The Kerala High Court has ruled that under Section 245C of the Income Tax Act, 1961, there is no statutory requirement for a prior cut-off date to be met before an assessee can file a valid settlement application. A pending notice under Sections 153A or 153C is sufficient to fulfill the legal condition for approaching the Interim Board for Settlement.
The division bench comprising Dr. Justice A.K. Jayasankaran Nambiar and Justice P.M. Manoj delivered this significant verdict in the case Union of India v. Aayana Charitable Trust (W.A. No. 2042 of 2024) and related appeals.
"So long as the assessee had a 'live and un-adjudicated' notice under Sections 153A/153C at the time of filing the application, the application had to be considered on merits by the Board," the Court observed.
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The dispute arose after the Interim Board rejected several applications for settlement, citing the absence of a 'pending case' as of 31.01.2021. The Board relied on a CBDT order dated 28.09.2021, which imposed a controversial requirement that assessees must have had an eligible pending case before 31.01.2021—even if the Finance Act, 2021 abolishing the Settlement Commission came into force only on 01.04.2021.
The Kerala High Court firmly rejected this interpretation, noting that the CBDT’s additional condition was not supported by any provision in the Act.
"The CBDT order issued under Section 119(2)(b) could not merely extend the time for filing while simultaneously denying the benefit of such extension to a class of assessees," stated the bench.
Referring to a similar view adopted by the Bombay High Court in Sar Senapati Santaji Ghorpade Sugar Factory Ltd. v. ACIT, the Kerala High Court agreed that the cut-off requirement imposed by the CBDT was "invalid and bad in law." It emphasized that the Act defines only a deadline for filing applications (01.02.2021 or extended to 30.09.2021) but does not mandate a cut-off date for eligibility.
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The Court thus directed that all applications for settlement filed on or before 30.09.2021—where notices under Sections 153A/153C were issued after 31.03.2021 but before 30.09.2021—must be considered on merits.
“We find that the CBDT circular laying down an additional eligibility condition as on 31.03.2021 is ultra vires the powers under Section 119(2)(b) of the I.T. Act,” the bench declared.
Case Title: Union of India v. Aayana Charitable Trust
Case No.: W.A. No. 2042 of 2024
Counsel for Revenue: Jose Joseph, Susie B Varghese, Navaneeth N. Nath
Counsel for Assessee: R. Sivaraman, Vandana Vyas, Krishna Prasad
