18-Month Limitation Under Sec 245D(4A)(iii) Is Mandatory, Not Reset by Transfer | Income-Tax Settlement Applications : Allahabad HC

The Allahabad High Court clarified that the 18-month limitation prescribed in Section 245D(4A)(iii) of the Income Tax Act, 1961 is mandatory and cannot be extended by administrative transfers of a pending settlement application. By quashing the Interim Board’s October 2023 order, the Court reinforced strict compliance with statutory time-bars in tax settlement proceedings.

Background & Facts

The Dispute

The petitioner, M/s B.L. Agro Industries Limited, a private limited company incorporated at Bareilly, was subjected to a search and seizure operation on 04 Oct 2018 under Section 132 of the Income Tax Act. The search uncovered alleged incriminating transactions involving the petitioner and its three sister concerns. Subsequent notices were issued under Section 153A for Assessment Years 2009-10 to 2018-19 and under Section 143(2) for AY 2019-20.

Key Facts

• 04 Oct 2018: Search and seizure at the petitioner’s premises.
• Finance Act 2021: Abolished the Income Tax Settlement Commission with retrospective effect from 01 Feb 2021, thereby barring settlement applications filed after 31 Jan 2021 under the first proviso to Section 245B(1) and Section 245(c).
• 19 Mar 2021: The Court, in W.P(C) No. 6021 of 2021, granted liberty to the petitioner to file a settlement application before the Income-Tax Settlement Commission by 23 Mar 2021.
• 23 Mar 2021: Petitioner filed its settlement application.
• 28 Sep 2021: CBDT order treating applications filed between 01 Feb 2021 and 30 Sep 2021 as “pending applications” under Section 245A(eb).
• 01 Nov 2021: Notification establishing the Interim Board for Settlement (IBS) and the e-Settlement Scheme, 2021.
• 07 Mar 2022: IBS-III, Delhi exercised powers under Section 245D(3) and directed respondents to furnish a Rule 9 report.
• 22 Apr 2022 & 15 Jun 2022: Respondent No. 3 sought extensions for the Rule 9 report.
• 13 Jun 2022: CBDT transferred the petitioner’s pending application from IBS-III, Delhi to IBS-VII, Chennai.
• 30 Oct 2023: IBS-VII, Chennai passed an order under Section 245D(4) rejecting the settlement application.
• 16 Nov 2023, 04 Dec 2023, 06 Dec 2023: Petitioner filed rectification applications under Section 245D(6B), raising a jurisdictional objection based on the expiry of the 18-month period.
• 15 Dec 2023: IBS-VII, Chennai dismissed the rectification applications without addressing the limitation objection.

Procedural History

• 04 Oct 2018: Search and seizure conducted.
• 19 Mar 2021: W.P(C) No. 6021 of 2021 filed; Court ordered liberty to file settlement.
• 23 Mar 2021: Settlement application filed.
• 28 Sep 2021: CBDT order treating the application as pending.
• 01 Nov 2021: IBS notified; e-Settlement Scheme came into force.
• 07 Mar 2022: IBS-III, Delhi issued Rule 9 report direction.
• 13 Jun 2022: CBDT transferred application to IBS-VII, Chennai.
• 30 Oct 2023: IBS-VII, Chennai issued order under Section 245D(4).
• 16 Nov - 06 Dec 2023: Petitioner filed rectification applications under Section 245D(6B).
• 15 Dec 2023: IBS-VII dismissed rectification applications.
• 10 Aug 2026: Allahabad High Court delivered the judgment quashing the October and December 2023 orders.

Parties' Positions

Petitioner argued that:

• The settlement application became a “pending application” under Chapter XIX-A and was required to be disposed of within the statutory 18-month period.
• The 18-month limitation is mandatory; it began on 01 Nov 2021 (date of scheme notification) and expired on 30 Apr 2023.
• The transfer to IBS-VII on 13 Jun 2022 cannot restart the limitation clock.
• Consequently, the October 2023 order was barred by limitation and void.

Respondent contended that:

• The deemed date of receipt by IBS-VII is 13 Jun 2022; the 18-month period therefore expired on 31 Dec 2023, making the October 2023 order timely.
• The limitation under Section 245D(4A)(iii) is directory, not mandatory; even a delayed order would not be void.
• The petitioner’s participation in the proceedings precludes raising a limitation objection later.

Relief Sought

The petitioner sought quashing of the order dated 30 Oct 2023 and the consequential order dated 15 Dec 2023, and a declaration that the settlement proceedings were time-barred under Section 245D(4A)(iii).

The Legal Issue

Whether the 18-month period prescribed in Section 245D(4A)(iii) of the Income Tax Act, 1961 is mandatory or directory, and from which date the limitation period commences - the initial allotment to IBS-III, Delhi on 01 Nov 2021 or the subsequent administrative transfer to IBS-VII, Chennai on 13 Jun 2022.

Arguments Presented

For the Petitioner

The petitioner relied on the plain wording of Section 245D(4A)(iii) and the legislative intent expressed in Section 245M(2)-(4). It submitted that the statutory fiction of “receipt” is triggered at the first allotment or transfer, not at a later administrative transfer. The petitioner also cited RNS Infrastructure Ltd. v. Income-Tax Settlement Commission and the Karnataka High Court’s decision in L. Narayana Swamy v. CIT to establish that the 18-month period is mandatory and any order beyond it is a nullity.

For the Respondent

The respondent argued that Section 245M(2) deems the date of receipt to be the date of any subsequent transfer, thereby resetting the limitation clock. It further relied on Star Television News Ltd. v. Union of India to contend that the 18-month period is directory and that the petitioner’s voluntary participation barred a later limitation plea.

The Court's Analysis

The Court began by examining the textual scheme of Sections 245D, 245D(4A)(iii), 245D(9)(iii) and 245M. It emphasized that the legislature introduced a “deemed receipt” provision in Section 245M(2) to address applications pending at the time of the Settlement Commission’s abolition. The Court held that the phrase “transferred to another Interim Board subsequently” in Section 245M(4) indicates a distinction between the initial allotment and any later administrative transfer; the former creates the statutory fiction of receipt, while the latter does not restart the limitation period.

"The period prescribed under Section 245D(4A)(iii) cannot be extended once the Interim Board takes cognizance of the interim application pending before it."

The Court rejected the respondent’s contention that the limitation is directory, relying on the Karnataka High Court and Supreme Court precedents that categorically described the 18-month period as mandatory. It noted that the purpose of the provision is to ensure timely disposal of settlement applications and that any relaxation would defeat the statutory scheme.

Regarding the commencement date, the Court accepted the petitioner’s computation: the application was first allotted to IBS-III, Delhi on 01 Nov 2021 (the date of the e-Settlement Scheme notification). Accordingly, the 18-month period expired on 30 Apr 2023. The subsequent transfer on 13 Jun 2022 was merely an administrative move and did not create a fresh limitation period.

The Court also addressed the respondent’s reliance on Star Television News Ltd. It observed that the cited decision predates the Finance Act, 2021 and dealt with a different statutory framework; therefore, it was not applicable to the present context.

In sum, the Court concluded that the October 30, 2023 order was passed well beyond the mandatory limitation and was therefore void ab initio. The December 15, 2023 consequential order, being dependent on the void order, was also set aside.

The Verdict

The writ petition is allowed. The order dated 30 Oct 2023 passed by IBS-VII, Chennai under Section 245D(4) and the consequential order dated 15 Dec 2023 are quashed and set aside. The Court holds that the 18-month limitation under Section 245D(4A)(iii) is mandatory, began on 01 Nov 2021, and expired on 30 Apr 2023; any order thereafter is time-barred.

What This Means For Similar Cases

Mandatory 18-Month Limitation

• Practitioners must calculate the 18-month period from the date of the first allotment or transfer that creates the statutory “receipt” under Section 245M(2).
• Any order issued after the expiry of this period is void, regardless of subsequent administrative transfers.

Transfer Does Not Restart Clock

• An administrative transfer of a pending application from one Interim Board to another does not constitute a new “receipt” for limitation purposes.
• Counsel should argue that the limitation commenced at the initial allotment date, not at the later transfer date.

Directory vs Mandatory Distinction

• The Court reaffirmed that the limitation is mandatory; reliance on older cases treating it as directory will not succeed post-Finance Act, 2021.
• Drafting of settlement applications should ensure that the statutory deadline is met, or risk abatement under Section 245HA(1)(iv).

Practical Takeaways

• Verify the exact date of first allotment under the e-Settlement Scheme.
• File any objections or appeals well before the 18-month expiry.
• Document the chronology meticulously to pre-empt jurisdictional challenges.