2025 (6) TMI 1557 - HC - Income Tax

Rejection of Applications for settlement filed before the Interim Board for Settlement - grievance of the assessees was essentially on account of the amendments that were brought about to the I.T. Act through the Finance Act 2021 - cut-off date prescribed in the CBDT order for satisfying the eligibility conditions for preferring applications for settlement under the I.T. Act. Whether the assessees who received their notices under Sections 153A/153C after 31.03.2021 but before 30.09.2021 can maintain their applications for settlement of cases before the Interim Board for Settlement ? - HELD THAT - It was wholly unnecessary for the learned Single Judge to have undertaken the interpretative exercise that he did to hold that so long as the search proceedings u/s 132 of the I.T. Act were initiated against the assessees prior to 31.03.2021 their applications for settlement if filed before the Interim Board for Settlement on or before 30.09.2021 would be maintainable. In the light of the clear and unambiguous provisions of the Statute that defined what a pending case was in the case of assessees who were served with notices under Sections 153A/153C and in the absence of any challenge to the validity of those provisions there was no need to read in an artificial definition that would take in even search proceedings u/s 132 within the ambit of the term case in such situations. Legality of the conditions imposed by the CBDT while extending the last date for filing applications for settlement to 30.09.2021. It is significant in this context that in Sar Senapati Santaji Ghorpade Sugar Factory Ltd. 2024 (4) TMI 204 - BOMBAY HIGH COURT held as follows in a writ petition that was filed challenging the provisions of the said CBDT order to the extent it laid down an additional condition that the assessee should satisfy the eligibility requirements as on 31.01.2021 as ultra vires its power u/s 119(2)(b). We find ourselves in complete agreement with the said view taken by the Bombay High Court. When Section 245C does not prescribe any prior cut-off date for an assessee to satisfy the requirements for filing an application before the Interim Board for Settlement and the only statutory requirement is that the assessee should have a pending case at the time of filing the application for settlement then so long as the assessee had a live and un-adjudicated notice under Sections 153A/153C as on the date of filing the application the application had to be considered on merits by the Board. The CBDT order issued under Section 119(2)(b) purportedly to relax the rigours of a statutory provision could not have merely extended the time limit for filing an application while simultaneously denying the benefit of such extension to a class of assessees. The said clause in the CBDT order has to be seen as invalid and bad in law as declared by the Bombay High Court in the decision referred above. Order - We set aside the impugned judgment of the learned Single Judge to the extent it holds that search proceedings under Section 132 would also fall within the ambit of case in relation to the respondent assessees for the purposes of Chapter XIX-A of the I.T. Act. The writ appeals preferred by the Revenue are allowed to that limited extent. We find that the provisions of the CBDT order dated 28.09.2021 to the extent it lays down an additional condition that the assessees should satisfy the eligibility requirements as on 31.01.2021 (to be read as 31.03.2021 ) is ultra vires the power conferred on the CBDT under Section 119(2)(b) of the I.T. Act. We accordingly direct that the applications for settlement filed by respondent assessees before the Interim Board for Settlement on or before 30.09.2021 taking note of notices under Sections 153A/153C of the I.T. Act issued to them between 31.03.2021 and 30.09.2021 be considered on merits by the Board.

Summary

The core legal questions considered in this judgment are:

1. Whether the applications for settlement filed by assessees before the Interim Board for Settlement are maintainable if the relevant assessment proceedings were initiated after 31.01.2021 (later extended to 31.03.2021), despite the applications being filed before the extended deadline of 30.09.2021.

2. Whether the term "case" under Chapter XIX-A of the Income Tax Act includes search proceedings initiated under Section 132, or is limited to proceedings initiated by notices under Sections 153A/153C.

3. Whether the condition imposed by the CBDT order dated 28.09.2021, requiring eligibility for settlement as on 31.01.2021 (read as 31.03.2021), is valid and within the powers conferred under Section 119(2)(b) of the Income Tax Act.

4. The effect of the Finance Act, 2021 amendments on the filing and maintainability of settlement applications, particularly the abolition of the Income-tax Settlement Commission and the constitution of the Interim Board for Settlement.

Issue-wise Detailed Analysis

Issue 1: Maintainability of Settlement Applications Filed After 31.01.2021/31.03.2021 but Before 30.09.2021

Legal Framework and Precedents: Section 245C(5) of the Income Tax Act, as amended by the Finance Act, 2021, provides that no application for settlement shall be made on or after 1st February 2021. Section 245AA provides for the constitution of the Interim Board for Settlement to dispose of pending applications. The CBDT order dated 28.09.2021 extended the last date for filing applications to 30.09.2021 but imposed the condition that the assessee must have a pending case as on 31.01.2021 (later held to be 31.03.2021 by the Madras High Court in Jain Metal Rolling Mills, a decision upheld by the Supreme Court).

Court's Interpretation and Reasoning: The learned Single Judge had held that the cutoff date for eligibility to file settlement applications was 31.03.2021, based on the Madras High Court ruling, and that search proceedings initiated before that date entitled assessees to file applications even if notices under Sections 153A/153C were issued later. The Court below directed the Interim Board to consider such applications.

Key Evidence and Findings: The assessees had search proceedings under Section 132 initiated prior to 31.03.2021 but notices under Sections 153A/153C were issued after 31.03.2021. Applications were filed before 30.09.2021.

Application of Law to Facts: The Court under appeal found that the statutory provisions require the existence of a "pending case" at the time of filing the application, defined as proceedings pending before the Assessing Officer initiated by notices under Sections 153A/153C. The cutoff date for eligibility is tied to the date of issuance of such notices, not the date of search proceedings.

Treatment of Competing Arguments: The Revenue argued that only notices under Sections 153A/153C initiate proceedings constituting a "case" for settlement purposes, and that the cutoff date must be linked to receipt of such notices. The assessees and the Single Judge relied on the search date as the relevant date. The Court disagreed with the Single Judge's broad interpretation, holding that the statutory definition excludes search proceedings and focuses on assessment/reassessment proceedings initiated by notice.

Conclusions: The Court allowed the Revenue's appeal to the extent of rejecting the interpretation that search proceedings alone constitute a "case" for settlement. However, it upheld the right of assessees to file applications if they had a pending case initiated by notices under Sections 153A/153C on or before the date of filing their applications.

Issue 2: Whether Search Proceedings Under Section 132 Constitute a "Case" for Settlement

Legal Framework: Section 245A(b) defines "case" as proceedings for assessment pending before an Assessing Officer on the date of application. Explanation (iiia) clarifies that proceedings under Sections 153A/153C commence on issuance of notice and conclude on assessment. No similar provision includes search proceedings under Section 132 as a "case."

Court's Reasoning: The Court emphasized the statutory clarity that only proceedings initiated by notices under Sections 153A/153C constitute a "case" for settlement. Search proceedings are preliminary and do not themselves constitute a "case" under Chapter XIX-A.

Application of Law to Facts: Since the assessees had only search proceedings initiated before 31.03.2021 but notices under Sections 153A/153C issued after that date, they did not have a "pending case" as defined on the cutoff date.

Competing Arguments: The assessees argued for a broader interpretation to include search proceedings, citing hardship and the legislative intent to allow settlement. The Court found no statutory support for this extension.

Conclusion: Search proceedings alone do not constitute a "case" for settlement under the Act.

Issue 3: Validity of the CBDT Order Dated 28.09.2021 Imposing Cutoff Date for Eligibility

Legal Framework: Section 119(2)(b) empowers the CBDT to issue orders for proper administration of the Income Tax Act, including extending timelines. The CBDT order extended the deadline for filing settlement applications to 30.09.2021 but imposed a condition that assessees must have been eligible as on 31.01.2021 (later read as 31.03.2021).

Court's Reasoning and Precedents: The Court referred to a Division Bench decision of the Bombay High Court in Sar Senapati Santaji Ghorpade Sugar Factory Ltd., which held that while the CBDT had power to extend the filing deadline, it could not impose additional eligibility conditions not prescribed by the statute. The Act only prescribes a cutoff date for filing applications, not for eligibility to file.

Application of Law to Facts: The CBDT's condition effectively denied the benefit of extended filing to assessees who became eligible after 31.03.2021. The Court found this to be ultra vires the CBDT's powers under Section 119(2)(b).

Competing Arguments: The Revenue contended that the condition was necessary to prevent misuse and maintain the legislative intent. The assessees argued for relief based on the extended filing period and absence of statutory cutoff for eligibility.

Conclusion: The Court held the condition in the CBDT order imposing a cutoff date for eligibility as invalid and bad in law, sustaining the Bombay High Court's view.

Issue 4: Effect of Finance Act, 2021 Amendments on Settlement Applications

Legal Framework: The Finance Act, 2021 abolished the Income-tax Settlement Commission effective 01.02.2021 and inserted Section 245AA to constitute the Interim Board for Settlement to dispose of pending applications. Section 245C(5) prohibits filing applications on or after 01.02.2021.

Court's Reasoning: The Court noted that the amendments ended the option to file new settlement applications after 01.02.2021 but allowed pending applications to be disposed of by the Interim Board. The Madras High Court's ruling clarified that the amendments took effect from 01.04.2021, allowing applications to be filed up to 31.03.2021. The CBDT's order further extended this to 30.09.2021.

Application of Law to Facts: The assessees' applications were filed within the extended deadline. The Court emphasized that the amendments did not change the definition of "case" or eligibility criteria, only the mechanism for settlement.

Conclusion: The Interim Board must consider applications filed within the extended period where a "pending case" exists as per statutory definitions.

Significant Holdings

"The statutory provisions as they stood during the relevant time ... unambiguously clear that in terms of Section 245C, an assessee could, at any stage of a case relating to him, approach the Settlement Commission for a settlement of his case. The eligibility condition for approaching the Settlement Commission was the existence of a case relating to him, at the time of preferring the application for settlement before the Commission."

"Explanation (iiia) to the definition of 'case' under Section 245A(b) indicated both the termini - the stages of commencement and conclusion - in relation to proceedings under Sections 153A/153C, by clarifying that a proceeding for assessment or re-assessment for any assessment years referred to in Section 153A or Section 153C would be deemed to have commenced only on the date of issuance of the notice initiating such proceedings and concluded on the date on which the assessment was made."

"Search proceedings under Section 132 would not fall within the ambit of 'case' in relation to the respondent assessees for the purposes of Chapter XIX-A of the I.T. Act."

"The provisions of the CBDT order dated 28.09.2021, to the extent it lays down an additional condition that the assessees should satisfy the eligibility requirements as on 31.01.2021 (to be read as '31.03.2021'), is ultra vires the power conferred on the CBDT under Section 119(2)(b) of the I.T. Act."

"So long as the assessee had a 'live and un-adjudicated' notice under Sections 153A/153C as on the date of filing the application, the application had to be considered on merits by the Board."

Final Determinations

1. The writ appeals are allowed in part to the extent that search proceedings under Section 132 do not constitute a "case" under Chapter XIX-A for settlement purposes.

2. The CBDT order's additional eligibility cutoff date condition is declared invalid and ultra vires.

3. Applications for settlement filed before 30.09.2021 by assessees who had pending proceedings initiated by notices under Sections 153A/153C, even if issued after 31.03.2021, must be considered on merits by the Interim Board for Settlement.

4. The directions in the impugned judgment requiring the Interim Board to consider such applications are sustained, and the Revenue's writ appeals are dismissed to that extent.