CBDT provides taxpayers with the opportunity to file a settlement application

The Finance Act of 2021 amended the provisions of the Income-tax Act of 1961 (“the Act”) to provide, among other things, that the Income-tax Settlement Commission (“ITSC”) will cease to exist on February 1, 2021. Furthermore, no application for settlement may be filed on or after 01.02.2021, the date on which the Finance Bill, 2021 was laid before the Lok Sabha. To deal with the pending settlement applications as of 31.01.2021, the Central Government established the Interim Board for Settlement (hereinafter referred to as the “Interim Board”) via Notification No. 91 of 2021 dated 10.08.2021.

In pending cases, taxpayers have the option to withdraw their applications within the time frame specified and notify the Assessing Officer of their decision.

As of 01.02.2021, it was reported that a number of taxpayers were in the advanced stages of filing their application for settlement with the ITSC. Furthermore, some taxpayers have approached High Courts, requesting that their settlement applications be accepted. In some cases, the Hon’ble High Courts have granted interim relief and directed that settlement applications be accepted even after 01.02.2021. As a result, there has been uncertainty and protracted litigation.

To provide relief to taxpayers who were eligible to file applications as of 31.01.2021, but were unable to do so due to the cessation of ITSC under Finance Act, 2021, it has been decided that applications for settlement can be filed by taxpayers before the Interim Board by 30th September, 2021 if the following conditions are met:

• The assessee was eligible to file an application for settlement on 31.01.2021 for the assessment years for which the application is sought (relevant assessment years);
• and all of the assessee’s relevant assessment proceedings were pending as of the date of filing the application for settlement.

Such applications, subject to their validity, shall be deemed to be “pending applications” under clause (eb) of section 245A of the Act and shall be disposed of by the Interim Board in accordance with the Act’s provisions.

It is clarified that taxpayers who have filed such applications will not be able to withdraw them under the provisions of Section 245M of the Act. Furthermore, taxpayers who have already filed an application for settlement on or after 01.02.2021 in accordance with the direction of the various High Courts and who are otherwise eligible to file such application on the date of filing, as per para 3 above, shall not be required to file such application again.

Legislative amendments will be proposed in this regard in due course.