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Section 245MA: Dispute Resolution Committee to substitute Settlement Commission

section-245ma-dispute-resolution-committee-to-substitute-settlement-commission

Finance Bill, 2021 has proposed to constitute Dispute Resolution Committee (“DRC”) for small and medium taxpayers and to abolish the age-old Settlement Commission with immediate effect. The interesting fact of DRC is that it is introduced as a faceless institution. Anyone with a taxable income up to Rs. 50 lakh and disputed income up to Rs. 10 lakh shall be eligible to approach the Committee. The Income-tax Settlement Commission (“ITSC”) is discontinued with immediate effect from 1st February 2021. All the pending applications as on date shall be decided by an Interim Board.


Setting up the Dispute Resolution Committee


While presenting the Union Budget 2021 the Finance Minister Nirmala Sitaraman announced the setting up of the Dispute Resolution Committee. 


Earlier, the Government came out with the Direct Tax Vivad Se Vishwas Scheme to give taxpayers an opportunity to settle long-pending disputes and be relieved of further strain on their time and resources. 



To further reduce litigation for small taxpayers, the Budget proposes to constitute a Dispute Resolution Committee for them, which will be faceless to ensure efficiency, transparency and accountability. 


For reducing litigation and to give an impetus to the dispute resolution for small taxpayers, a Dispute Resolution Committee is proposed to be constituted. A taxpayer having taxable income up to Rs. 50 lakh and disputed income up to Rs. 10 lakh shall be eligible to approach the Committee. For ensuring efficiency, transparency and accountability, the procedure of the Committee will be conducted in a faceless manner.


Consequently, the Settlement Commission shall be discontinued from 01.02.2021. However, the pending cases shall be decided by an Interim Board if opted by the applicant. 


Constitution of Dispute Resolution Committee for small and medium taxpayers


The Central Government has consciously adopted a policy to make the processes under the Act, which require interface with the taxpayer, fully faceless. In this backdrop, new schemes for faceless assessment, for faceless appeal at the level of Commissioner (Appeals) and for faceless imposition of penalty have already been made operational. Further, the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 has empowered the Central Government to introduce similar schemes for other functions being performed by the income-tax authorities. 


It is expected that with these reforms, there would be a lesser number of disputes. However, some disputes would still be there. The government has always been striving to reduce disputes and provide tax certainty. Vivad se Vishwas scheme was launched last year to settle pending disputes. Indications are there that the scheme has been a great success. While pending disputes are being resolved or adjudicated, it is important that in future there is less number of disputes from fresh assessments. Hence, in order to provide early tax certainty to small and medium taxpayers, it is proposed to introduce a new scheme for preventing new disputes and settling the issue at the initial stage.


The new scheme is proposed to be incorporated in a new section 245MA and has the following features


(i) The Central Government shall constitute one or more Dispute Resolution Committee (DRC).


(ii) This committee shall resolve disputes of such persons or class of person which shall be specified by the Board. The assessee would have an option to opt for or not opt for the dispute resolution through the DRC.


(iii) Only those disputes where the returned income is fifty lakh rupee or less (if there is a return) and the aggregate amount of variation proposed in specified order is ten lakh rupees or less shall be eligible to be considered by the DRC.


(iv) If the specified order is based on a search initiated under section 132 or requisition made under section 132A or a survey initiated under 133A or information received under an agreement referred to in section 90 or section 90A,of the Act, such specified order shall not be eligible for being considered by the DRC.


(v) Assessee would not be eligible for benefit of this provision if there is detention, prosecution or conviction under various laws as specified in the proposed section. 


(vi) Board will prescribe some other conditions in due course which would also need to be satisfied for being eligible under this provision.


(vii) The DRC, subject to such conditions as may be prescribed, shall have the powers to reduce or waive any penalty imposable under this Act or grant immunity from prosecution for any offence under this Act in case of a person whose dispute is resolved under this provision. 


(viii) The Central Government has also been empowered to make a scheme by notification in the Official Gazette for the purpose of dispute resolution under this provision. The scheme shall impart greater efficiency, transparency and accountability by eliminating interface to the extent technologically feasible, by optimising utilisation of resources and introducing dynamic jurisdiction.The Central Government may, for the purposes of giving effect to the scheme, by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification. However, no such direction shall be issued after the 31st day of March, 2023. Every such notification shall, as soon as may be after the notification is issued, be laid before each House of Parliament.


For this purpose, Finance Bill, 2021 has introduced a new Chapter XIX-AA vide Clause 66 to introduce the provisions related to the Dispute Resolution Committee.


Insertion of new Chapter XIX- AA. 


66. After Chapter XIX-A of the Income-tax Act, the following Chapter shall be inserted, with effect from the 1st day of April, 2021, namely: — 


‘CHAPTER XIX-AA


DISPUTE RESOLUTION COMMITTEE IN CERTAIN CASES 


Dispute Resolution Committee.


245MA. (1) The Central Government shall constitute, one or more Dispute Resolution Committees, as may be necessary, in accordance with the rules made under this Act, for dispute resolution in the case of such persons or class of persons, as may be specified by the Board, who may opt for dispute resolution under this Chapter in respect of dispute arising from any variation in the specified order in his case and who fulfils the specified conditions


(2) The Dispute Resolution Committee, subject to such conditions, as may be prescribed, shall have the powers to reduce or waive any penalty imposable under this Act or grant immunity from prosecution for any offence punishable under this Act in case of a person whose dispute is resolved under this Chapter. 


(3) The Central Government may make a scheme, by notification in the Official Gazette, for the purposes of dispute resolution under this Chapter, so as to impart greater efficiency, transparency and accountability by— 


(a) eliminating the interface between the Dispute Resolution Committee and the assessee in the course of dispute resolution proceedings to the extent technologically feasible; 


(b) optimising utilisation of the resources through economies of scale and functional specialisation; 


(c) introducing a dispute resolution system with dynamic jurisdiction.


(4) The Central Government may, for the purposes of giving effect to the scheme made under sub-section (3), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the said notification: 


Provided that no such direction shall be issued after the 31st day of March, 2023. 


(5) Every notification issued under sub-sections (3) and (4) shall, as soon as may be after the notification is issued, be laid before each House of Parliament.


Explanation.— For the purposes of this section,—


(a) “specified conditions” in relation to a person means a person who fulfils the following conditions, namely:— 


(I) where he is not a person,— 


(A) in respect of whom an order of detention has been made under the provisions of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974:


Provided that— 


(i) such order of detention, being an order to which the provisions of section 9 or section 12A of the said Act do not apply, has been revoked on the report of the Advisory Board under section 8 of the said Act or before the receipt of the report of the Advisory Board; or 


(ii) such order of detention being an order to which the provisions of section 9 of the said Act apply, has not been revoked before the expiry of the time for, or on the basis of, the review under sub-section (3) of section 9, or on the report of the Advisory Board under section 8, read with sub-section (2) of section 9, of the said Act; or 


(iii) such order of detention, being an order to which the provisions of section 12A of the said Act apply, has not been revoked before the expiry of the time for, or on the basis of, the first review under sub-section (3) of the said section, or on the basis of the report of the Advisory Board under section 8, read with sub- section (6) of section 12A, of the said Act; or 


(iv) such order of detention has not been set aside by a court of competent jurisdiction;


(B) in respect of whom prosecution for any offence punishable under the provisions of the Indian Penal Code, the Unlawful Activities (Prevention) Act, 1967, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Prohibition of Benami Transactions Act, 1988, the Prevention of Corruption Act, 1988 or the Prevention of Money Laundering Act, 2002 has been instituted and he has been convicted of any offence punishable under any of those Acts; 


(C) in respect of whom prosecution has been initiated by an income-tax authority for any offence punishable under the provisions of this Act or the Indian Penal Code or for the purpose of enforcement of any civil liability under any law for the time being in force, or such person has been convicted of any such offence consequent upon the prosecution initiated by an Income-tax authority;


(D) who is notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992; 


(II) such other conditions, as may be prescribed.


(b) “specified order” means such order, including draft order, as may be specified by the Board, and,—


(i) aggregate sum of variations proposed or made in such order does not exceed ten lakh rupees; 


(ii) such order is not based on search initiated under section 132 or requisition under section 132A in the case of assessee or any other person or survey under section 133A or information received under an agreement referred to in section 90 or section 90A; 


(iii) where return has been filed by the assessee for the assessment year relevant to such order, total income as per such return does not exceed fifty lakh rupees.’.


Amended Provisions of Section 245MA explained


Clause 66 of the Bill seeks to insert a new Chapter XIX-AA containing section 245MA in the Income-tax Act, 1961 relating to Dispute Resolution Committee in certain cases.


Sub-section (1) of said section seeks to provide that the Central Government shall constitute, one or more Dispute Resolution Committee, as may be necessary, in accordance with the rules made under this Act, for dispute resolution in the case of such persons or class of persons, as may be specified by the Board, and who may opt for dispute resolution under this Chapter in respect of dispute arising from any variation in the specified order in his case for an assessment year and who fulfils the specified conditions. 


Sub-section (2) of said section seeks to provide that the Dispute Resolution Committee, subject to such conditions, as may be prescribed, shall have the powers to reduce or waive any penalty imposable under this Act or grant immunity from prosecution for any offence punishable under this Act in case of a person whose dispute is resolved under this Chapter. 


Sub-section (3) of said section seeks to provide that Central Government may make a scheme, by notification in the Official Gazette, for the purposes of dispute resolution under this Chapter, so as to impart greater efficiency, transparency and accountability by eliminating the interface between the Dispute Resolution Committee and the assessee in the course of dispute resolution proceedings to the extent technologically feasible; optimising utilisation of the resources through economies of scale and functional specialisation; introducing a dispute resolution system with dynamic jurisdiction. 


Sub-section (4) of said section seeks to provide that the Central Government may, for the purposes of giving effect to the scheme made under sub-section (3), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification. However, no direction shall be issued after the 31st day of March, 2023. 


Sub-section (5) of section 245MA seeks to provide that every notification issued under sub-section (3) and sub-section (4) shall, as soon as may be after the notification is issued, be laid before each House of Parliament. 


Explanation to section 245MA seeks to provide that the “specified conditions” in relation to a person means a person who is not a person in respect of whom an order of detention has been made under the provisions of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 or in respect of whom prosecution for any offence punishable under the provisions of the Indian Penal Code, 1860, the Unlawful Activities (Prevention) Act, 1967, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Prohibition of Benami Transactions Act, 1988, the Prevention of Corruption Act, 1988 or the Prevention of Money Laundering Act, 2002 has been instituted or such person has been convicted of any offence punishable under any of those Acts; or in respect of whom prosecution has been initiated by an income-tax authority for any offence punishable under the provisions of this Act or the Indian Penal Code or for the purpose of enforcement of any civil liability under any law for the time being in force, or such person has been convicted of any such offence consequent to the prosecution initiated by an Income-tax authority or who is notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 or who fulfils such other conditions, as may be prescribed. Also, “specified order” means such order, including draft order, as may be specified by the Board, and, aggregate sum of variations proposed or made in such order does not exceed ten lakh rupees; such order is not based on search initiated under section 132 or requisition under section 132A in the case of assessee or any other person or survey under section 133A or information received under an agreement referred to in section 90 or section 90A; where return has been filed by the assessee for the assessment year relevant to such order, total income as per such return does not exceed fifty lakh rupees.


This amendment will take effect from the 1st day of April, 2021. 


Discontinuance of Income-tax Settlement Commission


It  is  proposed  to  discontinue  Income-tax  Settlement  Commission  (ITSC)  and  to constitute an Interim Board of settlement for pending cases. The various amendments proposed are as under:


(i) ITSC shall cease to operate on or after 1st February 2021


(ii) No application under section 245C of the Act for settlement of cases shall be made on or after 1st February 2021;


(iii) All applications that were filed under section 245C of the Act and not declared invalid under sub-section (2C) of section 245D of the Act and in respect of which no order under section 245D(4) of the Act was issued on or before the 31st January 2021 shall be treated as pending applications.


(iv) Where in respect of an application, an order, which was required to be passed by the ITSC under section 245(2C) of the Act on or before the 31st day of January 2021 to declare an application invalid but such order has not been passed on or before 31st January 2021, such application shall be deemed to be valid and treated as pending application.


(v) The Central Government shall constitute one or more Interim Board for Settlement (hereinafter referred to as the Interim Board), as may be necessary, for settlement of pending applications. Every Interim Board shall consist of three members, each being an officer of the rank of Chief Commissioner, as may be nominated by the Board. If the Members of the Interim Board differ in opinion on any point, the point shall be decided according to the opinion of the majority.


(vi) On and from 1st February 2021, the provisions related to exercise of powers or performance of functions by the ITSC viz. provisional attachment, exclusive jurisdiction over the case, an inspection of reports and power to grant immunity shall apply mutatis mutandi to the Interim Board for the purposes of disposal of pending applications and in respect of functions like a rectification of orders for all orders passed under sub-section (4) of section 245D of the Act. However, where the time-limit for amending any order or filing of rectification application under section 245(6B) of the Act expires on or after 1st February 2021, in computing the period of limitation, the period commencing from 1st February 2021 and ending on the end of the month in which the Interim Board is constituted shall be excluded and the remaining period shall be extended to sixty days if less than sixty days.


(vii) With respect to a pending application, the assessee who had filed such application may, at his option, withdraw such application within a period of three months from the date of commencement of the Finance Act, 2021 and intimate the Assessing Officer, in the prescribed manner, about such withdrawal.


(viii) Where the option for the withdrawal of application is not exercised by the assessee within the time allowed, the pending application shall be deemed to have been received by the Interim Board on the date on which such application is allotted or transferred to the Interim Board.


(ix) The Board may, by an order, allot any pending application to any Interim Board and may also transfer, by an order, any pending application from one Interim Board to another Interim Board. 


(x) Where the pending application is allotted to an Interim Board or transferred to another Interim Board subsequently, all the records, documents or evidence, with whatever name called, with the ITSC shall be transferred to such Interim Board and shall be deemed to be the records before it for all purposes. 


(xi) Where the assessee exercises the option to withdraw his application, the proceedings with respect to the application shall abate on the date on which such application is withdrawn and the Assessing Officer, or, as the case may be, any other income-tax authority before whom the proceeding at the time of making the application was pending, shall dispose of the case in accordance with the provisions of this Act as if no application under section 245C of the Act had been made. However, for the purposes of the time-limit under sections 149, 153, 153B, 154 and 155 and for the purposes of payment of interest under section 243 or 244 or, as the case may be, section 244A, for making the assessment or reassessment, the period commencing on and from the date of the application to the ITSC under section 245C of the Act and ending with the date on which application is withdrawn shall be excluded. Further, the income-tax authority shall not be entitled to use the material and other information produced by the assessee before the ITSC or the results of the inquiry held or evidence recorded by the ITSC in the course of a proceeding before it. However, this restriction shall not apply in relation to the material and other information collected, or results of the inquiry held or evidence recorded by the Assessing Officer, or, as the case may be, other income-tax authority during the course of any other proceeding under this Act irrespective of whether such material or other information or results of the inquiry or evidence was also produced by the assessee or the Assessing officer before the ITSC.


(xii) The Central Government may make a scheme, by notification in the Official Gazette, for the purposes of settlement in respect of pending applications by the Interim Board, so as to impart greater efficiency, transparency and accountability by eliminating the interface between the Interim Board and the assessee in the course of proceedings to the extent technologically feasible; optimising utilisation of the resources through economies of scale and functional specialisation; and introducing a mechanism with dynamic jurisdiction. The Central Government may, for the purposes of giving effect to the said scheme, by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification. However, no such direction shall be issued after the 31st March 2023. Every such notification issued shall, as soon as may be after the notification is issued, be laid before each House of Parliament.


These amendments will take effect from 1st February 2021 


For this purpose, amendments are proposed in Section 245A to 245L vide Clauses 54 to 65 of the Finance Bill, 2021 in the following manner-


Amendment of section 245A


54. In section 245A of the Income-tax Act, with effect from the 1st day of February, 2021,–– 


(i) after clause (d), the following clause shall be inserted and shall be deemed to have been inserted, namely:–– 


‘(da) “Interim Board” means the Interim Board for Settlement constituted under section 245AA;’; 


(ii) after the clause (e), the following clauses shall be inserted and shall be deemed to have been inserted, namely:–– 


‘(ea) “Member of the Interim Board” means a Member of the Interim Board; 


(eb) “pending application” means an application which was filed under section 245C and which fulfils the following conditions, namely: — 


(i) it was not declared invalid under sub-section (2C) of section 245D; and 


(ii) no order under sub-section (4) of section 245D was issued on or before the 31st day of January, 2021 with respect to such application;’.


Insertion of new section 245AA.


55. After section 245A of the Income-tax Act, the following section shall be inserted and shall be deemed to have been inserted with effect from the 1st day of February, 2021, namely:––


Interim Boards for Settlement.


“245AA. (1) The Central Government shall constitute one or more Interim Boards for Settlement, as may be necessary, for the settlement of pending applications. 


(2) Every Interim Board shall consist of three members, each being an officer of the rank of Chief Commissioner, as may be nominated by the Board.”. 


(3) If the Members of the Interim Board differ in opinion on any point, the point shall be decided according to the opinion of the majority.”. 


Amendment of section 245B.


56. In section 245B of the Income-tax Act, in sub-section (1), the following proviso shall be inserted and shall be deemed to have been inserted with effect from the 1st day of February, 2021, namely:––


“Provided that the Income-tax Settlement Commission so constituted shall cease to operate on or after the 1st day of February, 2021.”. 


Amendment of section 245BC. 


57. In section 245BC of the Income-tax Act, the following proviso shall be inserted and shall be deemed to have been inserted with effect from the 1st day of February, 2021, namely:–– 


“Provided that the provisions of this section shall not apply on or after the 1st day of February, 2021.”. 


Amendment of section 245BD.


58. In section 245BD of the Income-tax Act, the following proviso shall be inserted and shall be deemed to have been inserted, with effect from the 1st day of February, 2021, namely:––


“Provided that the provisions of this section shall not apply on or after the 1st day of February, 2021.”.


Amendment of section 245C. 


59. In section 245C of the Income-tax Act, after sub- section (4), the following sub-section shall be inserted and shall be deemed to have been inserted with effect from the 1st day of February, 2021, namely:–– 


“(5) No application shall be made under this section on or after the 1st day of February, 2021.”. 


Amendment of section 245D.


60. In section 245D of the Income-tax Act, with effect from the 1st day of February, 2021,–– 


(i) in sub-section (2C), after the second proviso, the following proviso shall be inserted and shall be deemed to have been inserted, namely:–– 


“Provided also that where in respect of an application, an order, which was required to be passed under this sub- section on or before the 31st day of January, 2021, has not been passed on or before the 31st day of January, 2021, such application shall deemed to be valid.”; 


(ii) in sub-section (6B), for the words “amend any order passed by it”, the words “amend any order passed” shall be substituted and shall be deemed to have been substituted; 


(iii) after sub-section (8), the following sub-sections shall be inserted and shall be deemed to have been inserted, namely:–– 


‘(9) On and from the 1st day of February, 2021, the provisions of sub-sections (1), (2), (2B), (2C), (3), (4), (4A), (5), (6) and (6B) shall apply to pending applications allotted to Interim Board with the following modifications, namely:–– 


(i) for the words “Settlement Commission”, wherever they occur, the words “Interim Board” shall be substituted; 


(ii) for the word “Bench”, the words “Interim Board” shall be substituted; 


(iii) for the purposes of this section, the date referred to in sub-section (2) of section 245M shall be deemed to be date on which the application was made under section 245C and received by the Interim Board; 


(iv) where the time-limit for amending any order or filing of rectification application as per sub-section (6B) expires on or after the 1st day of February, 2021, in computing the period of limitation, the period commencing from the 1st February, 2021 and ending on the end of the month in which the Interim Board is constituted shall be excluded and where immediately after exclusion of such period, the remaining period available to the Interim Board for amending the order or to the Principal Commissioner or Commissioner or the applicant for filing of application is less than sixty days, such remaining period shall be extended to sixty days and the period of limitation shall be deemed to have been extended accordingly. 


(10) On and from the 1st day of February, 2021, the provisions of sub-sections (6A) and (7) shall have effect as if for the words “Settlement Commission”, the words “Settlement Commission or Interim Board of Settlement” had been substituted. 


(11) The Central Government may by notification in the Official Gazette, make a scheme, for the purposes of settlement in respect of pending applications by the Interim Board, so as to impart greater efficiency, transparency and accountability by—


(a) eliminating the interface between the Interim Board and the assessee in the course of proceedings to the extent technologically feasible; 


(b) optimising utilisation of the resources through economies of scale and functional specialisation; 


(c) introducing a mechanism with dynamic jurisdiction. 


(12) The Central Government may, for the purposes of giving effect to the scheme made under sub-section (11), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the said notification: 


Provided that no such direction shall be issued after the 31st day of March, 2023. 


(13) Every notification issued under sub-section (11) and sub-section (12) shall, as soon as may be after the notification is issued, be laid before each House of Parliament.”. 


Amendment of section 245DD.


61. In section 245DD of the Income-tax Act, after sub-section (2), the following sub-section shall be inserted and shall be deemed to have been inserted with effect from the 1st day of February, 2021, namely:––


“(3) On and from the 1st day of February, 2021, the power of the Settlement Commission under this section shall be exercised by the Interim Board and the provisions of this section shall mutatis mutandis apply to the Interim Board as they apply to the Settlement Commission.”.


Amendment of section 245F


62. In section 245F of the Income-tax Act, after sub-section (7), the following sub-section shall be inserted and shall be deemed to have been inserted with effect from the 1st day of February, 2021, namely:–– 


“(8) On and from the 1st day of February, 2021, the powers and functions of the Settlement Commission under this section shall be exercised or performed, by the Interim Board and all the provisions of this section shall mutatis mutandis apply to the Interim Board as they apply to the Settlement Commission.”. 


Amendment of section 245G.


63. In section 245G of the Income-tax Act, after the first proviso, the following proviso shall be inserted and shall be deemed to have been inserted with effect from the 1st day of February, 2021, namely:––


“Provided further that on or after the 1st day of February, 2021, functions of the Settlement Commission under this section shall be performed by the Interim Board and the provisions of this section shall mutatis mutandis apply to Interim Board as they apply to the Settlement Commission.”. 


Amendment of section 245H. 


64. In section 245H of the Income-tax Act, after sub-section (2), the following sub-section shall be inserted and shall be deemed to have been inserted with effect from the 1st day of February, 2021, namely:–– 


“(3) On and from the 1st day of February, 2021, the power of the Settlement Commission under this section shall be exercised by the Interim Board and the provisions of this section shall mutatis mutandis apply to the Interim Board as they apply to the Settlement Commission.”. 


Insertion of new section 245M. 


65. In the Income-tax Act, after section 245L, the following section shall be inserted and shall be deemed to have been inserted with effect from the 1st day of February, 2021, namely:–– 


Option to withdraw pending application. 


“245M. (1) With respect to a pending application, the assessee who had filed such application may, at his option, withdraw such application within a period of three months from the date of commencement of the Finance Act, 2021 and intimate the Assessing Officer, in the prescribed manner, about such withdrawal. 


(2) Where the option under sub-section (1) is not exercised by the assessee within the time allowed under that sub-section, the pending application shall be deemed to have been received by the Interim Board on the date on which such application is allotted or transferred to the Interim Board under sub-section (3). 


(3) The Board may, by an order, allot any pending application to any Interim Board and may also transfer, by an order, any pending application from one Interim Board to another Interim Board. 


(4) Where the pending application is allotted to an Interim Board under sub-section (3) or transferred to another Interim Board subsequently, all the records, documents or evidences, by whatever name called, with the Settlement Commission shall be transferred to such Interim Board and shall be deemed to be the records before it for all purposes.


(5) Where the assessee exercises the option under sub- section (1) to withdraw his application, the proceedings with respect to the application shall abate on the date on which such application is withdrawn and the Assessing Officer, or, as the case may be, any other income-tax authority before whom the proceeding at the time of making the application was pending, shall dispose of the case in accordance with the provisions of this Act as if no application under section 245C had been made: 


Provided that for the purposes of the time-limit under sections 149, 153, 153B, 154 and 155 and for the purposes of payment of interest under section 243 or 244 or, as the case may be, section 244A, for making the assessment or re- assessment under this sub-section, the period commencing on and from the date of the application to the Settlement Commission under section 245C and ending with the date referred to in this sub-section shall be excluded: 


Provided further that the income-tax authority shall not be entitled to use the material and other information produced by the assessee before the Settlement Commission or the results of the inquiry held or evidence recorded by the Settlement Commission in the course of proceedings before it: 


Provided also that nothing contained in the first proviso shall apply in relation to the material and other information collected, or results of the inquiry held or evidence recorded by the Assessing Officer, or as the case may be, other income- tax authority during the course of any other proceeding under this Act irrespective of whether such material or other information or results of the inquiry or evidence were also produced by the assessee or the Assessing Officer before the Settlement Commission.”. 


Amendments explained


Clause 54 of the Bill seeks to amend the Chapter XIX-A of the Income-tax Act relating to the settlement of cases by the Income-tax Settlement Commission (ITSC)


It is proposed to amend section 245A of the said Act to define various expressions such as “Interim Board” shall mean Interim Board for settlement constituted under section 245AA, “Member of the Interim Board” shall mean a Member of the Interim Board and “Pending Application” shall mean an application which was filed under section 245C and which was not declared invalid under sub-section (2C) of section 245D and no order under sub-section (4) of section 245D was issued on or before the 31st day of January, 2021 with respect to such application for the purposes of this Chapter. 


This amendment will take effect retrospectively from 1st February, 2021. 


Clause 55 of the Bill seeks to insert a new section 245AA of the Income-tax Act so as to provide for constitution of one or more Interim Board for settlement of pending applications and to provide that every Interim Board shall consist of three members, each being an officer of the rank of Chief Commissioner. If the members of the Interim Board differ in opinion on any point, the point shall be decided according to the opinion of majority. 


This amendment will take effect retrospectively from 1st February, 2021.


Clause 56 of the Bill seeks to amend section 245B of the said Act so as to provide that the Income tax Settlement Commission shall cease to operate on or after the 1st day of February, 2021. 


This amendment will take effect retrospectively from 1st February, 2021. 


Clause 57 of the Bill seeks to amend section 245BC of the said Act so as to provide that the existing provisions of the said section shall not apply on or after the 1st day of February, 2021. 


This amendment will take effect retrospectively from 1st February, 2021. 


Clause 58 of the Bill seeks to amend section 245BD of the said Act so as to provide that the existing provisions of the said section shall not apply on or after the 1st day of February, 2021. 


This amendment will take effect retrospectively from 1st February, 2021. 


Clause 59 of the Bill seeks to amend section 245C of the said Act so as to provide that no application shall be made under this section on or after 1st day of February, 2021. 


This amendment will take effect retrospectively from 1st February, 2021. 


Clause 60 of the Bill seeks to amend section 245D of the said Act so as to provide that where an order was required to be passed on an application made under sub-section (2C) of the said section on or before the 31st day of January, 2021 and has not been passed till such date, such application shall be deemed to be valid. It is further proposed to amend sub-section (6B) to provide that any order passed under sub-section (4) may be amended and specific reference to any amendment made by Settlement Commission be omitted. It is further proposed to insert sub-section (9) to provide that on and from the 1st day of February, 2021, the provisions of sub-sections (1), (2), (2B), (2C), (3), (4), (4A), (5), (6) and section (6B) shall apply to pending applications allotted to the Interim Board. Further, for the purposes of the said section the date referred to in sub-section (2) of section 245M shall be taken as the date on which the application was made and received under section 245C and where the time-limit for amending any order or filing of rectification application as per sub- section (6B) of the said section expires on or after the 1st day of February, 2021, the period of limitation shall exclude the period commencing from the 1st February, 2021 and ending on the end of the month in which the Interim Board is constituted. However, in cases where the remaining period is less than sixty days the same shall be deemed to have been extended to sixty days. It is also proposed to insert sub-section (10) so as to provide that the provisions of sub-sections (6A) and (7) shall have effect as if for the words “Settlement Commission”, the words “Settlement Commission or Interim Board of Settlement”. 


It is also proposed to insert sub-sections (11), (12) and (13) in the said section so as to, inter alia, provide for a scheme, by notification in the Official Gazette, for the disposal of pending applications by the Interim Board. Proposed sub-section (11) provides that the Central Government may make a scheme, by notification in the Official Gazette, for the purposes of settlement in respect of pending applications by the Interim Board, so as to impart greater efficiency, transparency and accountability by eliminating the interface between the Interim Board and the assessee in the course of proceedings to the extent technologically feasible, optimising utilisation of the resources through economies of scale and functional specialisation and introducing a mechanism with dynamic jurisdiction. Proposed sub-section (12) provides that the Central Government may, for the purposes of giving effect to the scheme made under sub-section (11), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification provided no direction shall be issued after the 31st day of March, 2023. Proposed sub-section (13) provides that every notification issued under sub-section (11) and sub-section (12) shall, as soon as may be after the notification is issued, be laid before each House of Parliament. 


This amendment will take effect retrospectively from 1st February, 2021. 


Clauses 61, 62, 63 and 64 of the Bill seeks to amend sections 245DD, 245F, 245G and 245H of the Income-tax Act so as to provide that the powers and functions of Settlement Commission under the said sections shall be exercised or performed by the Interim Board on or after the 1st day of February, 2021 and all the provisions of the said sections shall mutatis mutandis apply to Interim Board as they applied to Settlement Commission. 


These amendments will take effect retrospectively from 1st February, 2021.


Clause 65 of the Bill seeks to insert new section 245M in the Income-tax Act so as to provide that the assessee an option to withdraw his application made under section 245C. Proposed sub-section (1) thereof, inter alia, provides that the assessee who had filed an application which is pending before the Interim Board has the option to withdraw such application within three months from the date of commencement of Finance Act, 2021 and intimate the Assessing Officer about such withdrawal in the manner prescribed. However, if such option is not exercised by the assessee within the time allowed, the pending application shall be deemed to have been received by the Interim Board on the date on which it is allotted or transferred to it. The Board may, by an order, allot or transfer any pending application from one Interim Board to another and upon allotment or transfer of a pending application to an Interim Board, all records, documents or evidences with the Settlement Commission, shall be deemed to be the records before such Interim Board. 


Proposed sub-section (5) of the said section provides that where an assessee withdraws his application, the proceedings with respect to such application shall abate on the date of withdrawal and the Assessing Officer or any other income-tax authority before whom the proceedings were pending prior to the application shall dispose the case in accordance with the provisions of the said Act and in such case, for the purposes of the time-limit under sections 149, 153, 153B, 154 and 155 and for the purposes of payment of interest under section 243 or 244 or 244A, for making the assessment or re-assessment, the period commencing on and from the date of the application to the Settlement Commission under section 245C and ending with the date of withdrawal of application shall be excluded. It is also proposed to provide that the income-tax authority shall not be entitled to use the material and other information produced by the assessee before the Settlement Commission or the results of the inquiry held or evidence recorded by the Settlement Commission in the course of proceedings before it and the preceding conditions shall not apply in relation to the material and other information collected, or results of the inquiry held or evidence recorded by income-tax authority during the course of any other proceeding under this Act irrespective of whether such material or other information or results of the inquiry or evidence were also produced by the assessee or such income-tax authority before the Settlement Commission. 


This amendment will take effect retrospectively from 1st February, 2021.



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