The Calcutta High Court held that when the settlement applications were filed before the date on which the Finance Act 2021 did not come into effect, it would not affect the vested right of the taxpayer for adjudicate settlement applications under Section 245(D) under the Income Tax Act, 1961.
The appellant/assessee, Pradeep Kumar Naredi, applied to the Settlement Commission to have his income tax issues settled under section 245C(I) of the Income Tax Act. In the meantime, notices under section 153(A) were issued, and the appellants were the target of search and seizure activities. Because the requirements for filing a settlement application under section 245(C) read with the press announcement dated September 07, 2021 and CBDT’s order under section 119(2)(b) were not met, the SETCOM deemed the application unlawful and declined to proceed under section 245(D)1.
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The Single Judge ruled that the board’s order was constitutionally sound and nondiscriminatory when the appellant appealed to the High Court. In order to address the outstanding applications, the appellants requested a declaration that the Finance Act, 2021 amendment that eliminated the Income Tax Settlement Commission and established an interim Board was excessive, capricious, unconstitutional, and a violation of both Article 14 of the Indian Constitution and the Income Tax Act.
The Bench noted that qualifying assessees had the right to contact the SETCOM at any point throughout a case involving them before the Finance Act of 2021. However, the Finance Act of 2021, which was announced on April 1, 2021, eliminated the SETCOM, and an interim board was established to handle the outstanding applications.
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Section 245C(1) was added by the Finance Act, 2021, stating that no application may be submitted under that section on or after February 01, 2021, and a proviso to Section 245B was added, stating that the SETCOM will cease to act on or after that date.
The Assessee’s attorney has contested this, arguing that the statutory remedy of approaching the SETCOM could not have been removed retroactively because the Finance Act, 2021 was only notified on April 1, 2021. The Bench did note, however, that the Finance Act was made retroactive in operation with effect from February 1, 2021.
The Division Bench, consisting of Justices Harish Tandon and Hiranmay Bhattacharyya, reaffirmed that vested rights cannot be impacted by retroactive legislation. Although the goal of Section 245(C)(5) is not to render an application that has already been filed after February 1, 2021, invalid, it should be interpreted as follows: no application may be submitted after February 1, 2021, once the President of India has granted his or her assent, and any application submitted by the assessee prior to the assent being granted will not be subject to Section 245(C)(5) of the Act.
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It was clear that the appellants had submitted an application to the Settlement Commission before the Finance Act of 2021 took effect. As a result, the High Court granted the Assessee’s appeal and instructed the Interim Board to evaluate the settlement application in line with the plan that the Central Government may develop for cases that started before January 31, 2021.
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