not agree with others in the submission that a notice under section 156 is not envisaged to be issued by the Commission but argued that there cannot be two demands simultaneously. According to him, recovery proceedings cannot be enforced and, therefore, there can be no question of charge of interest under section 220(2). Shri K. Shivram, speaking for the All India Federation of Tax Practitioners, argued that once an application is admitted, earlier orders do not survive and no proceedings for recovery or otherwise can be continued. With the passing of the order under section 245D(4), all earlier orders are nullified and, consequently, there cannot be any liability to interest under section 220(2). Without prejudice to this, he was of the view that the Commission has power to reduce or waive the interest under section 220(2). According to Shri V. H. Patil, the Commission assumes exclusive jurisdiction from the date of the order under section 245D(1) admitting the settlement application and the Department can pass any order/take action till such date. Interest, according to him, is chargeable till the date of admission order and the proviso to section 220(2) is relevant for that purpose.

15. We have given careful consideration to the various arguments raised before us. We are of the view that there is no express provision in the Act, including under Chapter XIXA, which suggests that the orders passed under proper jurisdiction, prior to the order of admission under section 245D(1), are obliterated, set aside or rendered invalid after the applicant's application is allowed to be proceeded with. The Supreme Court has very clearly stated in Express Newspapers Ltd.'s case [1994] 206 ITR 443, at page 451, that after the application is admitted, the Commission shall have to withdraw the case relating to that assessment year. It has also clarified that once the application is allowed to be proceeded with by the Commission, the proceedings pending before any authority under the Act, relating to that assessment year, have to be transferred to the Commission. What, therefore, really happens is the transfer of proceedings from the income-tax authorities to the Commission. This is also inherent in the provisions of section 245F which vest in the Commission exclusive jurisdiction to exercise the powers and perform the functions of an income-tax authority, after the case is admitted. This vesting of exclusive jurisdiction is tantamount to the transfer of a case. It is an accepted position that when there is a change of jurisdiction by succession, the proceedings taken under earlier jurisdiction are not invalidated and legal orders passed continue to remain valid after such succession. Much has been argued on the special and vast nature of the powers of the Commission and the orders passed by it. No doubt, the Commission has vast powers in dealing with the case. It is not bound to follow the normal procedure laid down in the Act. [Ref. CIT v. Paharpur Cooling Towers (P.) Ltd. [1996] 219 ITR 618 (SC)]. It is not to confine itself to the income disclosed before it but has to deal with the case as a whole; its order is comprehensive enough to take into account not merely what is stated in the application but also what is covered by the report of the Commissioner of Income-tax; its order not merely determines the tax liability but also the amount of any interest or penalty; it determines the manner in which such amount is to be paid and deals with any other matter necessary for the effective settlement of the case. Its orders are conclusive as to the matters stated therein and no matter covered by such order can be reopened in any proceeding. The vast powers vested in the Commission give it flexibility in approach, comprehensiveness in content and conclusiveness of its order under section 245D(4). Such powers vested in the Commission and the large canvas it covers do not, in our view, militate against the survival of the order passed earlier. When a superior authority starts dealing with the subject on transfer of jurisdiction to it, it does not necessarily mean that the order passed or the actions taken by the preceding authorities are invalidated, even if the superior authority considers the matter as a whole, unless there are contrary provisions to that effect or the survival of earlier orders cannot be harmonized with the scheme of legislation. In the present case, as discussed later, in our order, no such inconsistency exists. On the other hand, the Act has provisions which clearly mandate the survival of the earlier order by making it a base for computation of the final liability of interest. Reference in this connection may be made to the provisions of sub-section (4) of sections 234A and 234B which are reproduced below :

"234A. (4) Where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount of tax on which interest was payable under sub-section (1) or sub-section (3) of this section has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and -

(i) in a case where the interest is increased, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly;

(ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded."

"234B. (4) Where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount on which interest was payable under sub-section (1) or sub-section (3) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and -

(i) in a case where the interest is increased, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly;

(ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded."

16. These sub-sections give cognizance to the order of the Assessing Officer and require the computation of interest chargeable under these sections to be modified in pursuance of the Commission's order under section 245D(4). Had it been the intention of the Legislature that these orders do not subsist after the admission of the application, the law would have provided either for not charging of interest or would have made the Commission's order under section 245D(4) as the basis for computing such interest. With any other view, there will be apparent incongruity between such a view and the express provisions contained in these sub-sections. We are not inclined to agree with Shri Manoharan when he says that these sub-sections serve the purpose only of determining the terminal point of time up to which interest can be levied. These sub-sections clearly deal with the recomputation of the interest based on the modification of the amount in respect of which the interest is calculated and have no relevance to the period for which interest is to be computed.

17. The Special Bench in the case of Om Metals and Minerals (P.) Ltd., In re [1992] 193 ITR 57 (ITSC) relied on the first proviso to section 220(2). We do not think such reliance was wholly unjustified or inappropriate when we consider the express mandate contained therein. This proviso also requires recomputation of interest charged/chargeable with reference to the original order after the same is modified by the Commission's order under section 245D(4). This suggests the legislative intention to give validity to the orders passed earlier. We are not inclined to agree with Shri Vinay Kant Shah when he says that the amendment made in the first proviso to section 220(2) was a legislative error and the same is to be ignored. It is an accepted principle that no interpretation should render any provision of the Act redundant. Unless there is irreconcilable inconsistency, such an extreme course is not permitted. In the present situation, we do not see any such inconsistency. Neither do we see any need for giving it a restricted meaning as advocated by S/Shri R. P. Agarwalla and T. M. Manoharan. In our view, we have to give a natural meaning to the proviso and when it is so done, the only inference that can be drawn is that the law recognises the orders passed before the admission. An argument was raised that a proviso should not be used for interpreting the main provision, because it cannot go beyond such main provision. This argument pre-supposes that the main provision does not provide for charge of interest and the chargeability is being inferred from the proviso alone. The proviso has generally the purpose of carving out an exception or diluting the effect of the main provision in certain cases. This, according to us, is the very purpose of the first proviso to section 220(2), which provides for the situation in which the interest chargeable by virtue of the main provision is to be reduced. We are also not persuaded to accept the argument of Shri Vinay Kant Shah that the prerequisite for the charge of interest under section 220(2) is an earlier service of notice of demand under section 156, whereas under the provisions of Chapter XIXA, the service of such a notice is not required and the demand becomes payable within thirty-five days of the service of the Commission's order (which is not the same as a notice of demand). It is to be noted that the Commission's order under section, 245D(4) itself has to lay down the amount of tax, penalty and interest payable by the applicant, and even if a technical view is taken that such an order is not a notice under section 156, there is no basis for the proposition that a notice under section 156 cannot be issued by the Commission.

18. Much has been argued on the implications of the provisions of section 245HA and sub-sections (6) and (7) of section 245D. In the first instance, we are of the view that these are special provisions meant to deal with specific and abnormal situations and such provisions need not fall in line with the general procedure or principles. They are to be viewed in the context of the purpose that is sought to be achieved by them. Section 245HA is a provision which empowers the Commission, in the event of non-co-operation by the applicant, to send back the case to the Assessing Officer for disposing of it in accordance with the provisions of this Act, as if no application under section 245C had been made. Sub-section (2) of this section stipulates that the Assessing Officer shall be entitled to use all the material and other information produced by the assessee before the Commission or the results of enquiry held or evidence recorded in the course of the proceedings before it. Obviously, the Legislature did not want the Commission to continue with the proceedings before it in the case of non-co-operation by the applicant. It has, therefore, provided that the Assessing Officer who was divested of the jurisdiction should now reassume the jurisdiction and since it did not want the Department to be deprived of the material gathered by the Commission, it enabled him to proceed in the matter after taking into account all that had been found out by the Commission, after he was divested of the jurisdiction. It is in this context that the rationale for sending the case back to the Assessing Officer only and not to the "income-tax authority" before whom the proceedings were pending at the time of filing the application, can be found out. If fresh material is to be considered and made use of, it is only proper that further proceedings are carried on by the Assessing Officer only. Thus, even if at the time of making the application, the proceedings were pending before the Commissioner Income-tax (Appeals), the section provides for sending back the case only to the Assessing Officer. It is not correct to infer that sending the case back to the Assessing Officer tacitly means that the earlier order did not subsist. Further, while the case is sent back to the Assessing Officer, the law provides that he will dispose of the case "in accordance with the provisions of the Act as if no application under section 245C had been made". By this, the proceedings are restored to the position prevailing at the point of time when the income-tax authority was divested of its jurisdiction. In a case where the application was admitted after the assessment was completed and when the appeal was pending, section 245HA restores the case back to that position which means that even though the action will be taken by the Assessing Officer, he will do so in a manner in which he would have done in a case at that stage. It is for this reason that the provisions of sub-section (3) of section 245HA have relaxed the time-limit, inter alia, under sections 149, 154, etc., so that, if necessary, the completed assessment can be reopened or rectified by him. Accordingly there is no apparent inconsistency between the special provisions of section 245HA and the general scheme of the Act. Further, section 245HA(3) implicitly indicates the continuity of the proceedings before the Assessing Officer, by not providing for a fresh time-limit reckoned from the date of reassumption of jurisdiction and by providing for the completion of the proceedings by him within the remaining time available to the Assessing Officer excluding the period from the date of application to the Commission to the date of receipt by the Assessing Officer of the Commission's order under this section.

19. Same is the position with the provisions of sub-sections (6) and (7) of section 245D. These sub-sections provide for the revival of the proceedings from the stage at which the application was allowed to be proceeded with. The same is applicable when the settlement is vitiated as having been obtained by fraud or misrepresentation of facts before the Commission and, accordingly, declared void. The use of the expression "deemed to have been revived" is necessary, because these sub-sections are invariably invoked after the proceedings have become final by virtue of the Commission's order under section 245D(4). If, therefore, the order of settlement is to be declared void, the proceedings which were taken over by the Commission have to be reactivated from the very stage from which they were discontinued as a result of the Commission's order under section 245D(1).

20. For the reasons mentioned above, we are of the view that the Special Bench in the case of Om Metals and Minerals (P.) Ltd. [1992] 193 ITR 57 (ITSC) was right in holding that the assessment orders passed by the Assessing Officer before the admission of the settlement application subsisted after such admission.

21. When we say that the assessment orders subsist, we presume that these orders were passed by authorities having proper jurisdiction. Section 245C(1) provides that the applicant may approach the Commission at any stage of the "case" as defined in section 245A(b) of the Act. If he approaches the Commission after the assessment order was passed, there can be no dispute that the order was passed by the officer holding proper jurisdiction over the case. The position may be different if the assessment order is passed after the filing of the settlement application by the applicant. The Special Bench in the case of Om Metals and Minerals (P.) Ltd. [1992] 193 ITR 57 (ITSC), in our view, erred in ignoring this difference. We would like to refer, in this connection, to the Explanation 1(v) to section 153 which provides for the exclusion of period from the date of making the application to the date of rejection thereof by the Commission from the normal time-limit provided for completing an assessment. It may be argued that the Legislature did not provide for completion of assessment after an application under section 245C has been made and to safeguard the interest of the Revenue, in the event of the Commission not allowing the application to be proceeded with, it has provided for an extended time to the Assessing Officer for completing the assessment. In the following situations, extended time has been provided for the completion of the relevant proceeding :

(i) time taken in reopening of the proceeding or giving an opportunity to be reheard under proviso to section 129;

(ii) period during which the assessment proceedings are stayed by any court;

(iii) time permitted for getting the accounts audited under sub-section (2A) of section 142;

(iv) period (not exceeding sixty days) between the date of receipt of the declaration under section 158A(1) and the date of order under section 158A(3) admitting or rejecting the same;

(v) period from the date of making the settlement application to the date of rejection thereof by the Settlement Commission.

22. It will be seen that in all the situations from (i) to (iv), the tax authorities are not supposed to continue with the proceedings before them because on the happening of the event up to which the extended time is granted, any order passed or action taken, by continuing the proceedings, is liable to be rendered invalid and extension of time is necessary to compensate for the loss of time due to such constraint. Clause (v) needs to be interpreted in the same spirit. In our opinion, clause (v) of Explanation 1 to section 153 provides a reasonable basis for the proposition that the Assessing Officer is not to proceed to pass an order and if he still does so, the order will cease to be valid after the case is admitted by the Commission. Further, Chapter XIXA provides for making an application for settlement of case only when some proceeding relating to assessment or reassessment, appeal or revision, is pending. This is evident from the definition of the term "case" under section 245A(b) of the Act. Pendency of proceeding is, therefore, an essential prerequisite for the assumption of jurisdiction by the Commission and such pendency, by virtue of the definition of "case" as given in section 245A(b), is to exist on the date of application. If at the time of the order under section 245D(1) allowing the application to be proceeded with, the pendency which was there at the time of making the application ceases to exist, the very purpose of making it necessary for the pendency to exist, for the Commission to take over, is lost. We, therefore, agree with Smt. Shobha Jagtiani that when an application is allowed to be proceeded with, it relates back to the date of application. The necessary corollary to this is that any order passed by any authority, including the Commissioner of Income-tax (Appeals) or the Commissioner, after the filing of application but before the order of admission, becomes an order passed without valid jurisdiction, because the jurisdiction was assumed by the Commission from the date of application and there cannot be a situation in which two authorities hold jurisdiction at the same time. We are further supported in our view by the specific provisions contained in section 245H which debar immunity to be granted in a case where the proceedings for prosecution have been instituted before the date of receipt of application, section 245E which permits reopening of proceedings completed before the date of application and section 245DD which give validity only to those provisional attachment orders which were made before the date of application and require a fresh order from the Commission if such provisional attachment is to be continued for the remaining term. These provisions point clearly to the fact that only orders passed up to the date of application have been given validity which necessarily means that orders passed after the date of application or action taken after that date lose their significance since, after the Commission's order allowing the application to be proceeded with, it is only the Commission which can pass any order or take action after that date. We would like to clarify here that any order passed in the interregnum, i.e., between the date of making the settlement application and its admission is not ipso facto non est, but becomes so as a consequence of the Commission's order of admission. Reference in this connection may be made to the decision of the Delhi High Court in Deen Dayal Didwania v. Union of India [1986] 160 ITR 12, in which it was observed that the Act does not contemplate a stay of the assessment proceedings during the period when the Commission is yet to decide whether to proceed with the settlement application or not. The observation does not militate against the above view which makes such proceedings non est in the event of the decision allowing the application to be proceeded with.

23. Having said that only the assessment/reassessment orders passed before the date of making the settlement applications subsist, we have to consider the second aspect of the decision in Om Metals' case [1992] 193 ITR 57 (ITSC) [SB] as to whether recovery proceedings can be continued even after the admission of the said application. This necessitates the consideration as to the enforceability of the above orders and what happens to them after an order of final settlement is made. In this regard, it is worth noting that as per the Supreme Court decision in Gojer Bros. (P.) Ltd. v. Ratan Lal Singh, AIR 1974 SC 1380 there cannot be, at one and the same time, more than one operative order, governing the same subject-matter.

24. Chapter XIXA contains provisions giving rise to demand which is independent of and not in substitution of the demand raised by the Assessing Officer for the same assessment year. The demand referred to in this Chapter arises at two stages. Firstly, when the application is allowed to be proceeded with. At that stage, the tax on the admitted undisclosed income as computed in accordance with sub-section (1C) of section 245C becomes payable. In the second stage, the demand arises after the passing of the final order of settlement under section 245D(4), when the final demand, after giving credit for taxes realised, including taxes paid at the first stage, becomes payable by the applicant. Chapter XIXA makes specific provision as to when these demands become due, how they are to be recovered and the consequences that follow in terms of charge of interest, if the demand is not paid in time. In other words, Chapter XIXA is a self-contained code in so far as the creation and enforceability of the demands arising after assumption of jurisdiction by the Commission is concerned. In such a situation, if the earlier demand raised by the Assessing Officer is also enforced, it will amount to recovery of two sets of demands covering the same assessment year. Not only this, the applicant, in case of default in payment, will become liable for interest under section 220(2) in respect of the demand raised by the Assessing Officer and interest under sub-section (2C) and sub-section (6A) of section 245D in respect of the demand arising after the admission of the application. Such a construction of the provisions of Chapter XIXA, based on our finding that the valid orders passed before the date of application subsist, will lead to an anomalous situation, frustrating the very object of settlement. According to Shri Vinaykant C. Shah, it is one thing to say that a valid assessment order and valid notice of demand passed/issued by the Assessing Officer subsist even after the order under section 245D(1), but it is quite another thing to say that recovery of the amount specified in that notice of demand can be enforced after the passing of that order. He referred to the exhaustive provisions contained in Chapter XIXA on the subject of payments to be made by the applicant, particularly provisions of sub-sections (2A), (2C) and (6A) of section 245D and argued that in the face of such specific and exhaustive provisions, it just cannot be suggested that recovery of the amount specified in the notice of demand can be enforced after passing the order under section 245D(1) admitting the settlement application. On the other hand, the provisions of section 245DD empower the Commission to only provisionally attach the property, should it consider it desirable to do so for protecting the interest of the Revenue. This provision even empowers the Settlement Commission to take action during the interregnum before passing the order under section 245D(1). According to him, the Special Bench in the case of Om Metals and Minerals (P.) Ltd. [1992] 193 ITR 57 (ITSC) was not right in holding that recovery proceedings pursuant to an assessment order could be continued even after the admission of the settlement application.

25. We find force in the above arguments and hold that the demand raised by the Assessing Officer, in consequence of order passed prior to the submission of application, is not to be enforced, as the order, though subsisting in law, is not to be given effect to, till the order of settlement is passed by the Commission under section 245D(4) when the same becomes effective in the manner discussed later in this order. Since the additional income and tax thereon are computed in terms of sub-sections (1B) and (1C) of section 245C, with reference to the returned income and the tax thereon, some income may, in a large number of cases, be included in the assessed income as well as the additional income. This will happen if the additions made while computing the assessed income are found acceptable to the applicant. In such a case, if the demand as per the assessment order is also enforced, it will amount to the realisation of tax on the same income twice. We are not in agreement with the Special Bench in Om Metals and Minerals (P.) Ltd. [1992] 193 ITR 57 (ITSC) that in cases where injustice is likely to be caused to the applicant due to such double payment of tax and interest, the Commission would pass appropriate orders under section 245D(4) as the circumstances of the case warrant. In fact, section 245D(2A) envisages payment of tax on an income which is required to be fully and truly disclosed before the Commission under section 245C. In addition to this, section 245F(3) permits recovery of self-assessment tax by the Assessing Officer despite admission of the case by the Commission. In our opinion, together these two sections ensure payment of full tax on the admitted total income of the applicant. The Legislature, therefore, could not have envisaged payment of tax on another set of total income as computed by the Assessing Officer for the same year. We also hold that since the demand as per the assessment order is not to be enforced and a separate regime of charge of interest under Chapter XIXA is provided, no interest under section 220(2) can be charged in respect of the demand arising out of the assessment order, for the period during which the assessment order remains inoperative and the demand is unenforceable. This construction of ours not only avoids enforcement of two demands for the same assessment year and the situation of double jeopardy in the matter of charge of interest but is also consistent with the provisions of sub-section (3) of section 245F which saves only the operation of the provisions requiring payment of tax on the basis of self-assessment, implying thereby that the operation of all other provisions remain suspended. We are aware that the view will result in a situation where a person making true and full disclosure thereby making payment of tax at the earliest opportunity is treated in the same manner as one who defers the payment by making inadequate disclosure, because persons in both the categories will not incur liability for interest under section 220(2) for the period after admission. However, the provisions of section 245H make a distinction between persons in the two categories by denying the benefit of immunity from penalty and prosecution to those who fail to make a true and full disclosure of their income.

26. For the reasons discussed above, our answer to question No. 1 is :

(i) That the Special Bench in the case of Om Metals and Minerals (P.) Ltd. [1992] 193 ITR 57 (ITSC) was right in holding that the assessment orders passed by the Assessing Officer before the admission of the settlement application subsisted only in so far as such finding applies to the assessment orders passed before the date of filing of application under section 245C(1).

(ii) The Special Bench of the Settlement Commission was not right in holding that the orders passed by the Assessing Officer subsisted in so far as the finding applies to the orders passed after the date of application but before the application is allowed to be proceeded with.

(iii) The Special Bench was not right in holding that the recovery proceedings based on the order of assessment can be continued even after the admission of the said application. In our view, recovery proceedings cannot be continued after the application has been admitted except in the matter of self-assessment tax and in the manner laid down in section 245DD for safeguarding any likely future demand.

27. We now come to question No. 2 which deals with charge of interest under section 220(2) of the Act. We have held that the assessment/reassessment orders passed before the date of application subsist after the order of admission but such orders are not to be given effect to till the Commission's order under section 245D(4). What happens to such orders after the order under section 245D(4) will depend on the nature of the Commission's order under section 245D(4). According to learned counsel appearing for the applicants as well as those appearing as interveners, the orders of assessment stand obliterated or set aside or annulled after such order. Shri Vinaykant C. Shah who held the view that the orders subsist argued that those orders become obliterated after the final order of settlement which supplants them. Shri Agarwalla who said that the orders go into suspended animation was of the view that those orders are annulled after the final order of settlements Shri T. M. Manoharan who was of the view that the assessment orders are set aside by the order of admission pleaded that such setting aside becomes final after the order of final settlement. Probably he was using the term "set aside" not in the sense of an order becoming dead or non est as in the case of appeal, but as an order becoming inoperative. There are contrary arguments, however, from the other side including the side of the Department according to which the order of the Commission under section 245D(4) merely modifies the order of assessment which is then given effect to. The basic question, therefore, is whether the order under section 245D(4) supplants the order of assessment and obliterates it or it merely modifies it as an order of a lower authority merging into the order of a superior authority.

28. Counsel who favoured the view that the orders of assessment are annulled or set aside argued that the Commission's order is not an appellate order which adjudicates on the order of assessment but it is an independent order which settles the liability for tax, etc., afresh, as if no order existed. Under the provisions of Chapter XIXA which is a self-contained code, the Commission starts the proceedings de novo for determination of tax liability unhindered by the existence of any earlier order, covering all or some of the matters, because if it is restrained by the existence of such orders, it will not be able to deal with the case as a whole. Exercise of exclusive jurisdiction precludes the existence of any other jurisdiction. The Commission's order, according to them, is not an appellate order. It is an order encompassing all the aspects from the determination of the demand by way of tax, penalty or interest to the manner of realisation thereof and, therefore, it cannot be taken to be an order of adjudication.

29. From the side of the Department, Additional Solicitor-General, Shri Chandrachud, drew our attention to the specific provisions contained in the proviso to section 220(2) which clearly shows that the order under section 245D(4) is an order which modifies the order of assessment. It may be of relevance to reproduce the provisions of section 220(2) :

"(2) If the amount specified in any notice of demand under section 156 is not paid within the period limited under sub-section (1), the assessee shall be liable to pay simple interest at one and one-half per cent. for every month or part of a month comprised in the period commencing from the day immediately following the end of the period mentioned in sub-section (1) and ending with the day on which the amount is paid :

Provided that, where as a result of an order under section 154, or section 155, or section 250, or section 254, or section 260, or section 262, or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount on which interest was payable under this section had been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded :".

30. S/Shri R. P. Agarwalla and T. M. Manoharan have interpreted the above proviso in a restricted sense and have argued that the proviso applies only to cases of persons other than the applicant before the Commission and to the assessment years other than those before the commission. We do not find any justification for giving the proviso such a restricted meaning. In our view, there is no need for departing from its natural meaning, as we see no inconsistency arising out of such meaning. The inference that the order under section 245D(4) has the effect of modifying the order of assessment is further strengthened by the specific provisions contained in sub-section (4) of sections 234A and 234B. A reading of these two sections as well as the first proviso to section 220(2) leads to the conclusion that the order of the Assessing Officer gets modified by the Commission's order under section 245D(4). The Commission is undoubtedly a higher forum exercising much higher powers and there is nothing unlawful if, as in the case of an order of any other higher authority, the order of the Assessing Officer dealing with the same, subject-matter merges into its final order under section 245D(4). When the Commission takes over the proceedings, an appeal must be pending in such cases and, therefore, it is the appellate proceedings which give birth to the "case". The appellate proceedings get transferred to the Commission in such cases and although the Commission's order is not merely an appellate order, it partakes of the nature of an appellate order. We, therefore, do not find any inconsistency in holding that the assessment order merges with the Commission's order, like any other appellate order. The Special Bench of the Settlement Commission in the case of Om Metals and Minerals (P.) Ltd. [1992] 193 ITR 57, in our view, was right in placing reliance on the proviso to section 220(2), which we hold neither redundant as pleaded by Shri Vinaykant C. Shah nor of an artificial restricted meaning as argued by S/Shri Agarwalla and T. M. Manoharan.

31. The total effect of the view taken by us will be that the assessment orders passed before the date of application subsist after the order of admission but such orders remain inoperative. The demand arising on the basis of such orders remains unenforceable, till an order of final settlement under section 245D(4) is passed by the Commission. The order of assessment which is modified to give effect to the Commission's order then merges with the latter. So far as the chargeability of interest under section 220(2) is concerned, the same remains chargeable up to the date of admission in accordance with the proviso to section 220(2) after which the interest ceases to be chargeable. After the Commission's order under section 245D(4), interest for late payment is chargeable not under section 220(2) but in terms of the specific provisions contained in sub-section (6A) of section 245D.

32. In view of the above, our answer to the second question is that -

(i) the orders of lower authorities do not automatically stand set aside by the Commission's order under section 245D(4). The order of assessment stands modified to give effect to the order under section 245D(4) by the theory of merger applying to such order.

(ii) The liability of interest under section 220(2), if any, will be up to the date of order under section 245D(1). There will be no liability for interest under section 220(2) thereafter.

33. This brings us to the third question dealing with the power of the Commission to waive interest under section 220(2) of the Act. All counsel arguing for the applicants and as interveners were unanimous in their view that if interest is leviable, there should be no legal impediment to the, Commission's power of waiver in respect of such interest. The decision of the Special Bench in the case of Anjum Mohammed Hussein Ghaswala [1998] 230 ITR (AT) 1 (ITSC) was relied upon. The Department, on the other hand, took the stand that recovery is a part of Chapter XVII which is outside the jurisdiction of the Commission. The Commission, therefore, cannot exercise its power of waiver in respect of interest under section 220(2). According to Shri Chandrachud, waiver can be granted only when payment of such interest will give rise to hardship, non-payment is due to circumstances beyond the control of the taxpayer and co-operation was extended by him in the matter of recovery proceedings. These are considerations which can be exercised during the course of recovery proceedings only. Further, according to the Department, the power to waive interest under section 220 is an administrative power which can be exercised by the income-tax authorities only.

34. We do not accept Shri Chandrachud's argument that the aspect of reduction or waiver of section 220(2) interest involves the exercise of an administrative power, which could be done only by an income-tax authority. The reduction or waiver of interest does not amount to an administrative act as in the case of appointment and transfer of the Assessing Officers under section 117 or the transfer under section 127 of the jurisdiction over a case from one particular Assessing Officer to another. The exercise of the power under section 220(2A) is discretionary, as in the case of the power under section 273(1) to reduce or waive the penalty under section 271(1)(ii). As observed by the Supreme Court in Mahindra and Mahindra Ltd. v. Union of India [1979] 49 Comp Cas 419 (Page 444) :

"It must be remembered that this discretion being a judicial or, in any event a quasi-judicial discretion cannot be 'arbitrary, vague or fanciful', it must be guided by relevant considerations."

35. Accordingly, the exercise of the power under section 220(2A) involves the exercise of a judicial/quasi-judicial discretion and in no way amounts to the exercise of an administrative power.

36. As per section 245D(4), the Commission may "pass such order as it thinks fit on the matters covered by the application". Accordingly, if the applicant has prayed for the reduction or waiver of the interest under section 220(2), the Commission may "pass such order as it thinks fit" on this matter covered by the application. As specifically held by the Supreme Court in CIT v. Express Newspapers Ltd. [1994] 206 ITR 443, at page 456 :

"Sub-section (4) of section 245D provides for passing of final orders by the Commission. It is not necessary to refer to the other provisions in the Chapter except to mention that the Commission is empowered to direct the waiver of penalty as well as interest and to direct that the tax payable shall be paid in prescribed instalments...."

37. The Supreme Court's aforesaid observations make it abundantly clear that while passing the order under section 245D(4), the Commission may reduce or waive the statutory interest as well as the penalty. It is interesting to note that in the case of Anjum Mohammed Hussein Ghaswala [1998] 230 ITR (AT) 1 (ITSC), the Special Bench had observed that there will be scope for reduction or waiver of the interest under sections 234A, 234B and 234C, in spite of the mandatory nature of these sections, in view of the display of legislative intent to provide relief from the hardship created by the strict interpretation of these sections, by inserting the reference to these sections in section 119(2)(a) of the Act. But the case for reduction or waiver of section 220(2) interest is on stronger grounds, in view of a specific statutory provision, namely, section 220(2A) providing for such reduction/waiver.

38. We, therefore, answer the third question in the affirmative and hold that the Settlement Commission has the power to waive/reduce interest under section 220(2) of the Act.

39. In sum, our answers to the three questions referred to us are as follows :

Question No. 1 :

(i) That the Special Bench in the case of Om Metals and Minerals (P.) Ltd. [1992] 193 ITR 57 (ITSC) was right in holding that the assessment orders passed by the Assessing Officer before the admission of the settlement application subsisted only in so far as such finding applies to assessment orders passed before the date of filing of application under section 245C(1).

(ii) The Special Bench of the Settlement Commission was not right in holding that the orders passed by the Assessing Officer subsisted in so far as the finding applies to the orders passed after the date of application but before the application is allowed to be proceeded with.

(iii) The Special Bench was not right in holding that the recovery proceedings based on the order of assessment can be continued even after the admission of the said application. In our view, recovery proceedings cannot be continued after the application has been admitted except in the matter of self-assessment tax and in the manner laid down in section 245DD for safeguarding any likely future demand.

Question No. 2 :

(i) The orders of lower authorities do not automatically stand set aside by the Commission's order under section 245D(4). The order of assessment stands modified to give effect to the order under section 245D(4) by the theory of merger applying to such order.

(ii) In cases where assessment orders were passed before filing of application, the liability of interest under section 220(2), if any, will be up to the date of order under section 245D(1). There will be no liability for interest under section 220(2) thereafter. In cases where assessment orders were passed after filing of application, there will be no liability of interest under section 220(2).

Question No. 3 :

Yes. The Commission has the power to reduce/waive interest chargeable under section 220(2).

40. We have answered the questions as set out in the reference, vide Chairman's order under section 245BA(5A), dated September 18, 1998.

G.S. Sidhu (Vice-Chairman)

41. I agree with part (i) and part (ii) of the reply to question No. 1, part (i) and second half of part (ii) of the reply to question No. 2, and the reply to question No. 3. I do not fully agree with part (iii) of the reply to question No. 1 and first half of part (ii) of the reply to question No. 2. The relevant parts of the, reply are reproduced below : (A) Part (iii) of the reply to question No. 1 : The, Special Bench was riot right in holding that the recovery proceedings based on the order of assessment can be continued even after the admission of the said application. In our view, recovery proceedings cannot be continued after the application has been admitted except in the matter of self-assessment tax and in the manner laid down in section 245DD for safeguarding any likely future demand;

(B) Part (ii) of the reply to question No. 2 : In case where the assessment orders were passed before filing of application, the liability of interest under section 220(2), if any, will be up to the date of order under section 245D(1). There will be no liability for interest thereafter.

42. In the case of Damani Brothers from which reference to this Special Bench has arisen, the assessment order raising regular demand has been passed after the filing of application under section 245C. Therefore, the questions relating to recovery of demand and charging of interest under section 220(2) arising from the, facts of this case, stand squarely answered by part (ii) of the reply to question No. 1 and second half of part (ii) of the reply to question No. 2. Part (iii) of the reply to question No. 1 and parts (i) and (ii) of the reply to question No. 2 answer hypothetical questions as these do not arise from the facts of the case of Damani Brothers. These are relatable to a case in which assessment order has been passed before the date of filing of application under section 245C.

43. The main issue before this Special Bench is the chargeability and waiver/reduction of interest under section 220(2) and 220(2A). The main issue before the Special Bench in the case of Om Metals and Minerals (P.) Ltd. [1992] 193 ITR 57 (ITSC) was the recovery of demand. Since an assessment order passed under section 143(3) or section 144 of the Act is germane to these two issues, the arguments of the learned representatives from both the sides and the interveners, concentrate on the status of the assessment order passed before the date of admission order under section 245D(1). Majority of the learned representatives including Smt. Shobha Jagtiani and interveners are of the view that on passing of admission order, the assessment order is automatically set aside and the demand raised by this order ceases to exist and, thereafter, the question of recovery of demand and charging of interest under section 220(2) and its waiver/reduction under section 220(2A), does not arise. The opposite view put forward by Shri D. Y. Chandrachud, the learned Additional Solicitor-General, is that an assessment order passed and the demand raised by the Assessing Officer at any point of time before passing of the admission order, subsists. The demand is modified on passing of order under section 245D(4). It is recoverable and, if not paid, interest under section 220(2) is chargeable till the date of order under section 245D(4). The third view is a middle path view expressed by Shri R. P. Agarwalla and Vinaykant C. Shah, with slight variations. The assessment order passed and the demand raised before the passing of admission order are valid but on the passing of admission order, the assessment order and the demand go into a "state of suspended animation" to be revived under certain situations, according to Shri R. P. Agarwalla. According to. Shri Vinaykant C. Shah, both the assessment order and the demand though valid, are not "enforceable" after admission order under section 245D(1) is passed. In the first and the third set of views there is no place for charging of interest under section 220(2) at any point of time - before or after passing of admission order under section 245D(1). Only Shri V. H. Patil is of the view that interest under section 220(2) is chargeable up to the date of admission orders.

44. None of the learned representatives and interveners has differentiated between the assessment order passed before and after the filing of application under section 245C.

45. The Special Bench has partly accepted each of the three sets of views by unanimously holding that an assessment order passed and demand raised before the date of filing application under section 245C is valid and it subsists after the passing of admission order; and by not according this status to the order passed and the demand raised after the date of filing application under section 245C. The ma ority decision compromises on the recovery proceedings and charging of interest under section 220(2). Whereas it accepts the view that regular demand though validly raised by an assessment order passed before the filing of application, is not "enforceable" after the passing of admission order, but it does not wholly agree with S/Shri R. P. Agarwalla and Vinaykant C. Shah that interest under section 220(2) is not chargeable at any point of time. It endorses Shri V. H. Patil's, partly, the department's view that regular demand can be recorded and interest is, chargeable under section 220(2) up to the date of admission order.

46. In my view : (i) the valid tax demand raised by a valid order passed before filing of application under section 245C, subsists and is recoverable after the date of admission order under section 245D(1); and (ii) interest under section 220(2) is chargeable albeit on unpaid modified demand, up to the date of the order under section 245D(4). The Commission in exercise of powers of competent income-tax authority may extend the time for payment of a part or the entire regular demand till any date before the passing of order under section 245D(4) and may waive/reduce under section 220(2A) the interest chargeable under section 220(2) as the need be, instead of granting blanket stay of demand and waiver of interest, as it will be by virtue of majority decision, for the period intervening the date of admission order and the order under section 245D(4). Or the Commission may issue directions under section 245F(4) staying the recovery proceedings. I shall advert to this sub-section later.

47. Significantly, it is the unanimous view of this Special Bench that "the orders of the lower authorities do not automatically stand set aside by the Commission's order under section 245D(4)", instead "the order of assessment stands modified to give effect to the order under section 245D(4) by the theory of merger applying to such order" [part (i) of reply to question No. 2] as the Commission's order under section 245D(4) "partakes of the nature of an appellate order", in a case admitted at the appellate stage. To accept the view that demand raised by an assessment order which subsists and is not set aside, is not enforceable at all or is enforceable up to the date of admission order and not thereafter, is to contradict the above unanimous findings of the Special Bench. Valid regular demand raised by a competent authority can be erased to be raised afresh by setting aside the assessment order by an appellate/revisionary authority with the directions that assessment be done de novo. It can be erased by annulling or holding the assessment order void. If none of these courses is followed, the assessment order and the demand remain intact to be modified, if need be, by the order of the appellate/revisionary authority in accordance with the well-settled tenets of the theory of merger. To hold that the demand that subsists is not enforceable after the admission order is violative of the tenets of the merger theory.

48. As per the scheme of the Act, valid demand raised through a valid assessment order is to be recovered as per the procedure laid down in Chapter XVII. There is nothing in Chapter XIX-A which provides that proceedings for recovery of valid regular demand shall be stopped after the passing of admission order. There is nothing in this Chapter which may indicate that it is a complete code for recovery independent of the code laid down in Chapter XVII. On the contrary, section 245D(2D) and section 245J provide that the additional tax payable after admission order under section 245D(1) and the tax liabilities determined under section 245D(4), if unpaid, shall be recovered by the Assessing Officer as per the provisions of Chapter XVII. The intention of the Legislature is not to burden the Commission with the task of recovering the unpaid tax demand. It has been set up to provide a machinery to settle all matters concerning determination of tax liabilities, including interest and penalty, and prosecution and not recovery of tax demand.

49. Sub-sections (2A), (2B), (2C), (2D) and (6A) of section 245D, all inserted with effect from October 1, 1984, by the Taxation Laws (Amendment) Act, 1984, sub-section (3) of section 245F and section 245DD do not make Chapter XIXA a complete code for recovery of demand superseding the provisions of Chapter XVII even for the, period intervening the date, of passing admission order under section 245D(1) and the final settlement order under section 245D(4). These are specific provisions incorporated in Chapter XIXA to meet specific situation that may arise during the course of pendency of settlement proceedings commencing with the filing of application under section 245C and concluding with the passing of order under section 245D(4). Additional tax payable on additional income disclosed in the application filed under section 245C is like self-assessment tax payable on return of income filed under section 139. Sub-sections (2A) and (2B) facilitate payment of additional tax by the assessee. Sub-sections (2C) and (6A) providing for mandatory interest if the assessee delays payment of additional tax and finally settled tax liabilities under section 245D(4), are compensatory in nature. These provisions cannot be a substitute for the recovery provisions which come into play when the assessee is in default. In such a situation as provided by sub-section (2D) of section 245D and section 245j, recovery proceedings under Chapter XVII are applicable and the Assessing Officer, not the Settlement Commission, is in command.

50. One of the points raised by Shri Vinaykant C. Shah, in support of his views, is based on time (35 days) allowed by sub-sections (2A) and (6A) of, section 245D to pay additional tax and tax liabilities determined under section 245D(4) respectively. According to him, to hold that recovery of regular demand is enforceable is tantamount to denying the benefit of this statutory time-limit. He concludes from this and other points raised by him, that Chapter XIXA is a complete code for recovery of demand in a case admitted by the Commission. His views are not acceptable for reasons recorded here and elsewhere in this order : since an assessment order passed and demand raised after the date of filing the application under section 245C, does not subsist after the admission order, there is no infringement on the statutory time-limit of 35 days for payment of additional tax and finally determined tax liabilities, in a case falling in this category. In a case where assessment order is passed before the filing of application under section 245C, the assessment order and the demand raised merge in the order passed and the tax liabilities raised under section 245D(4). As per the tenets of merger theory the modified demand if short of the amount demanded under section 156, is payable without allowing any further time - unless extended by the Commission as per order under section 245D(4) - as it relates back to demand notice under section 156. If the amount of modified demand is higher than that demanded under section 156, the assessee may pay after 35 days or such time as allowed by the Commission without inviting recovery proceedings. Further, time allowed for payment under sub-sections (2C) and (6A) of section 245D saves the assessee from payment of interest under sub-section (2C) and section 245D(6A) for this period which is chargeable even if the Commission allows under sections 245D(2B) and 245D(4) extended time schedule for payment of additional tax and finally settled tax liabilities.

51. The provisions of sub-section (3) of section 245F are relevant for a case in which either assessment order has not been passed or has been passed after the filing of application under section 245C. It has no relevance for a case in which assessment order has been passed and regular demand raised before the filing of application under section 245C. In the latter case self-assessment merges into regular assessment and self-assessment tax into regular demand. The assessee gets credit for tax paid under self-assessment and the unpaid amount, if any, is recovered as part of the unpaid regular demand. The words, "nothing contained in the section shall affect the operation of any other provisions of the Act" appearing in this sub-section are not relatable to proceedings under Chapter XVII for recovery of unpaid regular demand. These are exclusively relatable to the provisions concerning payment and recovery of self-assessment tax in a case admitted by the Commission. On the contrary, the recovery proceedings under Chapter XVII are placed beyond the jurisdiction of the Settlement Commission as indicated in a subsequent para of this order.

52. Section 245DD cannot be read independent of section 281B. Its provisions are relevant for a case in which assessment order has been passed after the filing of the application under section 245C. In other words, the case which has been admitted at the assessment stage. Its provisions are irrelevant for a case in which assessment order has been passed before the filing of application under section 245C. In other words, the case which has been admitted at appeal/revision stage. In a case falling in latter category need for provisional attachment of assets by the Commission shall not arise as the assessee makes full and true disclosure of his income not known to the Assessing Officer, and the Assessing Officer on regular assessments, adds to the returned income what is known to him about the assessees' undisclosed income. The interests of the Revenue in respect of regular demand can be effectively protected under Chapter XVII which, inter alia, provides for attachment of assets by the Assessing Officer. The interests of the Revenue in respect of additional tax can be protected by invoking the provisions of sub-section (2B) (adequate security) and, if need be, of sub-section (2D) of section 245D. Needless to say that the provisions of section 245DD do not support the proposition that Chapter XIXA is a complete recovery code to the exclusion of Chapter XVII.

53. A careful perusal of sub-section (4) of section 245F reproduced below, should set at rest all doubts about the continuation of recovery proceedings after the date of admission order. These include not only charging of interest under section 220(2) from the assessee in default but also levy of penalty, attachment of assets, etc., as provided in chapter XVII.

"245F(4) For the removal of doubt, it is hereby declared that, in the absence of any express direction by the Settlement Commission to the contrary, nothing in this Chapter shall affect the operation of the provisions of this Act in so far as they relate to any matters other than those before the Settlement Commission."

54. The proceedings for recovery of regular demand raised by the assessment order passed before the filing of application under section 245C, cannot be a matter of settlement before the Commission. This is evident from the definition of "case" given in section 245A(b). The proceedings for recovery of unpaid valid demand are not assessment or reassessment proceedings for determination of tax liabilities under section 245D(4). Therefore, these cannot be automatically terminated on passing of admission order under section 245D(1). However, the Settlement Commission through express directions issued under this sub-section, may stay the operation of recovery proceedings till such time and in such manner as it deems fit.

55. I would also like to refer to section 240 and sub-section (3) of section 244A. These are reproduced below :

"240. Where, as a result of any order passed in appeal or other proceeding under this Act, refund of any amount becomes due to the assessee, the Assessing Officer shall, except as otherwise provided in this Act, refund the amount to the assessee without his having to make any claim in that behalf.

244A. (3) Where, as a result of an order under section 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245B, the amount on which interest was payable under sub-section (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and in a case where the interest is reduced the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the amount of the excess interest paid and requiring him to pay such amount and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly".

56. Just as sub-section (4) of sections 234A and 234B mandate the survival of assessment orders passed before filing of application under section 245C, sub-section (3) of section 244A and section 240 mandate the survival of recovery of regular demand after the admission order. What is sauce for the goose should be sauce for the gander.

57. The order passed under section 245D(1) is neither an assessment order nor a demand notice. It is a formal order allowing the application filed under section 245C to be proceeded with or rejecting it. Its effect is limited to transferring the jurisdiction over a case from the income-tax authority to the Commission. The additional tax payable after the application is allowed to be proceeded with, is not a regular tax demand. It is akin to tax payable on self-assessment. Therefore, it is wrong to say that if recovery of regular demand is enforced, there would be more than one operative order covering the same subject after the passing of admission order or in other words there would be two parallel assessments and two parallel demands existing at the same time, thus, exposing the assessee to jeopardy of double recovery. There is only one valid operative assessment order (passed before the filing of application under section 245C) and only one recoverable regular, demand raised by a competent income-tax authority, till the assessment order merges in the order under section 245D(4) and the regular demand is modified. This process is similar to the merger of the orders of the Assessing Officer with the order of any other higher income-tax authority.

58. It has also been urged that since the income disclosed before the Settlement Commission often includes a part of the additions made by the Assessing Officer, the assessee is subjected to double payment of tax and interest under section 220(2) if he is forced to pay the regular demand and the additional tax. Under section 245C, as expounded in various judicial decisions spearheaded by the Supreme Court's decision in the case of CIT v. Express, Newspapers Ltd. [1994] 206 ITR 443, the assessee is expected to offer an additional income that has not been disclosed in the return of income and is not known to the Assessing Officer. On such income he is to pay additional tax to be calculated in accordance with the provisions of sub-sections (1B) to (1D) of section 245C. As per this procedure, tax payable on assessed income is to be ignored. Only tax payable on returned income, i.e., self-assessment tax, is to be taken into account. An exception has been made in a case of reassessment where no return has been filed in response to notice under section 148 [245C(1B), (iii)]. This point has been clarified with the help of an illustration in para. 41.3 of the Explanatory Notes on amendments introduced by the Finance Act, 1987 ([1987] 168 ITR (St.) 116). Thus, the income disclosed in the application filed under section 245C(1) and the tax payable thereon, is independent of the assessed or, reassessed income and the regular demand raised by the Assessing Officer. The additional tax cannot be said to substitute the regular demand. Therefore, there is no double jeopardy if regular demand is recovered along with additional tax.

59. It is wrong to allege that income disclosed in the application filed under section 245C is a full and true disclosure of the "total taxable income" of the assessee and, therefore, he is exposed to double jeopardy when asked to pay regular demand raised before the filing of application along with additional tax. Legally speaking any income which is already known to the Assessing Officer and has been added to his taxable income cannot be said to be forming part of the "additional income" disclosed in the application. There may be a case admitted by the Commission where an assessee may have included in the "additional income" such income that has been added to his returned income by the Assessing Officer at the time of regular assessment. But such income cannot be treated as "income not disclosed before the Assessing Officer". If such declaration passes muster and the application is allowed to be proceeded with, the assessee may be subjected to double payment of tax on a part of the disclosed "additional income". But it does not justify a drastic decision holding that valid regular demand is not enforceable. This hardship of the assessee which is of his own making can be mitigated by following a softer and lawful course. The assessee who is in full knowledge of the facts of his case, can approach the Commission after the admission order to extend the time for payment of part of the regular demand relatable to such additions.

60. Another area of alleged double jeopardy to the assessee is of double liability of interest under section 220(2) and under section 245D(2C), for the same period. This assumption is also not well founded and wholly correct. On the passing of order under section 245D(4), the tax demand raised by the Assessing Officer shall stand modified. As per the proviso to section 220(2) interest shall be charged on the reduced unpaid demand, if any, up to the date of order under section 245D(4). For this purpose, the assessee shall be allowed credit for every payment of tax made, including additional tax, up to the date of order under section 245D(4) and the amount of interest charged or chargeable under section 220(2) shall be automatically reduced. A situation of charging double interest under sections 220(2) and 245D(2C) can arise if the assessee delays the payment of additional tax beyond 35 days. Though this situation is of the assessee's own making, yet relief can be provided by way of waiver of interest chargeable under section 220(2) by the Commission in keeping with the reply to question No. 3.

61. In case an assessee as a result of enforcing the recovery of regular demand, is made to pay tax in excess of the demand finally determined as per order under section 245D(4) the remedy is provided in section 240 (refunds on appeal, etc.) and section 244A (interest on refunds). The words "or other proceeding under this Act" appearing in section 240 clearly cover the proceeding under section 245D(4). Sub-section (3) of section 244A leaves no doubt that any excess payment of tax after the passing of order under section 245D(4) shall be, refunded and interest shall be paid on delayed refund.

62. On the contrary accepting the proposition that Chapter XIXA provides a separate code of recovery and regular demand raised by an order passed before the filing of application under section 245C cannot be enforced and interest under section 220(2) cannot be charged after the admission order, shall be leading to a situation wherein the recovery of admitted and undisputed, demand shall be stalled till the passing of order under section 245D(4), without any penal action visiting an assessee in default which shall be jeopardizing the interests of the Revenue. Debarring the Assessing Officer from enforcing recovery of even undisputed demand shall unjustifiably harm the interests of the Revenue in certain cases. Some instances are given below .

63. On regular assessment under section 143(3)/144, self-assessment tax merges into regular demand communicated to the assessee through notice of demand issued under section 156. Any amount paid under self-assessment shall be deemed to have been paid towards regular assessment [section 140A(2)]. The unpaid amount, stands reflected in the regular demand. It can be recovered through different measures provided in Chapter XVII which include charging of interest under section 220(2). Although in part (iii),of the reply to question No. 1 an exception has been made in the matter of self-assessment tax, but it covers only half of the way. When self-assessment tax payable under section 140A(1), merges into regular demand sub-section-(3) of section 140A ceases to be applicable giving way to section 220. Placing a blanket on recovery proceedings and charging of interest after the admission order shall unduly benefit an assessee who fails to pay self-assessment tax in full before the admission order.

64. In a case admitted at the reassessment stage the position shall be worse. The original assessment order passed before the filing of application under section 245C may have become final or the assessee may be in appeal/revision. Sub-section (1B), clause (iii), and sub-section (1C), clause (c), of section 245C provides that in a case of reassessment where no return is filed in response to notice under section 148, income-tax payable as per the regular assessment order, not the tax payable on returned income, is to be taken into account for the purpose of calculating additional tax. It means regular demand is left out to be paid or recovered as per Chapter XVII. But recovery of the demand shall also be withheld if the proposition that regular demand is not enforceable after admission order, is accepted. This shall happen even though the original assessment order may not be a subject of the matters to be settled as per the application filed under section 245C.

65. Similar situation is likely to arise in a case where application under section 245C is allowed to be proceeded with in respect of several assessment years. The assessee may not have disclosed any additional income and additional tax payable in one or more assessment years. These may have been admitted along with cases of other assessment years for reason of making the settlement effective and as the aggregate additional tax payable in all the assessment years included in the application filed under section 245C, exceeds the prescribed limit. In such like cases recovery of regular demand shall also be stalled and interest chargeable under section 220(2) shall stand automatically, Waived even though no additional tax is payable.

66. Charging of interest under section 220(2) from an assessee in default is mandatory. It can be waived or reduced under certain conditions laid down by sub-section (2A) of section 220. To be satisfied that waiver or reduction of interest is called for requires of mind. The exercise of power under section 220(2A) is discretionary as in the case of the power under section 273A(1) to reduce or waive penalty under section 271(1)(iii). In this context, the observation of the Supreme Court in Mahindra and Mahindra Ltd. v. Union of India [1979] 49 Comp Cas 419, quoted in para. 34 (page 66) of the majority decision may be referred to. To hold that a validly raised demand is not enforceable and as a corollary to this decision, grant blanket waiver; of interest chargeable under section 220(2) from the date of admission order onwards, Will not be in accordance with law. A disturbing effect of this decision shall be that even non-payment of admitted/accepted tax liability shall not be visited by any reprisal by way of recovery proceedings or penal interest.

67. To hold that regular demand is not enforceable and interest under section 220(2) is not chargeable after admission order, is to discriminate against an assessee who moves the Commission at the assessment stage and favours one who moves the Commission at the appeal/revision or reassessment stage when driven to the wall. The decision also discriminates against an assessee who genuinely makes a full and true disclosure of his income under section 245C. This discrimination, cannot be justified on the ground that section 245H discriminates between one assessee and another. There is no comparison between forgoing interest chargeable under section 220(2) on passing of admission order without recording satisfaction under section 220(2A), and granting immunity from penalty and prosecution after satisfying that the assessee has made full and true disclosure of hitherto undisclosed income and has extended full co-operation in the matter of settlement of tax liabilities. It shall open the doors of the Commission to an unscrupulous assessee who Is faced with a recovery of regular demand that may include unpaid self-assessment tax. He may choose to offer and pay minimum additional tax under, section 245C and on admission of the application secure shelter against recovery proceedings and automatic waiver of interest chargeable under section 220(2), till the date of order under section 245D(4).

68. What has been declined directly cannot be permitted indirectly. To hold that the assessment order passed before the filing of application is a valid order and the demand raised as a result of this order is also valid and neither of the two can be held to be set aside or be extinct on the passing of admission order means, prima facie, outright rejection of the proposition that demand is not enforceable and interest is not chargeable under section 220(2). To hold that the demand is not enforceable and, as a corollary to this, interest is not chargeable from the date of admission order to the date of order under section 245D(4) is allowing by the back door that which is not allowable otherwise.

69. For the reasons recorded in the case of Om Metals and Minerals P. Ltd. [1992] 193 ITR 57 (ITSC) (SB), and in the preceding paras., it is held that valid demand raised by an order passed before the filing of application under section 245C subsists and can be recovered and interest under section 220(2) is chargeable after the admission order, up to the date of order under section 245D(4). Accordingly, part (iii) of the reply to question No. 1 and part (ii) of the reply to question No. 2, should be as follows :

(A) Part (iii) of reply to question No. 1

(iii)(a) "In keeping with part (i) of our reply the Special Bench was right in holding that the recovery proceedings based on the order of assessment passed before the date of filing application under section 245C can be continued even after the admission of the said application".

(iii)(b) "In view of part (ii) of our reply in a case where assessment order is passed after the date of filing application under section 245C the question of continuing recovery proceedings does not arise and, therefore, need not be answered".

(B) Part (ii) of reply to question No. 2 :

(ii)(a) "In keeping with part (i) of our reply to question No. 1 and part (i) of our reply of question No. 2 in a case where assessment order is passed before the date of filing application under section 245C, the liability of interest under section 220(2), if any, shall be up to the date of order under section 245D(4)."

(ii)(b) "In view of part (ii)(a) of our reply to question No. 2 in a case where assessment order is passed after the date of filing application under section 245C the question of liability of interest under section 220(2) does not arise and, therefore, need not be answered."

70. In view of section 245BD, of the Income-tax Act, 1961, the order of the Special Bench shall be the order of the majority of Members of the Bench.

71. The case will now go back to Mumbai Bench for final disposal of the case of Damani Brothers in accordance with this decision.