Facts of the Case

The petitioners, Megha Engineering and Infrastructure Ltd. and Western UP Power Transmission Co. Ltd., were subjected to search and seizure operations in October 2019. Pursuant thereto, notices under Sections 153A, 153C and 143(2) of the Income-tax Act were issued in March 2021 for multiple assessment years. The petitioners filed settlement applications under Section 245C of the Income-tax Act on 22.03.2021, along with substantial tax and interest payments, at a time when the Finance Bill, 2021 had been introduced but had not yet received Presidential assent. The Income Tax Settlement Commission did not process the applications, citing provisions of the Finance Act, 2021, which retrospectively abolished the ITSC with effect from 01.02.2021.

Issues Involved

Whether settlement applications filed between 01.02.2021 and 31.03.2021 could be rejected on account of retrospective amendments introduced by the Finance Act, 2021, whether such applications constituted “pending applications” under Section 245A(eb), and whether vested rights of assessees to seek settlement could be taken away without express statutory intent.

Petitioner’s Arguments

The petitioners contended that their settlement applications were validly filed when the ITSC was factually and legally in existence and that retrospective amendments could not invalidate completed acts. It was argued that a vested right accrued upon filing of a valid settlement application and such right could not be extinguished by retrospective legislation unless expressly provided. Reliance was placed on judgments of the Madras High Court in Jain Metal Rolling Mills, the Bombay High Court in Sar Senapati Santaji Ghorpade Sugar Factory, and other High Court decisions holding that applications filed during the interregnum period remained valid and were liable to be adjudicated by the Interim Board.

Respondent’s Arguments

The Revenue argued that the ITSC was a statutory creation and could be abolished by legislative action, that settlement proceedings were in the nature of a concession and not a vested right, and that Parliament was competent to fix 01.02.2021 as the cut-off date. It was contended that applications filed after 01.02.2021 could not be entertained in view of the express language of Section 245C(5) as amended by the Finance Act, 2021.

Court Order / Findings

The Delhi High Court held that while Parliament was competent to abolish the ITSC, retrospective amendments could not invalidate settlement applications already validly filed when the statute permitting such applications was in force. The Court concurred with the reasoning of the Madras, Bombay, Gujarat and Calcutta High Courts, holding that applications filed between 01.02.2021 and 31.03.2021 constituted “pending applications” under Section 245A(eb). The Court held that Section 245C(5) could not be applied retrospectively to nullify completed acts and that vested rights accrued to the petitioners upon filing valid settlement applications.

Important Clarification

The Court clarified that the petitioners were not claiming a vested right to adjudication by the erstwhile Settlement Commission but only a vested right to have their validly filed applications adjudicated in accordance with the amended statutory framework by the Interim Board. The Court also noted that denial of such adjudication would result in grave prejudice, including exposure to use of disclosures made in settlement applications during regular assessments.

Final Outcome

The writ petitions were allowed. The Income Tax Settlement Commission and the Interim Board were directed to treat the settlement applications filed by the petitioners on 22.03.2021 as valid pending applications and to adjudicate the same in accordance with law under the provisions governing the Interim Board of Settlement. All consequential assessment proceedings were directed to remain subject to the outcome of the settlement proceedings.

Link to Download Order- https://www.mytaxexpert.co.in/uploads/1769505511_MEGHAENGINEERINGANDINFRASTRUCTURELTD.VsINCOMETAXSETTLEMENTCOMMISSIONORS..pdf

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