High Court Rules CBDT’s Settlement Cut-Off Date Ultra Vires; Orders Reconsideration

In recent developments, the respondents (assessees) were charitable trusts that submitted applications to the interim board for settlement under Section 245C of the Income Tax Act during the extension period provided, which ended on September 30, 2021. Although search proceedings were started before March 31, 2021, notices under Section 153A/153C were issued afterwards. Based on a CBDT circular dated 28.09.2021, the Interim Board rejected their applications as “not maintainable,” citing that only cases where notices had been issued on or before 31.03.2021 would be treated as pending.

The petitioners contested the rejection before the Hon’ble High Court. The learnt Single Judge decided the matter in favour of the assessees on the condition that the applications be submitted by 30.09.2021 and the search be completed by 31.03.2021. The Revenue went into an intra-court appeal against the said decision, claiming that the applications could not be considered maintainable if the notices were sent after March 31, 2021.

Issue Raised: Can the CBDT legally set a cut-off date of 31.03.2021 for issuing notices under Sections 153A/153C and thereby restrict settlement applications filed before 30.09.2021, even though there being no such statutory deadline?

HC’s Ruling: The High Court ruled that the CBDT’s cut-off date of March 31, 2021, was ultra vires and overturned the orders that had rejected the settlement applications. It decided that CBDT could not use a circular to enforce more statutory requirements. The Court decided that regardless of when the notice was sent, the Interim Board had to consider the application on its merits if it was submitted before September 30, 2021, and the case was still pending under Sections 153A and 153C. The Court mandated that the applications be restored and that the Interim Board consider and rule on them in compliance with the law.

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