Court’s Decision
The Division Bench of the Kerala High Court upheld the right of several assessees to have their settlement applications considered by the Interim Board, setting aside the Revenue’s objections based on a restrictive reading of the Income Tax Act and a CBDT circular. The Court declared that the condition imposed by the CBDT requiring eligibility as on 31.03.2021 was ultra vires, stating:
“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 Court thus directed the Interim Board to consider the applications filed before 30.09.2021, regardless of whether notices under Sections 153A/153C were issued before or after 31.03.2021.
Facts
The assessees in these cases were subjected to search proceedings under Section 132 of the Income Tax Act before 31.03.2021. However, the notices under Sections 153A/153C—necessary for initiating assessment proceedings—were issued only after 31.03.2021, though before 30.09.2021. When the assessees approached the Interim Board for Settlement before 30.09.2021, the Board rejected their applications as not maintainable, citing absence of a “pending case” as of 31.03.2021, as interpreted by the CBDT in a circular dated 28.09.2021. This rejection led to writ petitions, which were initially allowed by a Single Judge, prompting the Revenue to file writ appeals.
Issues
- Whether assessees who received notices under Sections 153A/153C after 31.03.2021 could file valid applications for settlement under Chapter XIX-A.
- Whether the CBDT’s circular dated 28.09.2021 validly restricted eligibility for settlement only to those who had a pending case on 31.03.2021.
- Whether initiation of search proceedings under Section 132 itself constituted a “case” for the purpose of filing a settlement application.
Petitioners’ Arguments
The assessees argued that:
- The right to approach the Settlement Commission is a vested statutory right, which cannot be extinguished arbitrarily.
- The Finance Act, 2021, which abolished the Settlement Commission and established the Interim Board, came into force only on 01.04.2021.
- Hence, any assessee who had a pending assessment proceeding initiated by a search before 31.03.2021, and who filed their settlement application before 30.09.2021, should be allowed to avail the benefit of settlement.
- They relied on the decision of the Madras High Court in Jain Metal Rolling Mills, which held that the cut-off date must be 31.03.2021, not 31.01.2021.
- They also challenged the CBDT’s circular imposing additional eligibility criteria not found in the Act.
Respondents’ Arguments
The Revenue contended that:
- A “pending case” under Section 245A(b) refers to proceedings that commence only upon issuance of notice under Sections 153A/153C.
- If such notices were issued after 31.03.2021, the applications could not be considered valid—even if filed before 30.09.2021.
- The CBDT’s circular validly clarified that only those who were eligible as of 31.03.2021 could apply.
- The Settlement Commission ceased to operate on 01.02.2021, and the Interim Board was empowered only to dispose of pending cases—not to entertain new ones.
Analysis of the Law
The Court meticulously examined the statutory framework:
- Section 245A(b) defines a “case” as a proceeding pending before an Assessing Officer.
- Explanation (iiia) to Section 245A clarifies that a proceeding under Sections 153A/153C is deemed to commence only upon issuance of notice.
- Section 245C(5) bars applications after 01.02.2021, but the CBDT extended the deadline to 30.09.2021 using its powers under Section 119(2)(b).
- However, the Court emphasized that while the CBDT could extend timelines, it could not introduce new eligibility conditions that were not found in the statute.
Precedent Analysis
The Court heavily relied on:
- Jain Metal Rolling Mills v. Union of India – Madras High Court held that the Finance Act, 2021, takes effect from 01.04.2021. Hence, applications filed up to 31.03.2021 are maintainable. This view was affirmed by the Supreme Court.
- Sar Senapati Santaji Ghorpade Sugar Factory Ltd. v. ACIT (2024) – Bombay High Court declared that the CBDT’s imposition of 31.01.2021 as the cut-off for eligibility was ultra vires. A circular cannot override the statute.
- UCO Bank v. CIT (1999) – The Supreme Court held that circulars under Section 119 are binding only if they do not impose a greater burden than what the statute contemplates.
Court’s Reasoning
The Division Bench overruled the Single Judge’s finding that initiation of search under Section 132 could itself constitute a “pending case.” However, it held that:
- The CBDT’s circular could not impose an arbitrary cut-off date (31.03.2021) for eligibility.
- Since the statute did not prescribe a cut-off date for eligibility (only for filing), any assessee with a live proceeding as on the date of filing (before 30.09.2021) must be allowed to apply.
- Thus, even assessees who received notices under Sections 153A/153C after 31.03.2021, but before 30.09.2021, were eligible to file settlement applications.
Conclusion
- The Court allowed the appeals in part—setting aside the finding that Section 132 search alone created a “case.”
- It held the CBDT circular ultra vires to the extent it imposed 31.03.2021 as a cut-off for eligibility.
- Directed that all settlement applications filed before 30.09.2021 must be considered on merits, regardless of when the notices were issued, so long as proceedings were pending.
Implications
This judgment is a significant affirmation of the taxpayer’s right to a fair statutory remedy. It limits the overreach of administrative circulars and protects vested rights even amidst legislative transitions. The ruling ensures that genuine assessees are not denied access to the Interim Settlement mechanism due to arbitrary procedural barriers imposed by circulars.
FAQs
Q1. Can an assessee file a settlement application after receiving notice under Section 153A/153C post 31.03.2021?
Yes, if the notice was issued before 30.09.2021 and the application was filed before that date, it is maintainable.
Q2. Was the CBDT allowed to restrict eligibility for settlement to only those with pending cases as of 31.03.2021?
No. The Court held this restriction to be ultra vires and beyond the scope of CBDT’s power under Section 119(2)(b).Q3. Does a search under Section 132 alone create a “pending case” for settlement?
No. A “case” is considered pending only after notice under Sections 153A/153C is issued.