FAQ’s

1. What is meant by Settlement in respect of tax disputes? How is it different from the appellate process?

Settlement of disputes relating to Income Tax and Wealth Tax is based on the objective of dispute resolution Alternate. It is in the nature of mediation or arbitration. The Settlement orders passed by the Income Tax Settlement Commission are final and conclusive in nature.

The application for settlement can be made only during the pendency of the assessment proceedings, whereas an appeal can be filed only after conclusion of assessment proceedings, against an order of assessment. For approaching the settlement commission, an applicant is required to disclose income which he has not disclosed before the Income Tax Department and also to pay applicable tax and interest on it before filing the application. No such conditions are needed for filing an appeal.

An application for settlement is statutorily required to be disposed of within 18 months failing which the same is abated to the concern Income Tax Authority. There is no statutory time limit for disposal of an appeal.

2. What is the Scope of Settlement made by Income Tax Settlement Commission?

The Income Tax Settlement Commission conclusively decides the amount of tax and interest to be paid by the applicant in respect of tax disputes relating to the assessment years for which an applicant has approach the Commission. It also has powers to grant immunity from levy of penalty or institution of proceeding for prosecution under the Income Tax Act, 1961. However, no such immunity is available where the proceedings for prosecution were initiated before filing of settlement application. An immunity granted by the Commission is liable to be withdrawn where the Commission subsequently finds that the application had concealed material facts or given false evidence during the settlement proceedings.

The order of settlement passed by the Settlement Commission provides for the terms of settlement including any demand by way of tax, penalty or interest and also provides for the manner in which such demand is to be paid. Such an order shall also address other matters to make the settlement effective. The final settlement order of the Settlement Commission is applicable for the case of the particular applicant only and its ratio is not applicable for other cases and for proceedings before other authorities.

3. Is the Income Tax Settlement Commission part of the Income Tax Department?

No. the Income Tax Settlement Commission is an independent quasi-judicial authority. It is an attached office of the Department of Revenue, only for its administrative matters.

4. At what Stage of tax disputes can I approach Settlement Commission?

An applicant can approach the Income Tax Settlement Commission in respect of a particular assessment year only if no assessment order is passed by the concerned income tax authority and the statutory time-limit for passing of assessment order for that year has not lapsed. The proceedings are considered to be pending from the first day of the assessment year and it is not needed that a return of income is filed or a notice for scrutiny is issued before failing of application.

5. How do I become eligible for approaching Settlement Commission? Am I supposed to pay any tax beforehand?

The First condition that you need to satisfy for approaching the settlement Commission is that you have to disclose an additional amount of income tax before the Commission which is at least Rupees ten lakhs. This does not include the amount of interest chargeable on such tax. For cases involving Search and seizure assessment proceedings, the additional amount of income tax to be disclosed is at least Rupees fifty lakhs. You are also required to pay the entire amount of additional tax and interest before filling the Settlement application and attach the evidence of payment.

The Second essential condition is that you should not have made another settlement application, after 1st June 2007, which has been allowed to be proceeded with.

The Third essential condition is that no assessment order should have been passed by the concerned income tax authority for the assessment year for which you are approaching the Commission and the statutory time-limit for passing of assessment order for that year has not lapsed. An assessment shall be deemed to have been completed on the date on which assessment order is passed ( w.e.f 01.06.2007-CBDT circular 16/2014 dated 17.11.2014) .

There are other procedural requirements such as payment of prescribed fees and informing the concerned Assessing officer on the same date till the prescribed Form no.34 BA.

6. How do I file application for Settlement?

Settlement application is to be filed only in the prescribed Form No.34-B notified under the Income Tax Rules, 1962, which is to be signed by the applicant himself. The application can be made personally or by post. The applicant or his authorized representative can make application in person. Application can also be sent by registered post addressed to the Secretary of the concerned Bench of the income tax Settlement Commission.

The application should be accompanied by the proof of payment of additional Tax and interest under section 234B and 234C on it. The interest on the additional tax is chargeable till the date of admission of the application.

The application has to be accompanied by a copy of Challans of payment of tax which have to be attested by the applicant.

The application is also to be accompanied by the evidence of payment of the prescribed fee.At present the Amountof the fee is Fixed at Rs. 500/-.

7. When can a Settlement application be rejected? What are the Consequences of rejection?

An application can be rejected by the Commission during the course of proceedings under section 245D (1) within 14 days of filling of the Settlement application. If the application is not rejected by the Commission within 14 days, it is deemed to have been admitted by it.

The Commission can reject the application, if the applicant does not satisfy the 3 essential condition mentioned in answer no. 5 above. Further, an application not accompanied by the proof of payment of full amount of additional tax and interest and the prescribed fee of Rs. 500/- is also liable to be rejected. A copy of the application is to be sent to the concerned income tax Authority on the date of application, failing which it may be rejected.

An applicant whose application has been rejected under section 245D (1) can still file another application for settlement.

8. Can I withdraw Settlement application after filing it?

No, an applicant cannot withdraw the application after filling before the Settlement Commission.

9. Who can file Settlement application on my behalf?

(i) You can make application by registered post addressed to the Secretary of the concerned bench of the settlement commission. However in case of a postal application, the date of receipt in the Commission shall be treated as date of application.

(ii) On your behalf, an authorized representative can also make application in person. An “authorised representative” means a person authorised by you in writing to appear on your behalf, being:

    • A person related to you in any manner, or a person regularly employed by you; or
    • Any officer of a Scheduled Bank with which you maintain a current account or have other regular dealings; or
    • any legal practitioner who is entitled to practice in any civil court in India; or
    • an accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949), and includes, in relation to any State, any person who by virtue of the provisions of sub-section (2) of section 226 of the Companies Act, 1956 (1 of 1956), is entitled to be appointed to act as an auditor of companies registered in that State.

 

  • Any person who has passed any accountancy examination recognised in this behalf by the Board, or
  • any person who has acquired such educational qualifications as prescribed by the Board.

10. How long does the admission process take?

The application filed by you is considered admitted and allowed to be proceeded with if it is not rejected by the Commission within 14 days under section 245D (1). After this, the Commission forwards the copy of application along with ammexures and calls for the report of the Commissioner of Income Tax under section 245D (2B). The Commission may treat an application as valid by passing an order under Section 245D(2C), If the report of the Commissioner is not received within the period of 30 days from the day the letter from the Commission is received by him, or on the basis of its satisfaction on the basis of the report of the Commissioner. The order of the Commission is to be passed within 15 days of the expiry of the period of 30 days given to the Commissioner for submitting the report.

The Commission is required to give an opportunity before rejecting the application under section 245D (1) or before treating the application as invalid under Section 245D (2C).

11. How does the Settlement process operate? How long does it take?

Once a Settlement application has been held as valid, the Commission calls for Commissioner’s reports within 45 days under rule 9. A copy of this report is shared with the applicant to allow him to give rejoinder. The Commission takes into account both and provides opportunity to both sides, i.e. the Income Tax Department and the applicant by fixing hearings on different dates. The Commission is required to pass the final Settlement order under section 245 D (4) within 18 months on the application.

12. What happens if the Settlement Commission is not able to pass Settlement application within 18 months?

If the Settlement Commission is not able to pass Settlement application within 18 months, the case gets abated to the concerned income tax Authority.

13. How do I calculate additional Tax for filling the Settlement application?

This will depend upon whether the settlement application relates to only one previous year or more and whether any return of income for the relevant previous year(s) has been filed or not.

      Where the income disclosed in the application relates to only one previous year-;

 

    • 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;

 

    • 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.

 

      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,-

 

    • in a case referred to in clause (i) of that sub-section, the amount of tax calculated under that clause;

 

    • 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;

 

    • [***].

 

    • 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 the 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.

 

    • Where the income disclosed in the application relates to only one previous year and 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. This shall be reduced by the amount of tax calculated on the total income returned for that year. The balance shall be the additional amount of tax.

 

  • 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 the manner given in (i) and (ii) above.

14. How do I calculate the interest amount on the additional tax?

For calculating interest under section 234B & 234C of the Income Tax Act, 1961, calculate additional tax as explained in answer no. 13 above. Check up whether you were liable to pay advance tax under section 208 or not. If you were liable, calculate interest for default in payment of advance tax under section 234B and for deferment of advance tax under section 234C, for each assessment year included in the settlement application, separately.

      (1)-where an application under sub-section (1) of section 245C for any assessment year has been made, the assessee shall be liable to pay simple interest at the rate of one per cent. for every month or part of a month comprised in the period commencing on the 1st day of April of such assessment year and ending on the date of making such application, on the additional amount of income-tax referred to in that sub-section;

 

 

  • where as a result of an order of the Settlement Commission under sub-section (4) of section 245D for any assessment year, the amount of total income disclosed in the application under sub-section (1) of section 245C is increased, the assessee shall be liable to pay simple interest at the rate of one per cent. for every month or part of a month comprised in the period commencing on the 1st day of April of such assessment year and ending on the date of such order, on the amount by which the tax on the total income determined on the basis of such order exceeds the tax on the total income disclosed in the application filed under sub-section (1) of section 245C;

 

  • where, as a result of an order under sub-section (6B) of section 245D, the amount on which interest was payable under clause (b) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly.

(2) For calculating the interest for deferment in payment of advance tax under section 234C, you have to work out the shortage in payment of advance tax as per the prescribed schedule.

(i) In case of a company, during a financial year, advance tax is to be paid in the following manner:

 

On or before 15th June
:
15% of advance tax for the year.
Between 15th June and 15th September
:
45% of advance tax for the year.
Between 15th September and 15th December
:
75% of advance tax for the year.
Between 15th December and 15th March
:
100% of advance tax for the year.

(ii) In case of all tax payers other than a company, during a financial year, advance tax is to be paid in the following manner:

On or before 15th September
:
30% of advance tax for the year.
Between 15th September and 15th December
:
60% of advance tax for the year.
Between 15th December and 15th March
:
100% of advance tax for the year.

For calculating the interest under section 234C for each year included in the settlement application, calculate the shortfall in payment of advance tax against the additional tax calculated as explained in answer 13 above for each scheduled date above. Calculate 1% of the shortfall, wherever occurring, for a period of 3 months.

For the exact manner of calculation of interest, please refer sections 234B & 234C.

15. Once I file a settlement application, do I need to comply with the directions of the Income Tax Department for the relevant assessment years? Does the jurisdiction of Income Tax Department continue over me or not?

Once you file an application before the settlement Commission, your jurisdiction for the purpose of Income Tax Act and the Wealth Tax Act, gets shifted to the Income Tax Settlement Commission for the assessment proceedings for which you have filed settlement application. However, sometimes Income Tax Settlement Commission authorises the Commissioner of Income Tax to carry out specific investigation to assist the Income Tax Settlement Commission in the matter. You may however like to verify whether the Commissioner has been authorised by the Income Tax Settlement Commission or not.