SETTLEMENT OF CASES

I.

Settlement of Cases (Sections 245A-245L)

Sections 245A to 245L provide for settlement of cases pending under this Act or under the
Indian Income-tax Act, 1922 in connection with the assessment or reassessment of any person
in respect of any year or years which may be pending before an income tax authority on the
date on which such an application is pending. Thus, these sections have been enacted for
expediting long pending income-tax cases and reducing the work-load of various High Courts
and Appellate Tribunals. For this purpose, the Central Government shall constitute a
Commission to be called the Income-tax Settlement Commission, for the settlement of such
cases.
Definitions (Sec. 245A) -According to Section 245A in this Chapter, unless the context
otherwise requires,(a) "Bench" means a Bench of the Settlement Commission;
(b) "case" means any proceeding for assessment under this Act, of any person in respect of any
assessment year or assessment years which may be pending before an Assessing Officer on the
date on which an application under sub-section (1) of section 245C is made:
Provided that(i) a proceeding for assessment or reassessment or recomputation under section 147;
(ii) a proceeding for assessment or reassessment for any of the assessment years referred to in
clause (b) of section 153A in case of a person referred to in section 153A or section 153C;
(iii) a proceeding for assessment or reassessment for the assessment year referred to in clause
(b) of sub-section (1) of section 153B in case of a person referred to in section 153A or section
153C;
(iv) a proceeding for making fresh assessment in pursuance of an order under section 254 or
section 263 or section 264, setting aside or cancelling an assessment,
shall not be a proceeding for assessment for the purposes of this clause.

1|P age

Explanation.-For the purposes of this clause(i) a proceeding for assessment or reassessment or recomputation referred to in clause (i) of the
proviso shall be deemed to have commenced from the date on which a notice under section 148
is issued;
(ii) a proceeding for assessment or reassessment referred to in clause (ii) or clause (iii) of the
proviso shall be deemed to have commenced on the date of initiation of the search under section
132 or requisition under section 132A;
(iii) a proceeding for making fresh assessment referred to in clause (iv) of the proviso shall be
deemed to have commenced, from the date on which the order under section 254 or section 263
or section 264, setting aside or cancelling an assessment was passed;
(iv) a proceeding for assessment for any assessment year, other than the proceedings of
assessment or reassessment referred to in clause (i) or clause (ii) or clause (iii) or clause (iv) of
the proviso, shall be deemed to have commenced from the 1st day of the assessment year and
concluded on the date on which the assessment is made.
(c) "Chairman" means the Chairman of the Settlement Commission;
(d) "income-tax authority" means an income-tax authority specified in section 116;
(e) "Member" means a Member of the Settlement Commission, and includes the Chairman and
a Vice-Chairman;
(f) "Settlement Commission" means the Income-tax Settlement Commission constituted under
section 245B;
(g) "Vice-Chairman" means a Vice-Chairman of the Settlement Commission and includes a
Member who is senior amongst the Members of Bench.

Constitution of Income Tax Settlement Commission (Section 245B) - The Settlement

Commission shall consist of a Chairman and many Vice-Chairmen and other members as the
Central Government thinks fit and shall function within the Department of the Central
Government dealing with direct taxes.
The Chairman, Vice-Chairman and other members of the Settlement Commission shall be
appointed by the Central Government from amongst persons of integrity and outstanding
ability, having special knowledge of, and experience in, problems relating to direct taxes and
business
2|P age

accounts:

Provided that, where a member of the Board is appointed as the Chairman, Vice-Chairman
or as a member of the Settlement Commission, he shall cease to be a member of the Board.

3|P age

Jurisdiction and Powers of Settlement Commission

Jurisdiction and Powers of Settlement Commission (Section 245BA) - Subject to the
other provisions of this Chapter, the jurisdiction, powers and authority of the Settlement
Commission may be exercised by Benches thereof.
Subject to the other provisions of this section, a Bench shall be presided over by the
Chairman or a Vice-Chairman and shall consist of two other Members.
The Bench for which the Chairman is the Presiding Officer shall be the principal Bench and the
other Benches shall be known as additional Benches.
(4) Notwithstanding the above provisions, the Chairman may authorise the Vice-Chairman or
other Member appointed to one Bench to discharge also the functions of the Vice-Chairman or,
as the case may be, other Member of another Bench.
Notwithstanding anything contained in the foregoing provisions, and subject to any rules that
may be made in this behalf, when one of the persons constituting a Bench (whether such person
be the Presiding Officer or other Member of the Bench) is unable to discharge his functions
owing to absence, illness or any other cause or in the event of the occurrence of any vacancy
either in the office of the Presiding Officer or in the office of one or the other Members of the
Bench, the remaining two persons may function as the Bench and if the Presiding Officer of the
Bench is not one of the remaining two persons, the senior among the remaining persons shall
act as the Presiding Officer of the Bench : Provided that if at any stage of the hearing of any
such case or matter, it appears to the Presiding Officer that the case or matter is of such a nature
that it ought to be heard of by a Bench consisting of three Members, the case or matter may be
referred by the Presiding Officer of such Bench to the Chairman for transfer to such Bench as
the Chairman may deem fit. Notwithstanding anything contained in the foregoing provisions of
this section, the Chairman may, for the disposal of any particular case constitute a special bench
consisting of more than three members. Subject to the other provisions of this Chapter, the
places at which the principal Bench and the additional Benches shall ordinarily sit shall be such
as the Central Government may, by notification in the Official Gazette, specify and the special
Bench

4|P age

shall

sit

at

place

to

be

fixed

by

the

Chairman.

Vice Chairman to act as Chairman to discharge his functions in certain circumstances

(Section 245BB) - In the event of the occurrence of any vacancy in the office of the Chairman
by reason Of his death, resignation or otherwise, the Vice-Chairman or, as the case may be,
such one of the Vice-Chairmen as the Central Government may, by notification in the Official
Gazette, authorise in this behalf, shall act as the Chairman until the date on which a new
Chairman, appointed in accordance with the provisions of this Chapter to fill such vacancy,
enters upon his office. When the Chairman is unable to discharge his functions owing to
absence, illness or any other cause, the Vice-Chairman or, as the case may be, such one of the
Vice-Chairmen as the Central Government may, by notification in the Official Gazette,
authorise in this behalf, shall discharge the functions of the Chairman until the date on which
the Chairman resumes his duties.
Power of Chairman to transfer cases from one Bench to another (Section 245BC) - On
the application of the assessee or the Chief Commissioner or Commissioner and after notice to
them, and after hearing such of them as he may desire to be heard, or on his own motion
without such notice, the Chairman may transfer any case pending before one Bench, for
disposal to another Bench.
Decision to be by majority (Section 245BD) - If the Members of a Bench differ in opinion
on any point, the point shall be decided according to the opinion of the majority, if there is a
majority, but if the Members are equally divided, they shall state the point or points on which
they differ, and make a reference to the Chairman who shall either hear the point or points
himself or refer the case for hearing on such point or points by one or more of the other
Members of the Settlement Commission and such point or points shall be decided according to
the opinion of the majority of the Members of the Settlement Commission who have heard the
case,

5|P age

including

those

who

first

heard

it.

Application for settlement of Cases

Application for settlement of cases (Section 245C) - (l) An assessee may, at any stage of a
case relating to him make an application in such form and in such manner as may be prescribed
and containing a full and true disclosure of his income which has not been disclosed before the
Assessing Officer, the manner in which such income has been derived, the additional amount of
income-tax payable on such income and such other particulars as may be prescribed, to the
Settlement Commission to have the case settled and any such application shall be disposed of in
the manner hereinafter provided :
Provided that no such application shall be made unless(i) the additional amount of income-tax payable on the income disclosed in the application
exceeds three lakh rupees; and
(ii) such tax and the interest thereon, which would have been paid under the provisions of
this Act had the income disclosed in the application been declared in the return of income
before the Assessing Officer on the date of application, has been paid on or before the date of
making the application and the proof of such payment is attached with the application.
(1A) For the purposes of sub-section (1) of this section, the additional amount of income-tax
payable in respect of the income disclosed in an application made under sub-section (1) of this
section shall be the amount calculated in accordance with the provisions of sub-sections (1B) to
(1D).
(1B) Where the income disclosed in the application relates to only one previous year,(i) if the applicant has not furnished a return in respect of the total income of that year,
then, tax shall be calculated on the income disclosed in the application as if such income were
the total income;
(ii) if the applicant has furnished a return in respect of the total income of that year, tax
shall be calculated on the aggregate of the total income returned and the income disclosed in the
application as if such aggregate were the total income.
(1C) The additional amount of income-tax payable in respect of the income disclosed in the
application relating to the previous year referred to in sub-section (1B) shall be,- _
(a) in a case referred to in c1ause- (i) of that sub-section, the amount of tax calculated under
that

6|P age

clause;

(b) in a case referred to in clause (ii) of that sub-section, the amount of tax calculated under
that Clause as reduced by the amount of tax calculated on the total income returned for that
year.
(1D) Where the income disclosed in the application relates to more than one previous year, the
additional amount of income-tax payable in respect of the income disclosed for each of the
years shall first be calculated in accordance with the provisions of sub-sections (1B) and (1C)
and aggregate of the amount so arrived at in respect of each of the years for which the
application has been made under sub-section (1) shall be the additional amount of income-tax
payable in respect of the income disclosed in the application.
(2) Every application made under sub-section (1) shall be accompanied by such fees as may
be prescribed.
(3) An application made under sub-section (1) shall not be allowed to be withdrawn by the
applicant.
(4) An assessee shall, on the date on which he makes an application under sub-section (1) to
the Settlement Commission, also intimate the Assessing Officer in the prescribed manner of
having made such application to the said Commission.
It is to note that Disclosure under section 245C (1) must be full and true and it cannot behalf
way and argument that an applicant was not required to disclose that part of his income which
has not been detected by the revenue, is wholly unacceptable and is to be rejected. 1 If disclosure
is made in a given case after the assessee felt that the game is over or when he has been pushed
to wall and concealment of income 'has been established, such a disclosure may not be a
disclosure as contemplated within mischief of 5ecion 245C (1 ).2 Section 139 which provide for
filing of revised return, there is no provision for revision of an application made in terms of
section 245C. That shows clear legislative intent that the applicant for settlement has to make a
true and fair declaration from the threshold. 3
Procedure on receipt of an application under Section 245C (Section 245D) - (l) On receipt
of an application under section 245C, the Settlement Commission shall, within seven days from
1

Raja Ram Industries v. Settlement Commission [1995J 81 Taxman 506 (ITSC - Delhi).
Raja Ram Industries v. Settlement Commission (supra), Nimzal & Navin (P) Ltd. v. D.
Ravindran , Deputy Commissioner [2002] 253 ITR 19 (Mad.).
3
CIT v. Om Prakash Mittal [2005] 143 Taxman 373 (SC).
2

7|P age

the date of receipt of the application, issue a notice to the applicant requiring him to explain as
to why the application made by him be allowed to be proceeded with, and on hearing the
applicant, the Settlement Commission shall, within a period of fourteen days from the date of
the application, by an order in writing, reject the application or allow the application to be
proceeded with :
Provided that where no order has been passed within the aforesaid period by the Settlement
Commission, the application shall be deemed to have been allowed to be proceeded with.
(2) A copy of every order under sub-section (1) shall be sent to the applicant and to the
Commissioner.
(2A) Where an application was made under section 245C before the 1st day of June, 2007,
but an order under the provisions of sub-section (1) of this section; as they stood immediately
before their amendment by the Finance Act, 2007, has not been made before the 1st day of
June, 2007, such application shall be deemed to have been allowed to be proceeded wit h if the
additional tax on the income disclosed in such application and the interest thereon is paid on or
before the 31st day of July, 2007.
Explanation - In respect of the applications referred to in this sub-section, the 31st day of
July, 2007 shall be deemed to be the date of the order of rejection or allowing the application to
be proceeded with under sub-section (1).
(2B) The Settlement Commission shall,(i) In respect of an application which is allowed to be proceeded with under sub-section (1),
within thirty days from the date on which the application was made; or
(ii) In respect of an application referred to in sub-section (2.A which is deemed to have been
allowed to be proceeded with under that sub-section, on or before the 7th day of August, 2007,
call for a report from the Commissioner, and the Commissioner shall furnish the report within a
period of thirty days of the receipt of communication from the Settlement Commission.
(2C) Where a report of the Commissioner called for under sub-section (2B) has been
furnished within the period specified therein, the Settlement Commission may, on the basis of
the report and within a period of fifteen days of the receipt of the report, by an order in writing,
declare the application in question as invalid, and shall send the copy of such order to the
applicant

8|P age

and

the

Commissioner:

Provided that an application shall not be declared invalid unless an opportunity has been
given to the applicant of being heard:
Provided further that where the Commissioner has not furnished the report within the
aforesaid period, the SettleIp.ent Commission shall proceed further in the matter without the
report of the Commissioner.
(2D) Where an application was made under sub-section (1) of section 245C before the 1st
day of June, 2007 and an order under the provisions of sub-section (1) of this section,' as they
stood immediately before their amendment by the Finance Act, 2007, allowing the application
to have been proceeded with, has been passed before the 1st day of June, 2007, but an order
under the provisions of sub-section (4), as they stood immediately before their amendment by
the Finance Act, 2007, was not passed before the 1st day of June, 2007, such application shall
not be allowed to be further proceeded with unless the additional tax on the income disclosed in
such application and the interest thereon, is, notwithstanding any extension of time already
granted by the Settlement Commission, paid on or before the 31st day of July, 2007.
(3) The Settlement Commission, in respect of(i)

an application which has not been declared invalid under sub-section (2C); or

(ii)

an application referred to in sub-section (2D) which has been allowed to be further

proceeded with under that sub-section,

may call for the records from the Commissioner and after examination of such records, if the
Settlement Commission is of the opinion that any further enquiry or investigation in the matter
is necessary, it may direct the Commissioner to make or cause to be made such further enquiry
or investigation and furnish a report on the matters covered by the application and any other
matter relating to the case, and the Commissioner shall furnish the report within a period of
ninety days of the receipt of communication from the Settlement Commission :
Provided that where the Commissioner does not furnish the report within the aforesaid
period, the Settlement Commission may proceed to pass an order under sub-section (4) without
such report.
(4) After examination of the records and the report of the Commissioner, if any, received
under(i) sub-section (2B) or sub-section (3), or

9|P age

(ii) the provisions of sub-section (1) as they stood immediately before their amendment by
the Finance Act, 2007, and after giving an opportunity to the applicant and to the Commissioner
to be heard, either in person or through a representative duly authorized in this behalf, and after
examining such further evidence as may be placed before it or obtained by it, the Settlement
Commission may, in accordance with the provisions of this Act, pass such order as it thinks fit
on the matters covered by the application and any other matter relating to the case not covered
by the application, but referred to in the report of the Commissioner.
(4A) The Settlement Commission shall pass an order under sub- section (4),-

(i) in respect of an application referred to in sub-section (2A) or sub-section (2m, on or

before the 31st day of March, 2008;
(ii) in respect of an application made on or after the 1st day of June, 2007, within twelve
months from the end of the month in which the application was made.
(5) Subject to the provisions of section 245BA, the materials brought on record before the
Settlement Commission shall be considered by the Members of the concerned Bench before
passing any order under sub-section (4) and, in relation to the passing of such order, the
provisions of section 245BD shall apply.
(6) Every order passed under sub-section (4) shall provide for the terms of settlement
including any demand by way of tax, penalty or interest, the manner in which any sum due
under the settlement shall be paid and all other matters to make the settlement effective and
shall also provide that the settlement shall be void if it is subsequently found by the Settlement
Commission that it has been obtained by fraud or misrepresentation of facts.
(6A) Where any tax payable in pursuance of an order under sub-section (4) is not paid by the
assessee within thirty-five days of the receipt of a copy of the order by him, then, whether or
not the Settlement Commission has extended the time for payment o f such tax or has allowed
payment thereof by installments, the assessee shall be liable to pay simple interest at fifteen per
cent per annum on the amount remaining unpaid from the date of expiry of the period of thirtyfive days aforesaid.
(7) Where a settlement becomes void as provided under sub-section (6), the proceedings with
respect to the matter covered by the settlement shall be deemed to have been revived from the
stage at which the application was allowed to be proceeded with by the Settlement Commission
and the income-tax authority concerned, may, notwithstanding anything contained in any other
10 | P a g e

provision of this Act, complete such proceedings at any time before the expiry of two years
from the end of the financial year in which the settlement became void.

(8) For the removal of doubts, it is hereby declared that nothing contained in section 153
shall apply to any order passed under sub-section (4) or to any order of assessment,
reassessment or recomputation required to be made by the Assessing Officer in pursuance of
any directions contained in such order passed by the Settlement Commission and nothing
contained in the proviso to sub-section (1) of section 186 shall apply to the cancellation of the
registration of a firm required to be made in pursuance of any such directions as aforesaid.
It is to note that the power conferred on the Settlement Commissio n under section 245D is a
quasi-judicial power, and the discretion of the Commission is required to be exercised
judicially. 4 Material collected by Commissioner after date of filing of application under section
245C is not irrelevant for purposes of section 245D(l).5Settlement Commission cannot reject
applications summarily under section 245D(1) only on the ground that while all throughout the
proceedings, the stand of the concerned applicants was that they were assesses under the Act,
subsequently they had switched their stand to the effect that they were not genuine partnership
firms but were benamis of the applicant AOP and that such stand was an afterthought.6

Power of Settlement Commission to order provisional attachment to protect revenue

(Section 245DD) - Where during the pendency of any proceeding before it, the Settlement
Commission is of the opinion that for the purpose of protecting the interests of the revenue, it is
necessary so to do, it may, by order, attach provisionally any property belonging to the
applicant in the manner provided in the Second Schedule. However, where a provisional
attachment made under section 281B is pending immediately before an application is made
under section 245C, an order under this sub-section shall continue such provisional attachment
up to the period up to which an order made under section 281B would have continued if such
application had not been made : Provided that where the Settlement Commission passes an
order under this sub-section after the expiry of the period referred to in the preceding proviso,

Raja Ram Industries v. Settlement Commission [1995J 81 Taxman 506 (ITSC - Delhi).
CIT v. Express Newspapers Ltd. [1994J 206 ITR 443 (SC).
6
Swadeshi Industries v. ITSC [1993J 199 ITR 293 (Guj.).
5

11 | P a g e

the provisions of sub-section (2) shall apply to such order as if the said order had originally
been passed by the Settlement Commission.
Every provisional attachment made by the Settlement Commission under sub-section (1)
shall cease to have effect after the expiry of a period of six months from the date o f the order
made under sub-section (1). However, the Settlement Commission may, for reasons to be
recorded in writing, extend the aforesaid period by such further period or periods as it thinks fit;
so, however, that the total period of extension shall not in any case exceed two years.
Power of Settlement Commission to reopen completed proceedings (Section 245E) - If
the Settlement Commission is of the opinion (the reasons for such. opinion to be recorded by it
in writing) that, for the proper disposal of the case pending before it, it is necessary or expedient
to reopen any proceeding connected with the case but which has been completed under this Act
by any income-tax authority before the application under section 245C was made, it may, with
the concurrence of the applicant, reopen such proceeding and pass such order thereon as it
thinks fit, as if the case in relation to which the application for settlement had been made by the
applicant under that section covered such proceeding also. However, no proceeding shall be
reopened by the Settlement Commission under this section if the period between the end of the
assessment year to which such a proceeding relates and the date of application for settlement
under section 245C exceeds nine years. The proviso makes also clear that no proceeding shall
be reopened by the Settlement Commission under this section in a case where an application
under

12 | P a g e

section

245C

on

or

after

1-6-2007.

Powers and procedure of Settlement Commission

Powers and procedure of Settlement Commission (Section 245F) - (1) In addition to the
powers conferred on the Settlement Commission under this Chapter, it shall ha ve all the powers
which are vested in an income-tax authority under this Act.
2) Where an application made under section 245C has been allowed to be proceeded with und er
section 245D, the Settlement Commission shall, until an order is passed under sub-section (4)
of section 245D, have, subject to the provisions of sub-section (3) of that section, exclusive
jurisdiction to exercise the power and perform the functions of an income-tax authority under
this Act in relation to the case:
Provided that where an application has been made under section 245C on or after the 1st day
of June, 2007, the Settlement Commission shall have such exclusive jurisdiction from the date
on which the application was made:
Provided further that where(i) an application made on or after the 1st day of June, 2007, is rejected under sub-section
(1) of section 245D; or
(ii) an application is not allowed to be proceeded with under sub-section (2A) of section
245D, or, as the case may be, is declared invalid under sub-section (2C) of that section; or
(iii) an application is not allowed to be further proceeded with under sub-section (2D) of
section 245D,
the Settlement Commission, in respect of such application shall have such exclusive jurisdiction
up to the date on which the application is rejected, or, not allowed to be proceeded with, or,
declared invalid, or, not allowed to be further proceeded with, as the case may be.
(3) Notwithstanding anything contained in sub-section (2) and in the absence of any express
direction to the contrary by the Settlement Commission, nothing contained in this section shall
affect the operation of any other provision of this Act requiring the applicant to pay tax on the
basis of self-assessment in relation to the matters before the Settlement Commission.
For the removal of doubt, it is hereby declared that, in the absence of any express direction
by the Settlement Commission to the contrary, nothing in this Chapter shall affect the operation
of the provisions of this Act in so far as they relate to any matters other than those before the
Settlement

13 | P a g e

Commission.

The Settlement Commission shall, subject to the provisions of this Chapter, have power to
regulate its own procedure and the procedure of Benches thereof in all matters arising out of the
exercise of its powers or of the discharge of its functions, including the places at which the
Benches shall hold their sittings.
Some important judicial rulings in this regard state that mere co-operation of an assessee cannot
be the basis or criteria for granting immunity from prosecution and penalt y; it is obligatory on
the part of the Settlement Commission to address itself on the question as to whether full and
true disclosure of income has been made by the applicant or not.7Where no additional income is
offered, the application is not fit for admission but where complexities are involved, the case is
to be allowed to be proceeded with.8Settlement Commission has no power to reduce/waive tax
or interest statutorily payable.9The Commission has, however, power of waiver or reduction of
interest under section 220(2A), if prescribed conditions is satisfied.10The assessee cannot
invoke section 245C (1) where the income-tax authority has alleged that he failed to deposit the
appropriate amount of the tax deducted at source. 11The assessee's application for settlement
cannot cover Income already disclosed to the Assessing Officer. 12
Inspection, etc. of reports (Section 245-G) - No person shall be entitled to inspect, or
obtain copies of, any reports made by any income-tax authority to the Settlement Commission;
but the Settlement Commission may, in its decision, furnish copies thereof to any such person
on an application made to it in this behalf and no payment of the prescribed fee. However, for
the purpose of enabling any person whose case is under consideration to rebut any evidence
brought on record against him in any such report, the Settlement Commission shall, on an
application made in this behalf and on payment of the prescribed fee by such person, furnish
him with a certified copy of any such report or part thereof relevant for the purpose.
Power of Settlement Commission to grant immunity from prosecution and penalty (Sec.
245-H) - (I) The Settlement Commission may, if it is satisfied that any person who made the
application for settlement under section 245C has co-operated with the Settlement Commission

CIT v. ITSC [2000] 112 Taxman 523 (Bom.).

Prem Chand Jain, In re [2002] 124 Taxman 424 (ITSC).
9
CITv. Hindustan Bulk Carriers [2003] 259 ITR 449 (SC).
10
CIT v. Damani Brothers [2003] 126 Taxman 321 (SC).
11
Shaw Wallace & Co. Ltd. v. Settlement Commission [2004] 139 Taxman.
12
CITv. Hiridustan Bulk Carriers [2003] 259 ITR 449 (SC).
8

14 | P a g e

in the proceedings before it and has made a full and true disclosure of his income and the
manner in which such income has been derived, grant to such person, subject to such
conditions as it may think fit to impose, immunity from prosecution for any offence under this
Act or under the Indian Penal Code or under any other Central Act for the time being in force
and also either wholly or in part from the imposition of any penalty under this Act, with respect
to the case covered by the settlement. However, no such immunity shall be granted by the
Settlement Commission in cases where the proceedings for the prosecution for any such offence
have been instituted before the date of receipt of the application under section 245C:
Provided further that the Settlement Commission shall not grant immunity from
prosecution for any offence under the Indian Penal Code (45 of 1860) or under any Central Act
other than this Act and the Wealth-tax Act, 1957 (27 of 1957) to a person who makes an
application under section 245C on or after the 1st day of June, 2007.
In a case13 the Supreme Court has held that where the Settlement Commission has passed the
order granting total immunity from the prosecution to the assessee, the criminal Court cannot
go behind the order and the High Court also cannot hold the order of immunity as illegal or
void.
An immunity granted to a person under sub-section (1) shall stand withdrawn if such person
fails to pay any sum specified in the order or within such further time as may be allowed by the
Settlement Commission, or fails to comply with any other condition subject to which the
immunity was granted and thereupon the provisions of this Act shall apply as if such immunity
had not been granted.
An immunity granted to a person under sub-section (1) may, at any time, be withdrawn by
the Settlement Commission, if it is satisfied that such person had, in the course of the settlement
proceedings, concealed any particulars material to the settlement or had given false evidence,
and thereupon such person may be tried for the offence with respect to which the immunity was
granted or for any other offence of which he appears to have been guilty in connection with the
settlement and shall also become liable to the imposition of any penalty under this Act to which
such person would have been liable, had not such immunity been granted.
It is to note that once the Settlement Commission decides the application for settlement
including any direction (or absence thereof) for any penalty or interest, the Assessing Officer
13

Nirmal & Navin (P.) Ltd. V. D. Ravindran, A.I.R. 2002 S.C. 3576

15 | P a g e

cannot later on levy penalty or interest. These powers are available to the Settlement
Commission under section 245F and, if in its discretion, the Settlement Commission does not
choose to invoke these powers, the Assessing Officer cannot subsequently invoke them after
the Settlement Commission has passed an order under section 245D(4). 14
Abatement of proceeding before Settlement Commission (Section 245HA) - This is a new
section inserted by the Finance Act, 2007, w.e.f 1-6-2007. The provisions of this section are as
follows(1) Where(i) an application made under section 245C on or after 1-6-2007 has been rejected under subsection (1) of section 245D; or
(ii) an application made under section 245C has not been allowed to be proceeded with under
sub-section (2A) or further proceeded with under sub-section (2D) of section 245D; or
(iii) an application made under section 245C has been declared as invalid under sub-section
(2C) of section 245D; or
(iv) in respect of any other application made under section 245C, an order under sub-section (4)
of section 245D has not been passed within the time or period specified under sub-section (4A)
of section 245D,
the proceedings before the Settlement Commission shall abate on the specified date.
Explanation - For the purposes of this sub-section, "specified date" means(a) in respect of an application referred to in .clause (i) , the day on which the application was
rejected;
(b) in respect of an application referred to in clause (ii), the 31st day of July, 2007;
(c) in respect of an application referred to in clause (iii), the last day of the mo nth in which
the application was declared invalid;
(d) in respect of an application referred to in clause (iv), on the date on which the time or
period specified in sub-section (4A) of section 245D expires.
(2) Where a proceeding before the Settlement Commission abates, the Assessing Officer, or,
as the case may be, any other income-tax authority before whom the proceeding at the time of

14

Mohanlal S. Doppa v. CIT[2002] 121 Taxman 671 (Guj.)

16 | P a g e

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 .
(3) For the purposes of sub-section (2), the Assessing Officer, or, as the case may be, other
income-tax authority, shall be entitled to use all 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 the proceedings before it, as if such
material, information, inquiry and evidence had been produced before the Assessing Officer or
other income-tax authority or held or recorded by him in the course of the proceedings before
him.
(4) For the purposes of the time-limit under Sections 149,153, 153B, 154, 155, 158BE and
231 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 under sub-section (2), the period
commencing on and from the date of the application to the Settlement Commission under
Section 245C and ending with "specified date" referred to in sub-section (1) shall be excluded;
and where the assessee is a firm, for the purposes of the time-limit for cancellation of
registration of the firm under sub-section (1) of section 186, the period aforesaid shall, likewise,
be excluded.
Credit for tax paid in case of abatement of proceedings (245HAA) 15- Where an
application made under section 245C on or after the 1st day of June, 2007, is rejected under
sub-section (1) of section 245D, or any other application made under section 245C is not
allowed to be proceeded with under sub-section (2A) of section 245D or is declared invalid
under sub-section (2C) of section 245D or has not been allowed to be further proceeded with
under sub- section (2D) of section 245D or an order under sub-section (4) of section 245D has
not been passed within the time or period specified under sub-section (4A) of section 245D, the
Assessing Officer shall allow the credit for the tax and interest paid on or before the date of
making the application or during the pendency of the case before the Settlement Commission.
Order of Settlement to be conclusive (Section 245I) - Every order of settlement passed
under sub-section (4) of section 245D shall be conclusive as to the matters stated therein and no
.matter covered by such order shall, save as otherwise provided in this Chapter, be reopened in
any proceeding under this Act or under any other law for the time being in force.
15

Inserted by the Finance Act, 2007, w.e.f. 1-6-2007.

17 | P a g e

Every order of the Settlement Commission under section 245D (4) will be final. However, the
Settlement Commission is a Tribunal the proceedings before which are judicial proceedings.
Such proceedings are subject to the Supreme Court's jurisdiction under article 136 of the
Constitution. 16The scope of the Court to interfere with the order of the Settlement Commission
is restricted. An order passed by the Settlement Commission cannot be interfered with under
article 226 of the Constitution, unless it can be shown that:
a. grave procedural defect such as violation of the mandatory procedural requirements of
the provisions of Chapter XIX-A and/or violation of the rules of natural justice is made
our;
b. it is found that there is no nexus between the reasons given and the decision taken by the
Settlement Commission. 17
Recovery of sums due under order of settlement (Section 245J) - Any sum specified in an
order of settlement passed under sub-section (4) of section 245D may, subject to such
conditions, if any, as may be specified therein, be recovered, and any penalty for default in
making payment of such sum may be imposed and recovered in accordance with the provisions
of Chapter XVII, by the Assessing Officer having jurisdiction over the person who made the
application for settlement under section 245C.

Bar on subsequent application for settlement (Section 245 K) - (I) Where,(i) an order of settlement passed under sub-section (4) of section 245D provides for the
imposition of penalty on the person who made the application under section 245C for
settlement, on the ground of concealment of particulars of his income; or
(ii) after the passing of an order of settlement under the said sub-section (4) in relation to a case,
such person is convicted of any offence under Chapter XXII in relation to that case; or
(iii) the case of such person is sent back to the Assessing Officer by the Settlement Commission
on or before the 1st day of June, 2002, then, he shall not be entitled to apply for settlement
under section 245C in relation to any other matter.
(2) Where a person has made an application under section 245C on or after the 1st day of
June, 2007 and if such application has been allowed to be proceeded with under sub-section (1)
16
17

CITv. BN Ehattacharjee [1979] 118 ITR 461 (SC).

VB Desai & R.B Desai v. Administrative Officer, Settlement Commission [2002] 125 Taxman 1097 (Kar.).

18 | P a g e

of section 245D, such person shall not be subsequently entitled to make an application under
section 245C.
Proceedings before Settlement Commission to be judicial proceedings. [Section 245 (L)]
- Any proceeding under this Chapter before the Settlement Commission shall be deemed to be a
judicial proceeding within the meaning of sections 193 and 228, and for the purposes of section
196 of the Indian Penal Code.

19 | P a g e

CONCLUSION
Sections 245A to 245L provide for settlement of cases pending under this Act or under the
Indian Income-tax Act, 1922 in connection with the assessment or reassessment of any person
in respect of any year or years which may be pending before an income tax authority on the
date on which such an application is pending. Thus, these sections have been enacted for
expediting long pending income-tax cases and reducing the work-load of various High Courts
and Appellate Tribunals. For this purpose, the Central Government constituted the Income-tax
Settlement Commission, for the settlement of such cases.Such Settlement Commission shall
consist of a Chairman and many Vice-Chairmen and other members as the Central Government
thinks fit and shall function within the Department of the Central Government dealing with
direct taxes.

An assessee may, at any stage of a case relating to him make an application in such form and in
such manner as may be prescribed and containing a full and true disclosure of his income which
has not been disclosed before the Assessing Officer, the manner in which such income has been
derived, the additional amount of income-tax payable on such income and such other particulars
as may be prescribed, to the Settlement Commission to have the case settled according to the
provisions of the act.It is to note that Disclosure under section 245C (1) must be full and true
and it cannot behalf way and argument that an applicant was not required to disclose that part of
his income which has not been detected by the revenue, is wholly unacceptable and is to be
rejected. If disclosure is made in a given case after the assessee felt that the game is over or
when he has been pushed to wall and concealment of income 'has been established, such a
disclosure may not be a disclosure as contemplated within mischief of 5ecion 245C (1 ).
Section 139 which provide for filing of revised return, there is no provision for revision of an
application made in terms of section 245C. That shows clear legislative intent that the applicant
for settlement has to make a true and fair declaration from the threshold.

The power conferred on the Settlement Commission under section 245D is a quasi-judicial
power, and the discretion of the Commission is required to be exercised judicially. Material
collected by Commissioner after date of filing of application under section 245C is not
20 | P a g e

irrelevant for purposes of section 245D(l). Settlement Commission cannot reject applications
summarily under section 245D(1) only on the ground that while all throughout t he proceedings,
the stand of the concerned applicants was that they were assesses under the Act, subsequently
they had switched their stand to the effect that they were not genuine partnership firms but were
benamis of the applicant AOP and that such stand was an afterthought.It is also worth mention
that that mere co-operation of an assessee cannot be the basis or criteria for granting immunity
from prosecution and penalty; it is obligatory on the part of the Settlement Commission to
address itself on the question as to whether full and true disclosure of income has been made by
the applicant or not. Where no additional income is offered, the application is not fit for
admission but where complexities are involved, the case is to be allowed to be proceeded with.
Settlement Commission has no power to reduce/waive tax or interest statutorily payable. The
Commission has, however, power of waiver or reduction of interest under section 220(2A), if
prescribed conditions is satisfied. The assessee cannot invoke section 245C (1) where the
income-tax authority has alleged that he failed to deposit the appropriate amount of the tax
deducted at source. The assessee's application for settlement cannot cover Income already
disclosed to the Assessing Officer.

Once the Settlement Commission decides the application for settlement including any direction
(or absence thereof) for any penalty or interest, the Assessing Officer cannot later on levy
penalty or interest. These powers are available to the Settlement Commission under section
245F and, if in its discretion, the Settlement Commission does not choose to invoke these
powers, the Assessing Officer cannot subsequently invoke them after the Settlement
Commission has passed an order under section 245D(4).

Any proceeding under this Chapter before the Settlement Commission shall be deemed to be a
judicial proceeding within the meaning of sections 193 and 228, and for the purposes of section
196 of the Indian Penal Code.Every order of the Settlement Commission under section 245D
(4) will be final. However, the Settlement Commission is a Tribunal the proceedings before
which are judicial proceedings. Such proceedings are subject to the Supreme Court's
jurisdiction under article 136 of the Constitution. The scope of the Court to interfere with the
order of the Settlement Commission is restricted. An order passed by the Settlement
21 | P a g e

Commission cannot be interfered with under article 226 of the Constitution, unless it can be
shown that:
a.

grave procedural defect such as violation of the mandatory procedural requirements of

the provisions of Chapter XIX-A and/or violation of the rules of natural justice is made our;
b.

it is found that there is no nexus between the reasons given and the decision taken by the

Settlement Commission.

22 | P a g e