S.245C Income Tax Act Does Not Require Prior Cut-Off Date, Pending S.153A/153C Notice Sufficient For Settlement Application: Kerala HC

Justices A.K. Jayasankaran Nambiar and P.M. Manoj opined that “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.”

Section 245C Income Tax Act, 1961 allows a taxpayer to apply for settlement of their income tax case by making a full and true disclosure of previously undisclosed income before the Settlement Commission.

The writ petition was filed by assessee under the Income Tax Act, 1961, aggrieved by the order of the Interim Board for Settlement that rejected the applications preferred by them for settlement of their cases in accordance with the provisions of Chapter XIX-A of the I.T. Act.

Here, notices invoking the provisions of Section 153A/Section 153C were served on assessee/respondent only after 31.03.2021. In the light of the statutory provisions noticed above, and the CBDT order issued in terms of Section 119(2)(b) of the I.T. Act, the Interim Board for Settlement found their applications for settlement to be not maintainable because they didn't satisfy the criteria of having a 'pending case' within the meaning of the term under the Statute, on or before 31.01.2021.

The Single Judge held that the cut-off date of 31.03.2021 was to be reckoned with reference to the search proceedings initiated against the assessee and the mere fact that the notices under Sections 153A/153C of the I.T. Act were issued subsequently was of no consequence to the issue of maintainability of the applications for settlement before the Board.

The issue before the bench was whether the assessee who received notices under Sections 153A/153C after 31.03.2021, but before 30.09.2021, can maintain applications for settlement of cases before the Interim Board for Settlement.

The revenue submitted that when the express provisions of the I.T. Act defined a pending case with reference to the period between the initiation of proceedings and the culmination of those proceedings, and the initiation of proceedings was pegged to the date of issuance of a notice under Sections 153A/153C as the case may be, there was no warrant for holding that a search proceedings under Section 132 of the I.T. Act could also be seen as an initiation of proceedings for the purposes of Chapter XIX-A of the I.T. Act.

The bench referred to the case of Sar Senapati Santaji Ghorpade Sugar Factory Ltd. v. Asst. Commissioner of Income Tax – [(2024) 161 Taxmann.com 166 (Bombay)] where it was held that “…….Section 245C of the Act as amended by the Finance Act, 2021, provides that an application shall not be made after 1st February 2021, i.e., cut off date for making an application. However, there is no provision in the Act with respect to the cut off date for an assessee to be eligible to make an application. Further, there is no amendment to the definition of "case" in Section 245A(b) read with the Explanation, which would affect the eligibility of petitioner to file an application before the Settlement Commission between the period 1st February 2021 and 31st March 2021. Hence, the impugned notification, to that extent, is invalid and bad in law.”

The bench agreed with the above judgment delivered by the Bombay High Court.

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 assessee, stated the bench.

In view of the above, the bench set aside the judgment of 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/assessee for the purposes of Chapter XIX-A of the I.T. Act.

Case Title: Union of India v. Aayana Charitable Trust

Case Number: W.A.NO.2042 OF 2024

Counsel for Appellant/ Department: Jose Joseph, Susie B Varghese and Navaneeth N. Nath

Counsel for Respondent/ Assessee: R. Sivaraman, Vandana Vyas and Krishna Prasad

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