Re: Disputed Tax where department in Appeal

The Assessment order issued by the ITO under section 143 w.r.to section 147 with a demand of Rs. 8 lakhs .disallowing as 100% on bogus purchases. The assessee filed appeal with CIT (A). and got relief and hence got relief on disallowance up to 33% and tax demand determined to say, Rs. 8 lakhs. The application for giving effect of the Appellate Order filed, but the not given by the ITO. The department went on appeal at ITAT , as on date, pending.
Further the ITO issued the Penalty order under 271 (1) (‘c) , 100% tax amount , by considering the tax demand as per Appellate Order.

Issues :
1. Will appellate order merge with original order, irrespective of the departmemtal appeal ?
2. What will be the disputed tax amount ? Rs. 8 lakhs or Rs. 3 lakhs
3. Once disputed tax settled under the scheme, the Penalty order get no room to stand , is it correct?

In this case an appeal is pending before the specified date i.e.31.01.2020 before an appellate forum and their exists ‘disputed income’, ‘disputed tax’ and ‘tax arrear’. In the circumstances it is possible to file a valid declaration under s. 4 r.w.s 2(1)(a)of the Act and the amount payable by him will be determinded as per s. 3 of the Act.

As per the First Proviso to s.3, the amount payable by the assesse shall be one-half of the amount payable as per the Table given in s. 3 which amount is Rs. 8 lakh and the assesse is required to pay 50% of Rs. 8 lakh, being Rs. 4 lakh  under the scheme for a valid settlement of the dispute. 

For settlement of the tax arrear comprising of the tax, interest and penalty, the  assesse is required to pay only the ‘disputed tax’ as per Table r.w. the First Proviso and not any interest, penalty or part thereof. The penalty order would not survive   and the demand for penalty would stand vacated.

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