2025 (10) TMI 774 - HC - Income Tax

Entitlement to settlement applications under Sections 245A-M upheld; filings before 31.03.2021 treated as pending for Interim Board consideration

Assessees possess a statutory right to apply to the ITSC/Interim Board for settlement despite the Finance Act, 2021 amendments; retrospective effect does ... Entitlement to the relief as sought in the petitions for consideration of their settlement applications u/s 245C - pending applications to be considered by the Interim Board - amendments introduced by the Union Government to the Act, more specifically Sections 245 A to M thereof, through the Finance Act, 2021 laid before the Lok Sabha on 01.02.2021 - HELD THAT:- ITSC (or the Interim Board) being a creation of a statute, the assessees do have a statutory right to approach the same, seeking concession. As held in Sar Senapati Santaji Ghorpade Sugar Factory [2024 (4) TMI 204 - BOMBAY HIGH COURT] though the orders of the ITSC may have the trappings of a concession, the same is exercised by the State through a statutory scheme. Whether or not the concession is granted, the assessees are, in fact, vested with a right to apply for the same to the ITSC. It is settled law that the right of the Parliament to make a retrospective amendment cannot be disputed. However, if any vested right is to be taken away by the legislature, it should be done by express words or by necessary implication. However, no such intent can be gathered from the provisions of the Finance Act, 2021. In the amending provisions, there are neither any express words nor any indication that the intent of the legislature was to take away existing rights of the assessee to file such applications between 01.02.2021 to 31.03.2021. As such the rights cannot be said to have been taken away, though the Act has been given a retrospective effect. The purpose of the amendments is in fact, to abolish the ITSC with effect from 01.02.2021 and bring all pending settlement applications before the newly constituted Interim Board for adjudication. It cannot be disputed that the ITSC was in existence till 31.03.2021. In that sense, the assessees were well within their rights to file applications before it, and the applications filed before 31.03.2021 should be construed to be validly filed. It is necessary at this stage to refer to the press release dated 07.09.2021 and the subsequent order under Section 119(2)(b) of the Act dated 28.09.2021 issued by the respondents, wherein it was clarified that the assessees, who were eligible to file an application for settlement on or before 31.01.2021, but could not file the same due to the cessation of the ITSC, could file their applications till 31.09.2021 before the Interim Board, provided the following criteria is fulfilled:- “i. The assessee was eligible to file application for settlement on 31.01.2021 for the assessment years for which the application is sought to be filed (relevant assessment years); and ii. all the relevant assessment proceedings of the assessee are pending as on the date of filing the application for settlement.” Purpose of the amendment being to make ITSC inoperative and bring the pending applications before the Interim Board, it cannot be said that the legislature had any intent to do away with pending applications in respect of cases that arose between 01.02.2021 and 31.03.2021. We are in complete agreement with the conclusion drawn by the three High Courts on this issue [2023 (11) TMI 1111 - MADRAS HIGH] High Court of Madras, [2024 (4) TMI 204 - BOMBAY HIGH COURT] High Court of Bombay and the [2025 (6) TMI 1557 - KERALA HIGH COURT] High Court of Kerala Following the ratio laid down by the three High Courts, paragraph 4 (i) the order of the respondents dated 28.09.2021 has to be read down, inasmuch as the date of 31.01.2021 mentioned therein shall be read as 31.03.2021. We deem it appropriate to allow these writ petitions. The settlement applications of the petitioners, even if filed after 01.02.2021, on 22.03.2021, shall be treated as pending applications to be considered by the Interim Board. ISSUES PRESENTED AND CONSIDERED 1. Whether amendments made by the Finance Act, 2021 (inserting provisos and replacing the Income Tax Settlement Commission with an Interim Board effective 01.02.2021) can retrospectively prevent acceptance or processing of settlement applications filed between 01.02.2021 and 31.03.2021. 2. Whether an assessee who, having a 'case' pending (by virtue of notices under Sections 153A/153C/143(2)), filed an application under Section 245C on 22.03.2021 acquired a vested statutory right to have that application treated as a 'pending application' and adjudicated (by the ITSC or Interim Board) notwithstanding the retrospective repeal/abolition by the Finance Act, 2021. 3. Whether the definition of 'pending application' in the amended statute and the CBDT directions/notification (press release and order under Section 119) can validly impose an additional eligibility cut-off (eligibility as on 31.01.2021) for allowing extended filing up to 30.09.2021. 4. Whether the absence of any adjudicative action by the ITSC (including failure to issue the Section 245D(1) order within 14 days) coupled with the Court's interim directions, entitles the applicants to be treated as having their applications deemed accepted. 5. Consequential relief: whether notices issued under Sections 142(1)/143(2) should be stayed pending adjudication of the settlement applications. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of retrospective abolition of ITSC and prohibition on filing after 01.02.2021 Legal framework: The Finance Act, 2021 amended Chapter XIX-A to abolish the ITSC w.e.f. 01.02.2021 and created an Interim Board to deal with pending applications; Section 245C(5) (as amended) provides 'No application shall be made under this section on or after 1st February 2021.' Precedent treatment: Multiple High Courts have considered identical factual matrices and held that retrospective amendments cannot invalidate applications filed in the interregnum (01.02.2021-31.03.2021) where no express or necessarily-implied legislative intent to extinguish vested rights appears. Those High Court decisions have not been reversed on merits by the Supreme Court and have been treated as persuasive. Interpretation and reasoning: The Court reasons that Parliament's power to legislate retrospectively is not in doubt, but removal of vested statutory rights requires clear express words or necessary implication. The statutory scheme and purpose (abolish ITSC but transfer pending matters to Interim Board) indicate intent to preserve pending applications; nothing in the amending Act expressly or by necessary implication extinguishes applications already filed or that could be validly filed while ITSC legally existed up to 31.03.2021. Ratio vs. Obiter: Ratio - retrospective abolition cannot defeat completed acts (filings) or vested rights absent clear legislative language; obiter - general observations about Parliament's latitude in fiscal classification. Conclusion: The retrospective provision cannot be read to invalidate settlement applications filed while ITSC legally and factually existed (i.e., up to 31.03.2021). Applications filed on 22.03.2021 are to be treated as valid/pending and processed by the Interim Board. Issue 2 - Existence of vested right to have a filed application adjudicated Legal framework: Section 245C permitted approach to ITSC where a 'case' was pending; Section 245D empowered the Commission to accept/reject within timelines; amended provisions provide for disposition of 'pending applications' by Interim Board. Precedent treatment: High Court authorities recognized that although settlement relief has concessionary elements, a statutory right to apply existed and, once an application was validly filed before abolition, a vested right accrued to have the application treated as pending and adjudicated. Interpretation and reasoning: The Court finds that the statutory right to approach the statutory body is different from a guarantee of grant; filing a valid application before a body that lawfully existed confers a right to have the application treated as pending and processed under the statutory transition scheme. Section 245D's discretionary rejection powers do not negate the accrued right to have the application considered or transferred to the Interim Board for adjudication. Ratio vs. Obiter: Ratio - a validly filed settlement application before abolition confers a vested right to be treated as a pending application and adjudicated; obiter - commentary that acceptance/rejection discretion does not equate to absence of right to have the application considered. Conclusion: Petitioners acquired vested statutory rights when they filed valid applications while ITSC existed; those rights cannot be abrogated without express or necessarily implied legislative provision. Issue 3 - Validity of CBDT press release/notification imposing pre-existing eligibility cut-off Legal framework: CBDT issued press release and Section 119 order extending last date for filing to 30.09.2021 but conditioned eligibility on being entitled to file on 31.01.2021 (later read as 31.03.2021 by some courts). Precedent treatment: High Courts have held that CBDT (under Section 119) may relax procedural rigours but cannot impose additional substantive eligibility conditions or cut-off dates not prescribed by statute; such additional conditions are ultra vires. Interpretation and reasoning: The Court reasons that Section 119 cannot be used to create an eligibility requirement (date-of-eligibility) when the statute prescribes no such requirement. The distinction between date of eligibility and date of filing is material; the Board cannot deny the benefit of extended filing to a class of assessees by adding substantive conditions inconsistent with the Act and the remedial purpose of transition to the Interim Board. Ratio vs. Obiter: Ratio - CBDT's direction insofar as it imposed an additional eligibility cut-off is invalid; obiter - remarks on the Board's power to extend filing deadlines generally. Conclusion: The clause in the CBDT order imposing eligibility as on 31.01.2021 (read down to 31.03.2021 following precedent) is ultra vires and must be read down so that assessees who had a pending case and filed within the interregnum are not deprived of relief. Issue 4 - Effect of ITSC's inaction and court directions; deeming acceptance under Section 245D proviso Legal framework: Proviso to Section 245D contemplates deemed acceptance if no order is passed within prescribed days; Court had earlier directed ITSC to accept/process applications pending outcome of writ. Interpretation and reasoning: Where ITSC failed to act despite court direction and while it legally existed, the statutory deeming provision and intervening judicial directions support treating properly filed applications as pending and for adjudication by the Interim Board. The Court emphasizes that applicants who filed and paid amounts in compliance with statutory requirements should not be prejudiced by respondent delay. Ratio vs. Obiter: Ratio - inaction by ITSC (inconsistent with statutory timelines and judicial directions) supports treatment of applications as pending for purposes of transfer and adjudication; obiter - reflections on actus curiae neminem gravabit (no person should be prejudiced by a court order). Conclusion: The applicants' filings, accompanied by statutory deposits, are to be treated as pending applications to be processed by the Interim Board; inaction does not defeat that status. Issue 5 - Stay of assessment notices pending adjudication of settlement applications Legal framework: Sectional notices under 142(1)/143(2) initiate assessment/revision processes; settlement mechanism provides alternative route and can have primacy insofar as matters are bona fide subject of settlement application. Interpretation and reasoning: As a necessary corollary to treating the settlement applications as pending and admissible for adjudication by the Interim Board, further assessment actions that would prejudice the settlement process are stayed until the Interim Board determines the applications. Ratio vs. Obiter: Ratio - notices under Sections 142(1)/143(2) are stayed pending final adjudication of the validly filed settlement applications; obiter - policy considerations about avoiding prejudice to applicants who sought statutory settlement remedies. Conclusion: Notices issued under Sections 142(1)/143(2) are stayed until the Interim Board adjudicates the settlement applications filed on 22.03.2021. Final Disposition (operative conclusions derived from reasoning above): The Court allows the petitions, holds that settlement applications filed on 22.03.2021 are valid and to be treated as pending for adjudication by the Interim Board; the CBDT condition imposing an additional eligibility cut-off is read down (31.01.2021 ? 31.03.2021) and/or struck insofar as ultra vires; and assessment notices issued are stayed pending adjudication of the settlement applications.