2024 (8) TMI 366 - HC - Income Tax

CBDT notification imposing additional eligibility conditions for settlement under Section 245C declared invalid and beyond statutory mandate

M/s. Vishwakarma Developers Versus The Central Board of Direct Taxes, The Interim Board For Settlement-I, New Delhi, The Principal Commissioner of Income-Tax (Central), Pune, The Asst. Commissioner Of Income-Tax, Central Circle 2 (2), Pune, The Union of India.

The Bombay HC quashed an order by the Interim Board of Settlement rejecting petitioner's settlement application. The IBS had rejected the application ... Validity of order passed by the Interim Board of Settlement - Settlement Commission as abolished by the Finance Act, 2021 - eligibility conditions in regard to extending the cut-off date to make an application u/s 245C - IBS passed final/impugned orders on the Petitioner’s application which held that the Petitioner was not eligible for applying for settlement. HELD THAT:- As noted in Sar Senapati Santaji Ghorpade Sugar Factory Ltd. [2024 (4) TMI 204 - BOMBAY HIGH COURT] Notification dated 21st September, 2021 issued by the CBDT u/s119 (2) (b) of the Act, although was issued within the powers as conferred on the CBDT, however, to the extent it laid down additional conditions in Para 4 that the assessee should be eligible to file an application for settlement on 21st January, 2021, was held to be beyond the scope of powers of the CBDT under Section 119 of the Act. The Court observed that there was no provision in the Act empowering the CBDT to impose such eligibility conditions in regard to extending the cut-off date to make an application under Section 245C of the Act. Hence, such condition in the impugned notification which offered the statutory mandate was held to be invalid and bad in law. It was held that the assessee in such case, therefore, had become eligible to make an application The impugned order passed by the Interim Board of Settlement rejecting the Petitioner’s application on the ground that the conditions as incorporated in Para 4 of the CBDT’s Order dated 28th September, 2021 issued under Section 119 (2) (b) of the Act would become applicable, is required to be held illegal and will be required to be quashed and set aside. The Petitioner certainly was eligible for its Settlement Application to be considered by the Interim Board of Settlement for appropriate orders to be passed on it in accordance with law. Issues Involved:1. Legality of the Impugned Settlement Order under Section 245D(4) of the Income Tax Act.2. Validity of the Impugned Notices issued under Section 142(1) of the Income Tax Act.3. Eligibility of the Petitioner to file a Settlement Application post the Finance Act, 2021.4. Impact of the CBDT Order dated 28th September 2021 on the Petitioner's Settlement Application.5. Applicability of the High Court's decision in Sar Senapati Santaji Ghorpade Sugar Factory Ltd. on the present case.Detailed Analysis:1. Legality of the Impugned Settlement Order under Section 245D(4) of the Income Tax Act:The Petitioner challenged the Impugned Settlement Order passed by the Interim Board of Settlement (IBS) on 26th September 2023, which held that the Petitioner was not eligible for applying for settlement. The IBS based its decision on the CBDT Order dated 28th September 2021, which imposed additional conditions for eligibility. The Court found that the impugned order was contrary to the decision in Sar Senapati Santaji Ghorpade Sugar Factory Ltd., where similar conditions were struck down as ultra vires of the parent Act.2. Validity of the Impugned Notices issued under Section 142(1) of the Income Tax Act:Following the rejection of the Petitioner's settlement application by the IBS, the Assessing Officer issued notices under Section 142(1). The Petitioner sought to quash these notices as they were a consequence of the illegal rejection of the settlement application. The Court agreed with the Petitioner, holding that the notices were issued based on an invalid order and thus, were without jurisdiction.3. Eligibility of the Petitioner to file a Settlement Application post the Finance Act, 2021:The Finance Act, 2021 abolished the Settlement Commission and transferred jurisdiction to the Interim Board of Settlement. The Petitioner re-filed the Settlement Application in compliance with a CBDT press release allowing applications until 30th September 2021. The Court held that the Petitioner's eligibility was consistent with the provisions of the Finance Act, 2021, and the subsequent press release, making the Petitioner's application valid.4. Impact of the CBDT Order dated 28th September 2021 on the Petitioner's Settlement Application:The CBDT Order added conditions that the assessee must be eligible as of 31st January 2021 and have pending assessment proceedings on the date of filing the settlement application. The Court in Sar Senapati Santaji Ghorpade Sugar Factory Ltd. struck down these conditions as beyond the scope of CBDT's powers under Section 119 of the Act. The Court reiterated that there was no statutory provision allowing CBDT to impose such eligibility conditions, and thus, the Petitioner's application should be considered valid.5. Applicability of the High Court's decision in Sar Senapati Santaji Ghorpade Sugar Factory Ltd. on the present case:The Court confirmed that the decision in Sar Senapati Santaji Ghorpade Sugar Factory Ltd. was applicable to the present case. The Court had previously held that additional conditions imposed by the CBDT were ultra vires and invalid. Consequently, the rejection of the Petitioner's settlement application based on these conditions was illegal. The Court directed the IBS to adjudicate the Petitioner's application on its merits without reference to the invalid conditions.Conclusion:The High Court concluded that the Impugned Settlement Order and the subsequent notices under Section 142(1) were illegal and without jurisdiction. The Petitioner's Settlement Application was valid and should be considered by the Interim Board of Settlement in accordance with the law, without reference to the invalid conditions imposed by the CBDT. The Court allowed the Petition in terms of the reliefs sought in prayer clauses (c) and (d).