Allahabad High Court Quashes Time-Barred Settlement Order: Administrative Transfers Cannot Reset the Mandatory 18-Month Limitation Under Section 245D

The transition from the erstwhile Income Tax Settlement Commission to the newly constituted Interim Boards for Settlement (IBS) has birthed numerous procedural and jurisdictional disputes. One of the most contentious issues revolves around the strict computation of statutory timelines for disposing of pending settlement applications.

In a landmark judicial pronouncement, the Allahabad High Court in the case of B.L. Agro Industries Limited Vs Union of India delivered a decisive ruling on the interpretation of the 18-month limitation period prescribed under Section 245D(4A)(iii) read with Section 245D(9)(iii) and Section 245M(2) of the Income Tax Act 1961. The Court unequivocally established that the statutory time limit for disposing of a settlement application is mandatory, not directory. Furthermore, the Court clarified that an internal administrative transfer of a case from one Interim Board to another does not reset or extend this rigid 18-month clock.

This comprehensive analysis delves into the factual matrix, the competing legal arguments, the statutory framework, and the High Court's definitive rationale that led to the quashing of the time-barred settlement orders.

Factual Matrix of the Dispute

The genesis of the dispute traces back to a search and seizure operation and the subsequent abolition of the Income Tax Settlement Commission, which fundamentally altered the trajectory of the assessee's settlement proceedings.

The Search and Initial Notices

On October 4, 2018, the Income Tax Department conducted a search and seizure operation under Section 132 of the Income Tax Act 1961 at the business premises of the assessee, B.L. Agro Industries Limited. During this operation, the department alleged the discovery of incriminating transactions involving the assessee and its sister concerns.

Following the search, the jurisdictional authorities issued notices under Section 153A for the Assessment Years 2009-2010 through 2018-2019. Additionally, a notice under Section 143(2) was issued for the search year, being Assessment Year 2019-2020.

Abolition of the Settlement Commission and HC Intervention

Seeking to resolve the mounting litigation, the assessee intended to approach the Income Tax Settlement Commission under Chapter XIX-A of the Act. However, a major legislative shift occurred when the Finance Act 2021 abolished the Settlement Commission with retrospective effect from February 1, 2021. This abrupt legislative change effectively barred the filing of new settlement applications after January 31, 2021, by virtue of the first proviso to Section 245B(1) and Section 245(c).

Aggrieved by the sudden extinguishment of their statutory remedy, the assessee filed a writ petition before the Allahabad High Court. On March 19, 2021, the High Court granted equitable relief, permitting the assessee to file a settlement application by March 23, 2021, and directing the authorities to accept it. Complying with this judicial directive, the assessee successfully filed the application in New Delhi on the stipulated date.