Taxpayers Cannot Be Denied Settlement Just Because Notices Were Issued After January 31; Cut-Off Violates Article 14
Jaipur: The Rajasthan High Court has ruled in favour of a group of taxpayers who were denied consideration of their income-tax settlement applications because their assessment notices were issued after the January 31, 2021 cut-off fixed by the CBDT.
A Division Bench of Justice Arun Monga and Justice Maneesh Sharma held that the law did not prescribe any earlier date by which an assessee had to become eligible for settlement. What mattered was whether a pending case existed when the settlement application was filed.
The Court consequently read down the disputed condition in the CBDT’s September 28, 2021 order and directed the Interim Board for Settlement to consider the affected applications on merits.
Dispute arose after a 2019 search
The petitioners belonged to a real-estate business group whose premises were searched on October 22, 2019.
After the search, income-tax notices were issued for several assessment years. While notices for some years were issued before January 31, 2021, notices for other years were issued later.
For Assessment Year 2020-21, the notice under Section 143(2) was issued on June 20, approx. 607 days after the search.
Meanwhile, the Income Tax Settlement Commission was abolished and the Interim Board for Settlement was constituted later.
The CBDT subsequently extended the last date for filing settlement applications to September 30, 2021, but imposed a condition that the applicant must have been eligible to apply as on January 31, 2021.
The petitioners filed their applications on September 28, 2021, but the Interim Board rejected applications relating to years for which notices had not been issued by the January 31 cut-off.
CBDT could extend time, but could not create a new disqualification
The High Court held that the Income Tax Act did not require an taxpayers to have become eligible for settlement on any date earlier than the date of filing.
The Court noted that Section 245C permitted an assessee to apply for settlement when a case was pending, while Section 245C(5) only prescribed an outer limit on when an application could be made. It did not create an additional eligibility date.
The Bench further held that the power under Section 119(2)(b) of the Act allowed the CBDT to relax the rigour of the law, but not to introduce a new condition that was absent from the statute.
The court observed “That power exists to avoid genuine hardship. It is a power to relax, not a power to legislate. The Central Board of Direct Taxes was undoubtedly competent to extend the last date for filing an application but It was not competent, in the same breath, to introduce a condition of prior eligibility, because no such concept is found anywhere in Chapter XIX-A.”
‘Revenue cannot benefit from its own delay’- 607 days
The Court also highlighted that eligibility depended on the issuance of an assessment notice, which was an act controlled entirely by the Revenue.
In the case of the 2020-21 assessment year, the notice was issued 607 days after the search.
The Court observed that the taxpayers could neither control nor accelerate the issuance of that notice.
It held that the Revenue could not rely on its own delay in issuing the notice to deny the taxpayers access to the settlement process.
Court further observed “retrospective operation cannot undo what was validly done as it is equally settled that a retrospective provision will not be construed to divest an accrued right unless it says so in terms.”
Court finds different treatment of same search group unjustified
The Bench noted that all the assessment years arose from the same search conducted on the same date and the petitioners had filed a common settlement application.
Some applications were accepted while others were rejected only because the Assessing Officer issued notices on different dates.
The Court found that this distinction was based on a circumstance controlled by the Department and had no connection with the nature of the disclosure or the object of the settlement scheme.
Settlement applications to be decided on merits
The High Court ultimately directed that the disputed CBDT condition would not operate against the taxpayers who had a live and unadjudicated notice under Section 153A or Section 143(2) on the date of filing, provided the application was filed on or before September 30, 2021.
The Interim Board has been directed to treat the affected applications as pending and decide them on merits.