Income Tax Act | 18-Month Period To Decide Settlement Application Cannot Restart On Transfer Between Interim Boards: Allahabad High Court

Section 245D(4A)(iii) of the Act requires an order under Section 245D(4) to be passed within eighteen months from the end of the month in which the application was made, in respect of applications made on or after June 1, 2010.

Section 245D(9)(iii) read with Section 245M(2) deems a pending application to have been received by the Interim Board on the date on which it is allotted or transferred to the Board under Section 245M(3), which empowers the CBDT both to allot pending applications to an Interim Board and to transfer them from one Interim Board to another.

The bench of Justice Shekhar B. Saraf and Justice Abdhesh Kumar Chaudhary held

“The argument of the respondents if accepted, would result in an extension of the statutory period of 18 months on each allotment/transfer from one IBS to the other.”

“This argument, in our view, is not sustainable as the period prescribed under Section 245D(4A)(iii) cannot be extended once the Interim Board takes cognizance of the interim application pending before it.”

A search and seizure was conducted on October 4, 2018 under Section 132 of the Act at the premises of B.L. Agro Industries Limited, in which transactions between the company and its three sister concerns were found to be incriminating. Notices under Section 153A were issued for Assessment Years 2009-2010 to 2018-2019, and a notice under Section 143(2) for Assessment Year 2019-2020, the search year.

B.L. Agro Industries Limited sought to settle the proceedings under Chapter XIX-A of the Act. In the meantime, the Income Tax Settlement Commission was abolished by the Finance Act, 2021 with retrospective effect from February 1, 2021, barring settlement applications filed after January 31, 2021.

On the company's writ petition, the High Court by order dated March 19, 2021 granted liberty to file an application by March 23, 2021 and directed that it be received. The application was filed on that date, and a CBDT order dated September 28, 2021 directed that applications filed in that window be treated as pending applications within the meaning of Section 245A(eb) of the Act.

The application stood allotted to the Interim Board for Settlement-III, Delhi, which by order dated March 7, 2022 exercised power under Section 245D(3) read with paragraph 6(ii) of the e-Settlement Scheme, 2021 and directed that a report under Rule 9 of the Income Tax Settlement Commission (Procedure) Rules, 1997 be furnished.

By order dated June 13, 2022, the CBDT transferred the application to the Interim Board for Settlement-VII, Chennai, which rejected it on October 30, 2023 under Section 245D(4). Rectification applications under Section 245D(6B) raising the bar of limitation were dismissed on December 15, 2023 without that objection being adjudicated. Both orders were challenged under Article 226.

It was pleaded for the company that the Interim Board had merely inherited an application already pending and had not received a fresh one, and that the first allotment of a pending application and its later administrative transfer between two Boards operated in distinct statutory fields.

It was argued that the order calling for the Rule 9 report showed that the Delhi Board was already seized of the matter, since jurisdiction under Section 245D(3) presupposed allotment, and that the earliest date on which the statutory fiction could operate was November 1, 2021, when the Scheme was notified. It was urged that limitation went to the root of jurisdiction, and participation in the proceedings could neither confer jurisdiction nor validate an order barred by it/

The Income Tax Department pleaded that on a combined reading of sub-sections (2) and (3) of Section 245M, the deemed date of receipt was the date on which the application was allotted to an Interim Board or transferred from one Interim Board to another by order of the CBDT. Since the transfer to the Chennai Board was made on June 13, 2022, the eighteen-month period expired on December 31, 2023 and the impugned order was within time.

It was also argued that the company had participated in the proceedings without objection and could not raise limitation only after the decision went against it.

The Court noted that the application was pending before the Delhi Board, which had called for the Rule 9 report before the CBDT moved the matter to Chennai. It observed that under the e-Settlement Scheme, 2021 an Interim Board could call for records only after allotment or transfer, and that the respondents had admitted in their counter affidavit that allotment was made on November 1, 2021.

“Furthermore, the moment the Interim Board IBS-III, Delhi passed an order under Section 245D(4A)(iii) calling for the Rule 9 report, it would automatically mean that the IBS-III, Delhi had been allotted the said file. If one would look into the e-Settlement Scheme, 2021 it would be clear that directions could only have passed by the Interim Board after the allotment had taken place.”

Computing the period from the allotment on November 1, 2021, the Court held that the order ought to have been passed by May 30, 2023, and that even if it were computed from the date on which the Rule 9 report was called for, it ought to have been passed by September 30, 2023. The order having been passed on October 30, 2023, it was beyond limitation on either reckoning.

“We agree with the argument of the petitioner that any interpretation suggesting that the petitioner's application was first received by an Interim Board, that is, only upon the administrative transfer dated June 13, 2022 would render the entire proceedings undertaken by the IBS-III, Delhi under Section 245D(3) wholly without jurisdiction and would render the time bound manner of settlement of cases redundant.”

Holding that the period commenced when the application first stood allotted to and was acted upon by the Delhi Board, the Court quashed and set aside the order dated October 30, 2023 and the consequential order dated December 15, 2023, and allowed the writ petition. It clarified that it had addressed only the issue of limitation and had not gone into whether the proceedings would abate or the consequences of abatement.

For Petitioner: Senior Advocate Kavita Jha, Advocates Anjali Pandey, Aahuti Agarwal, Abhishek Khare, Navneet Yadav and Shailesh Verma.

For Respondents: Additional Solicitor General of India, Dr. Ravi Kumar Mishra, Advocates Kushagra Dikshit, Neerav Chitravanshi and Ravi Kumar Mishra.