FAQs on the Definition of Case under Section 245A(b) of the Income-Tax Act

‘Case’ has been defined in clause (b) to section 245A. A taxpayer can prefer an application before Income-tax Settlement Commission (ITSC) at any stage of a ‘case’ relating to him. As per sub-section (1) of section 245C of the Income-tax Act, 1961 (Act), ‘case’ refers to pendency of a proceeding before specified Income-tax authorities in different situations. Hence, this is the most crucial requirement to move an application before ITSC. This determines the eligibility of a person for approaching the ITSC. Pendency of a ‘case’ sets in motion the process of moving an application before the ITSC. The meaning of ‘case’ has undergone a number of changes by various amendments from time to time.

The basic prerequisite is that an assessee can only move an application before the ITSC at any stage of a ‘case’ relating to him. A ‘case’ means any proceeding for assessment under the Act, of any person in respect of any assessment year or assessment years which may be pending before the Assessing Officer on the date on which an application under section 245C(1) of the Act is made. This term ‘case’ has undergone periodical amendments either to restrict or expand its meaning and scope. Prior to 31-05-2007, a ‘case’ referred to a proceeding pending for assessment before an Assessing officer including search assessment, reassessment, appeal and revision. This was amended by Finance Act, 2007 with effect from 1-06-2007 which referred only to a pending regular assessment. This amendment excluded proceedings for search assessments. After 1-06-2010 (Amended by Finance Act, 2010), case means proceedings for regular assessments and search assessments under section 153A/153C of the Act. This was again amended by Finance (No. 2) Act, 2014 with effect from 1-10-2014 and Finance Act, 2015 with effect from 1-6-2015 to widen the scope of the expression ‘case’. The present position with regard to the definition of a ‘case’ is summarised below:

1. 1. 1. A ‘case’ means any proceeding for assessment under the Act for any assessment year or assessment years of any person pending before the Assessing Officer on the date of moving the application under section 245C(1) of the Act. The proceeding must be pending on first day of the assessment year till the date on which assessment is made. Thus, an application can only be moved before conclusion of assessment(s).
      2. A proceeding for assessment or reassessment or recomputation of escaped income under section 147 of the Act is a ‘case’ pending before the Assessing Officer enabling the assessee to move an application. In such cases, the assessee can move the application within the period commencing on the date of issue of notice 148 ending with the date of completion of assessment. Prior to 1-06-2015, the assessee could move the application only for the year for which a notice under section 148 has been issued. However, in such a case, there could be escapement of income for more than one assessment year. The assessee was not entitled to move application if no notice under section 148 of the Act was issued for such years.
      3. To get over this difficulty, Finance Act, 2015 effected changes in sub-clause (b) of clause (i) of Explanation to section 245(b) of the Act with effect from 1-6-2015. It has been provided that where a notice under section 148 has been issued for any assessment year, the assessee can approach ITSC for other assessment years as well, even if no notice under section 148 for such other assessment years has been issued but such notice could have been issued on such date. The only condition for application of this amended provision is that the return of income for such other assessment years having escaped income must have been furnished under section 139 of the Act or in response to notice under section 142 of the Act.
      4. A proceeding for making fresh assessment in pursuance to directions under section 254, 263 or 264 of the Act setting aside or cancelling the assessment is a ‘case’ pending before the Assessing Officer. Therefore, such assessee is eligible to move an application for such assessment year arising out of directions under section 254 or 263 or 264 of the Act. The period for moving the application is reckoned from the date of passing any such order ending with date of passing fresh assessment order in pursuance to the direction contained in such order. Once the Assessing Officer passes the order in pursuance to directions contained in any of the above orders, the assessee is not entitled to move an application. [Substituted by Finance (No. 2) Act, 2014 w.e.f. 1-10-2014]
      5. Proceeding for assessment or reassessment under section 153A of the Act in case of a searched person as referred to in clause (b) of sub-section (1) to section 153A and under section 153C of the Act in case of ‘other person’ is a ‘case’. Such proceeding would deem to have commenced on the date issue of notice under section 153A/153C of the Act initiating the proceeding under the said sections and ending with the date completion of assessment. This was inserted by Finance Act, 2010 with effect from 1-6-2010.
      6. In case of regular assessment [other than the proceedings of assessment/reassessment referred to in clause (i) or clause (ii) or clause (iii) of Explanation to section 245A(b)], application could be moved within the period commencing on the first day of the assessment year ending with the date on which the assessment is completed. This was the position upto 31-05-2015. As per the amended provision with effect from 1-6-2015, the assessee can now move an application within the period commencing on the date on which return of income is furnished under section 139 or in response to notice served under section 142 of the Act ending with the date on which assessment is made or expiry of time specified in making assessment under sub-section (1) to section 153 of the Act in case where no assessment is made.
      7. It may be noted that the year of search is not comprised in six assessment years as per section 153A(1)(a) of the Act. Therefore, the assessee was eligible to file application directly before the ITSC after the end of the previous year of search without filing return before the Assessing Officer before amendment from 1-6-2015. However, in the light of the amended provision with effect from 1-6-2015, the assessee is now required to file the return as required under section 139/142 of the Act before moving the application.
      8. With effect from 1-4-2017, the assessee can also move an application for the ‘relevant assessment years’ which are covered under clause (b) to section 153A(1) of the Act. Relevant assessment years comprise of extended four assessment years as defined in Explanation 1 to section 153A of the Act. In respect of relevant assessment years, filing of returns is subject to satisfaction of the conditions laid down in the Explanation which entitles the Assessing Officer to issue notice. Therefore, unless the Assessing Officer issues notice for any one or more assessment years, the assessee cannot approach the ITSC in respect of any of the assessment years comprised in four assessment years.

An application for settlement under section 245C(1) of the Act can only be moved during pendency of proceeding before Assessing Officer as per clause (b) to section 245A. In other words, the application should be moved before the date of completion of assessment. In this context, a situation may arise where the applicant may not be aware about the date of completion of assessment and termination of assessment proceedings due to non-service of assessment order or delay in service of the same. The eligibility in such a situation came up for consideration in the case of M3M India Holdings () Ltd. v. Income Tax Settlement Commission (IT&WT) [2020] 114 taxmann.com 92/269 Taxman 425 (Punj. & Har.). It was held that since the assessment order was neither received by the assessee nor delivered by postal authorities, when the application was filed before the ITSC, assessment proceedings could not be said to have been concluded. The order of ITSC rejecting the application to be proceeded with was set aside. In course of hearing the department relied on the ratio of the decision in the case of Shalibhadra Developers v. Secretary [2016] 74 taxmann.com 152/[2017] 245 Taxman 160 (Guj.), to drive home the point that the date of completion as recorded in the assessment order is relevant. This case was distinguished for the reason that in the said case, the assessee refused to accept the assessment order. The Court followed the decision in the case of Yashovardhan Birla v. Dy. CIT [2016] 73 taxmann.com 5 (Bom.). It was held that the assessment order can be said to have been made on the date when the order is served on the assessee.

Per Contra in Principal CIT v. Vallabh Pesticides Ltd. [2018] 94 taxmann.com 434 (Guj.), it was held that once the assessment is made by the Assessing Officer by passing the order of assessment, the case can no longer be said to be pending. An application for settlement would be maintainable only if the same is filed before that date. The date of dispatch or service of the order on the assessee would not be material for such purpose. In Rm. P.R. Viswanathan Chettiar v. CIT [1954] 25 ITR 79 (Mad.), the contention of the assessee was that making of the order would be taken as the date when it was communicated to the assessee and the assessee becomes aware of completion of his assessment. However, the Madras High Court negatived the same by holding that the assessment would be made when the assessment was completed by the Assessing Officer but not when the order of assessment was communicated to the assessee. A sound view appears to support the principle that the date of completion of assessment is the date when the order is served on the assessee. This is in tune with the principle that a person should not suffer for the fault of the Court.

In Yashovardhan Birla Dy. CIT [2016] 73 taxmann.com 5 (Bom.), it was observed that there is a difference between passing of an order and service of an order. It was also observed that in the Act, the legislature has used the expression ‘issue’, ‘service’ and ‘communication’ of an order at various places. It was also observed that the difference in the language used must be given its meaning in the context of these three expressions. Therefore, till the service of the assessment order, the pendency continues for making an application under section 245C of the Act. In this case the Court took notice of FAQ issued by ITSC in its website, where in it is clarified that an application for settlement could be filed till such time the assessment order is served upon the assessee. The order rejecting the application was quashed and set aside to the file of ITSC.

This issue came up for consideration in the case of CIT Income Tax Settlement Commission [2013] 36 taxmann.com 551/218 Taxman 49 (Mag.) (Guj.). It was held as under:

‘To our mind, therefore, the newly introduced definition of the term “case” would cover only those situations where an assessment is pending before the AO or it is still possible for AO to pass an order of assessment. Undoubtedly, acceptance of the return filed under s. 143(1) of the Act cannot be categorized as an order of assessment. Under such a situation, obviously mere acceptance of the return under s. 143(1) of the Act would not exclude an assessee’s case from the definition contained in s. 245A(b) of the Act. However, to contend that till the final order of assessment is passed, whether the Revenue takes a particular case in scrutiny or not, the assessment should be deemed to be pending in our view would be stretching the language used in the definition, as also providing something which is not stated in the language. Accepting such a contention would lead to strange results. In a given case, if the assessment of an assessee is not taken in scrutiny and the Revenue never desired to take the same in scrutiny, for long number of years, the assessee could contend that since no final order of assessment has been passed, his case for assessment can be stated to be pending before the AO within the meaning of cl. (b) of the Act. Surely, the legislature never desired to bring about such anomalous situation.’

The section has not made any reference to section 139(1) of the Act. It may be noted that wherever the legislature intended to use the word 139(1), the same has been specifically stated in the Act. Therefore, if an assessee has filed his return of income within time allowed under section 139, he can move an application before the ITSC for that assessment year subject to compliance to other requirements in case falling under Explanation (i)(b) to section 245A of the Act. What is important is that the case must satisfy the parameters laid down in section 139 of the Act.

In case of regular assessment (other than proceedings for assessment or reassessment mentioned under section 147 of the Act), the application can be moved within the period commencing on the first day of the assessment year ending with the date on which the assessment is completed. This was the position upto 31-05-2015. As per the amended provisions with effect from 1-6-2015, the assessee can now move an application within the period commencing on the date on which the return of income is furnished under section 139 or in response to notice under section 142 of the Act ending with the date on which assessment is made or on expiry of time specified in sub-section (1) to section 153 of the Act where no assessment is made. Thus, for the previous year which has not ended, it is mandatory to file the return of income after end of the previous year and then move the application for that previous year before the ITSC. This issue assumes importance in search cases as the search takes place in the middle of the previous year and there is a possibility of discovery of undisclosed income upto the date of search. In such cases, it is advisable to wait till the end the previous year of search and include the undisclosed income, if any, found in course of search in the return and then approach the ITSC.

Despite widening the scope of ‘case’ by various amendments, there is no scope for a non filer to whom no notice under section 142(1)/143(2)/148/153A and 153C of the Act calling for return has been issued and no assessment has been completed to approach ITSC. Therefore, such non-filer’s case does not fall within the scope of a ‘case’.

The answer is an emphatic No. This is clarified by CBDT Circular No. 17/2014 dt 10-12-2014. Further, an intimation u/s 143(1) is an intimation only and not an assessment order. It was so held in the case of CIT v. Zuari Estate Development & Investment Co. Ltd. [2015] 63 taxmann.com 177/[2016] 236 Taxman 1 (SC) (Mag.).

A composite application can be filed. The expression used in clause (b) to section 245A of the Act refers to any assessment year or assessment years which may be pending before the Assessing Officer on the date on which application is made. Hence, one application can be filed in Form No. 34B in respect of a case comprising of one or more assessment years. This is also clear as indicated in colmn-3 Part-B of Form No. 34B.

Applicant is not bound to approach ITSC for all the pending assessment years. It is open to the applicant to choose assessment years for which he wishes to offer additional income. In such an event, the Assessing Officer can go ahead with regular assessment proceedings for remaining assessment years. However, it is advisable to scrutinize the books and financials of such assessment years and if there is any doubt on any issue, the assessee should offer additional income for such assessment years in its application. This will give a quietus to the matters at issue.

Preferring an application for all pending assessment years does away with the voluminous compliances to be made before the AO. Similar queries need not be answered before two authorities e. ITSC and AO on the same issue. This can be considered as a specific advantage as all materials available can be placed before ITSC for all pending assessment years on a contentious issue. This will also avoid different conclusions by the two different authorities. This may create a problem for the assessee.

There are divergent opinions on this issue. These are summarised below:

• • In the case of Rescuwear Corpn., In re [2009] 177 Taxman 281 [ITSC] (SB) following principles were enunciated. This case related to an application covering assessment year 2004-05 to assessment year 2008-09 prior to the amendments effected by Finance (No. 2) Act, 2014 and Finance Act, 2015. It was the pleaded by the department that since time for issuance of notice under section 143(2) of the Act has expired and no assessment can be done, for such assessment years, no proceeding could be said to be pending. In this context, it was held as under:
  • For the years for which returns have been filed but the same have not been processed under section 143(1) nor notices have been issued under section 143(2) of the Act, proceedings for such assessment years would be deemed to be pending;
  • For the years for which returns have been processed under section 143(1) but no time was left for issue of notices under section 143(2), proceedings for such assessment year are deemed to be pending in view of the CBDT Circular No. 3 of 2008, dated 12-3-2008;
  • As per the provisions of section 245A(b) of the Act, pendency of proceedings for the assessment before the Assessing Officer for one or more assessment years is a necessary condition for invoking the jurisdiction of the ITSC for moving an application. Clause (iv) of the Explanation to the said section clearly states that a proceeding for the assessment shall be deemed to have commenced on the first day of the assessment year and concluded on the date on which the assessment is made. In such circumstances, it can be said that proceedings for the assessment can be said to be pending for particular assessment years only up to such time till the Assessing Officer has power to take action in respect of those assessment years. Therefore, the meaning and scope of ‘date of conclusion of proceedings’ under clause (iv) of the Explanation to the section 245A(b) of the Act is that the proceedings for assessment can be said to be pending before an Assessing Officer in respect of those assessment years only for which he can still take action/initiate the proceedings under the Act;
  • Where a composite application is made and proceedings are pending for some assessment years but are not pending for other years, application could be admitted for those years for which proceedings are pending and would be invalid for other years. Whole of the application need not be declared as invalid, if proceedings for assessment are pending for some assessment years. The settlement application could be proceeded with for those assessment years for which proceedings are pending before the Assessing Officer.
  • In CIT Income Tax Settlement Commission [2012] 25 taxmann.com 551/210 Taxman 529 (Guj.), facts of the case were that on the date the assessee filed the application, the returns were processed under section 143(1) and time to issue notice under section 143(2) of the Act had expired as also time limit for completion of assessment under section 143(3) of the Act. It was held that merely because the return was accepted under section 143(1), the case of the assessee should be deemed to be pending for that assessment only because the final order of assessment under section 143(3) was not passed, is not correct. The Court did not accept the proposition set out in the case of Rescuwear Corpn. In re [2009] 177 Taxman 281 [ITSC] (SB) with the observation that the Special Bench did not lay down such a proposition in absolute terms. In other words, assessee cannot move an application in respect of the assessment years barred by limitation under section 153 of the Act.
  • In CIT Income Tax Settlement Commission [2013] 38 taxmann.com 115 (Bom.), the issue was that when notice under section 143(2) of the Act has not been issued and time for issuance of such notice has expired, whether the assessment proceeding can be said to be pending so as to enable the assessee to file an application? The question was answered in affirmative stating that as time to make such assessment under section 143(3) of the Act has not expired, assessment proceedings can be treated as pending, even though the time for issuance of notice under section 143(2) of the Act has expired. It was held that where an intimation under section 143(1) of the Act is in appeal, it would still be open to an assessee to file an application before the Settlement Commission so long as no order of assessment under section 143(3) of the Act has been passed within period of time provided under section 153 of the Act. For arriving at the conclusion, the Court relied on Circular No. 3/2008 dated 12 March 2008 issued by the Central Board of Direct Taxes as per which the assessee is entitled to file application since intimation under section 143(1) is not an assessment order. It was held that the beneficial Circulars issued by the CBDT are binding on the department as held by the Apex Court in K.P. Varghese v. ITO [1981] 7 Taxman 13 (SC), Ellerman Lines Ltd v. CIT [1971] 82 ITR 913 (SC) and Catholic Syrian Bank Ltd. v. CIT [2012] 206 Taxman 182/18 taxmann.com 282 (SC). It was further observed that the said circular has not been withdrawn by the Board.
  • This issue came up for consideration before Calcutta High Court in the case reported in [2012]1 CAL LT 309. It was held that since time to make assessment under section 143(3) of the Act has expired, then the proceeding for assessment is not pending and application for such year cannot be filed.
  • In CIT Income Tax Settlement Commission [2012] 27 taxmann.com 239/212 Taxman 511 (Delhi), it was held that the assessment proceeding is deemed to have been terminated, where no assessment could be made because of application of section 153 of the Act.
  • The situation in a search case is different. It is because once a search is initiated, the Assessing Officer shall issue notice for six assessment years preceding the previous year in which search is conducted. This is mandatory. This legal position has been changed to include ‘relevant assessment years’ (four assessment years) with effect from 1-4-2017 subject to certain stipulations. Therefore, in a search case, the assessee can move application for six or ten assessment years, as the case may be, depending on the legal stipulations. In other words, in a search case, the scope of a ‘case’ is wider by operation of law in as much as once a search takes place assessments whether completed or pending get revived for the relevant assessment years.

From the judicial precedents discussed above, one consensus view which emerges is that when time limit to frame assessment has expired under section 153, the question of pending proceeding would not arise to reckon it as a ‘case’.

Clause (b) of the Explanation to section 245A of the Act uses the expression ‘issue’ with reference to the above notices for reckoning pendency of a proceeding. Therefore, commencement of proceeding by issue notice under section 143(2) of the Act is not material. Form No. 34B also refers to issue of notice. Hence, eligibility of the assessee to approach ITSC commences from the date of issue of the notice under section 153A/153C in a search case.

The plain language of section 245A of the Act does not say so. Mere issuance of notice will suffice for reckoning the commencement of the proceeding although no return is filed. However, till filing of return a person will not be in a position to work out additional tax and interest as stipulated in proviso to section 245C of the Act. Hence, filing of a return in response to notice under section 153A/153C of the Act is a requirement before approaching ITSC.

It is necessary to take care and to ensure that the returns in response to section 153A are filed in time as indicated in the notice under section 153A. Failure to do so may result in penalty under section 271AAB of the Act at the rate of 60% [Refer to the definition of ‘specified date’ in section 271AAB]. Although, the ITSC is empowered to waive such penalty, it has also power to levy penalty as well. In case where the ITSC decides to levy penalty, it may result in a higher burden. It is better to seek extension of time to file return under section 153A for which there is no statutory bar under section 153A of the Act. Further, non-filing of return would entail interest liability under section 234A of the Act which is mandatory. Non-filing of return in response to statutory notices may create a negative impression in the minds of ITSC that the assessee wishes to take undue advantage by approaching ITSC. Further, an assessee can claim deduction under Chapter VI which could not be claimed in the original return due to bona fide reasons despite the fact that he is legally entitled to such deduction.

Proceeding is not defined in the Act. The meaning of this expression can be ascertained from dictionary meaning and as decided by the Courts. In Reckitt Colman of India Ltd. Asstt. CIT [2002] 124 Taxman 496 (Cal.), the import of the word ‘proceeding’ came in for interpretation. The Court referred to the meaning of the word in various dictionaries. As per Black’s Law Dictionary, Sixth Edition, page 1204, ‘proceeding’ in a general sense means the form and manner of conducting judicial business before a court or judicial officer, regular and orderly progress in form of law, including all possible steps in an action from its commencement to the execution of judgment. As per Halsbury’s Laws of England, Volume 1, page 5, para 7, the term ‘proceeding’ is frequently used to denote a step in an action, and obviously it has that meaning in such phrases as ‘proceeding in any cause or matter’. When used alone, however, as it is in certain statutes, it has to be construed as synonymous with, or including, an action. As per the Shorter Oxford English Dictionary, volume II, page 1677, ‘proceeding’ refers to instituting or carrying on of an action at law, a legal action or process, any act done by authority of a court of law, any step taken in a cause by either party.

A ‘proceeding’ covers a step in an action and is equivalent to an action. The word ‘proceeding’ can be assigned a narrow or a wide meaning depending upon the nature and the scope of the enactment in which it is used and in the particular context of the language of the enactment in which it appears. It may in some enactments mean an action or that which initiates an action and in other enactments it may also mean a step in an action.

This was so held in the case of Ganga Naicken v. A. Sundaram Ayyar AIR 1956 Mad 597.

The word ‘proceeding’ has been defined in Babu Lal v. Hazari Lal Kishore Lal, AIR 1982 SC 818 to mean a step in the judicial process. It indicates a prescribed mode in which a judicial business is conducted. It is a comprehensive term to include executive proceeding.

In Stroud’s Judicial Dictionary, Fourth Edn. Vol. 4 at p. 1975, the expression ‘pending’ is explained to mean as follows: “A legal proceeding is ‘pending’ as soon as commenced and until it is concluded…”. The expression ‘pending’ refers to an undecided matter or a proceeding pending before a court or an authority. ‘Proceeding’ culminates in a judgment or an order.

In CIT Settlement Commission [2012] 27 taxmann.com 239/[2013] 212 Taxman 511 (Delhi), it was held that when under section 153 of the Act, an assessment cannot be made because of limitation, the proceeding is terminated. In such a case, the assessee cannot move an application. The Court observed that it is inconceivable how proceedings could have been deemed to continue indefinitely, in cases where no assessment order is made under section 143/144 of the Act because of limitation under section 153 of the Act due to efflux of time. It was held that the order of the ITSC in admitting the application is contrary to law. Similar view was expressed in the case of Shriniwas Machine Crafts (P.) Ltd. v. Income Tax Settlement Commission [2014] 43 taxmann.com 326 (Bom.) and CIT v. Income Tax Settlement Commission [2013] 36 taxmann.com 551/218 Taxman 49 (Mag.) (Guj.)

It is not uncommon that many times the Assessing Officers issue notice under a wrong/inapplicable section to initiate a proceeding. In such a scenario, the assessee who wishes to file application will not be in a position to know its legality. On his part, there could be a bona fide belief that the required notice has been issued under correct section by the Assessing Officer who has jurisdiction to issue such notice. In such cases, if it is found subsequently either by the Commissioner or ITSC that the notice is issued under a wrong section, what will be the legal position? The ITSC upon discovering the defect may not accept the application as sine qua non for filing an application is issuance of a valid notice. If the ITSC holds that the notice is bad in law, it would mean that the said notice never existed in the eye of law. To remedy this defect, the Assessing Officer would definitely reinitiate the proceeding by issuance of fresh notice under the appropriate section. In such an event, there would be no bar to approach ITSC afresh on the basis of fresh notice, as no valid notice existed in the eye of law at the time of filing original application. In such a situation, the ITSC cannot take a view that a revised/fresh application is filed. It is a sound principle that no one should suffer for the fault of the Court.

Under section 254, 263 or 264 of the Act, the case can be set aside to the Assessing Officer to complete the assessment de novo after giving opportunity to the assessee. At the same time, there could be a specific direction in relation to certain items of income. Whereas the former direction may result in a pending proceeding but not the later. In the later case, the AO has to give effect to the directions of ITAT or Commissioner but not required to pass a de novo assessment order. Under section 254 of the Act, Tribunal can set aside the case either to CIT(A) or to Assessing Officer to reframe the assessment de novo after giving opportunity to the assessee. This is taken as a pending proceeding within the meaning of section 254. The Tribunal can also remand the case with specific direction to clarify on certain issues in respect of certain items of income after due enquiry so as to facilitate the disposal of the case by it. This cannot be taken as a pending proceeding to move an application before ITSC.

This issue has been decided by Calcutta High Court in the case of Shaw Wallace & Co. Ltd. v. Settlement Commission [2004] 139 Taxman 59 (Cal.). The assessee cannot approach ITSC where a default is committed in depositing tax deducted at source. This is essentially because TDS has no relation with determination of income of the assessee for which he approaches the ITSC.