HC Rules Income-Tax Settlement Applications Filed Before 31 March 2021 Remain Valid Despite Retrospective Amendment

The petitioners are corporate assessee entities against whom search and seizure operations were conducted in October 2019. Notices under Sections 153A / 153C (as relevant) and other assessment notices were issued in March-June 2021. Following this, pursuant to an interim order of the High Court directing the ITSC to accept applications, the petitioners filed applications under Section 245C on 22.03.2021 and, in at least one instance, deposited the amount of tax and interest prescribed by the statute.

Thereafter, the Revenue relied upon amendments introduced by the Finance Act, 2021 (laid as a Finance Bill on 01.02.2021 and assented on 01.04.2021), which, by retrospective language, provided that no application under Section 245C shall be made on or after 01.02.2021. The respondents took the position that applications filed after 01.02.2021 could not be accepted; petitioners challenged this stance and sought directions to treat their 22.03.2021 applications as “pending applications” under Section 245A(eb) and to have them adjudicated by the Interim Board.

Main Issue: Whether settlement applications filed on 22.03.2021 (i.e., between 01.02.2021 and 31.03.2021) can be treated as valid “pending applications” under Section 245A(eb) and consequently be considered by the Interim Board under the amended Chapter XIX-A, notwithstanding the retrospective language in Section 245C(5).

HC’s Ruling: The Division Bench held that applications filed on 22.03.2021 (and, by necessary implication, applications filed up to 31.03.2021) could not be invalidated by the retrospective operation of Section 245C(5) with effect from 01.02.2021. The Court followed and relied on reasoning in earlier High Court decisions and observed that the Settlement Commission was factually functioning up to 31.03.2021; vested procedural rights arising from filings made while the Commission was operative could not be taken away by retrospective amendment absent clear statutory intent to do so. The Court further found that the CBDT notification, which added eligibility criteria (requiring eligibility as on 31.01.2021) went beyond the Board’s power under Section 119 to the extent it imposed such an additional cutoff; that condition was declared ultra vires.

As a result, the writ petitions were allowed. The applications filed on 22.03.2021 were ordered to be treated as “pending applications” within the meaning of Section 245A(eb) and were directed to be processed by the Interim Board under Section 245AA in accordance with law. The Recovery/Revenue contentions that the cut-off of 01.02.2021 operated to nullify such filings were rejected.

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