Allahabad HC Quashes IBS-VII Chennai Order as Barred by Limitation Under Section 245D(4A)

The Lucknow Bench held that the 18-month period for settlement orders starts from first allotment to an Interim Board, not from a subsequent administrative transfer between boards.

A Division Bench of the Allahabad High Court at Lucknow, comprising Justice Shekhar B. Saraf and Justice Abdhesh Kumar Chaudhary, on 10 August 2026 quashed two orders of the Interim Board for Settlement-VII, Chennai — one passed on 30 October 2023 under Section 245D(4) of the Income Tax Act, 1961, rejecting the settlement application of M/s B.L. Agro Industries Limited, Bareilly, and a consequential order dated 15 December 2023 under Section 245D(6B) dismissing rectification applications. The bench held that the mandatory 18-month period prescribed under Section 245D(4A)(iii) commenced when the petitioner's application was first allotted to and acted upon by IBS-III, Delhi, and that the CBDT's subsequent administrative transfer of the case to IBS-VII, Chennai on 13 June 2022 did not restart that clock. The October 2023 order was therefore passed beyond the period of limitation and without jurisdiction.

The Dispute Before the High Court

A search and seizure operation was conducted on 4 October 2018 at the premises of B.L. Agro Industries Limited under Section 132 of the Income Tax Act, 1961. Incriminating transactions were found between the petitioner and three sister concerns. Following the search, notices under Section 153A were issued for Assessment Years 2009–10 to 2018–19, and a notice under Section 143(2) was issued for Assessment Year 2019–20.

The petitioner sought to settle the proceedings under Chapter XIX-A of the Act. Before it could do so, the Income Tax Settlement Commission was abolished by the Finance Act, 2021 with retrospective effect from 1 February 2021, extinguishing the statutory right to file settlement applications after 31 January 2021. Aggrieved, the petitioner filed W.P.(C) No. 6021 of 2021 before this court, which by order dated 19 March 2021 granted liberty to file a settlement application by 23 March 2021 and directed the Commission to receive it if filed.

The petitioner filed its settlement application on 23 March 2021. The CBDT, by order dated 28 September 2021, directed that applications filed between 1 February 2021 and 30 September 2021 be treated as “pending applications” within the meaning of Section 245A(eb), giving the application a statutory character. The CBDT then constituted the Interim Board for Settlement and notified the e-Settlement Scheme, 2021 on 1 November 2021.

The petitioner's application was allotted to IBS-III, Delhi. On 7 March 2022, IBS-III, Delhi exercised powers under Section 245D(3) read with paragraph 6(ii) of the e-Settlement Scheme and directed the respondent revenue officers to furnish a Rule 9 report. The CBDT then, by order dated 13 June 2022, administratively transferred the application from IBS-III, Delhi to IBS-VII, Chennai. IBS-VII, Chennai proceeded to hear the matter and on 30 October 2023 rejected the settlement application under Section 245D(4). The petitioner filed rectification applications on 16 November 2023, 4 December 2023, and 6 December 2023, specifically raising the jurisdictional objection that the mandatory 18-month period had expired. IBS-VII, Chennai dismissed those applications on 15 December 2023 without adjudicating the limitation objection.

Three connected writ petitions — Writ Tax No. 77 of 2024, Writ Tax No. 177 of 2024 (Ghanshyam Khandelwal), and Writ Tax No. 178 of 2024 (Ashish Khandelwal) — raised intricately linked issues and were decided together.

The Central Legal Issue

The core question was: from which date did the 18-month period under Section 245D(4A)(iii) begin to run — the date the application was first allotted to IBS-III, Delhi, or the date of the CBDT's administrative transfer to IBS-VII, Chennai on 13 June 2022?

The petitioner argued the clock started no later than 1 November 2021, the date of allotment under the e-Settlement Scheme, 2021, or at the very latest from 7 March 2022 when IBS-III, Delhi called for the Rule 9 report. On either calculation, the mandatory 18-month period expired well before 30 October 2023. The respondents argued that the deemed date of receipt for the purposes of Section 245D(4A)(iii) was the date of transfer to IBS-VII, Chennai, namely 13 June 2022, placing the deadline at 31 December 2023, within which the October order fell.

A secondary question was whether the 18-month limit is mandatory or merely directory.

How the Bench Reasoned

Justice Shekhar B. Saraf, writing the leading judgment (with Justice Abdhesh Kumar Chaudhary concurring), began by tracing the structure of Sections 245D(3), 245D(4A)(iii), 245D(9)(iii) and 245M(2) and (3).

Section 245D(9)(iii) provides that for pending applications allotted to an Interim Board, “the date referred to in sub-section (2) of section 245M shall be deemed to be date on which the application was made under section 245C and received by the Interim Board.” Section 245M(2) in turn provides that where an assessee does not exercise the withdrawal option under sub-section (1), the pending application “shall be deemed to have been received by the Interim Board on the date on which such application is allotted or transferred to the Interim Board under sub-section (3).” Section 245M(3) empowers the CBDT to allot any pending application to any Interim Board and also to transfer applications from one Interim Board to another.

The respondents sought to read the word “transferred” in Section 245M(2) as encompassing both the initial allotment and every subsequent inter-board transfer, so that each transfer would reset the limitation. The bench rejected this construction. It held that Section 245M(4), which provides for continuity of records on transfer between boards, uses the phrase “transferred to another Interim Board subsequently,” demonstrating that the legislature treated the initial allotment and a subsequent inter-board transfer as distinct and operating in separate statutory fields.

The bench noted that IBS-III, Delhi had already exercised jurisdiction under Section 245D(3) by ordering the Rule 9 report on 7 March 2022. The e-Settlement Scheme, 2021 is explicit that an Interim Board may call for records under paragraph 6(ii) only after allotment or transfer to it. The exercise of Section 245D(3) powers by IBS-III, Delhi therefore conclusively established that the application had already stood allotted to that board. The bench observed that to accept the respondents' position would mean that all steps taken by IBS-III, Delhi were without jurisdiction — a result that the respondents themselves did not and could not maintain.

The respondents' own counter affidavit proved the point against them. It admitted that the petitioner's application “was duly accepted after being allowed by the Hon'ble High Court of Allahabad and allotted to the Hon'ble IBS, Delhi Bench vide Gazette Notification dated 01.11.2021 which was later on transferred and allotted to Learned IBS-VII Chennai vide CBDT letter dated 13.06.2022.” The bench found this admission to be clear acknowledgment that allotment to IBS-III, Delhi had taken effect from 1 November 2021.

The bench computed limitation on two bases. Calculating from the allotment date of 1 November 2021, the mandatory period expired on 30 April 2023. Even computing from 7 March 2022 — the date IBS-III, Delhi called for the Rule 9 report, which the bench treated as the latest possible moment by which seisin was established — the period expired on 30 September 2023. The impugned order of 30 October 2023 was beyond the limit on either calculation.

The bench distinguished the Bombay High Court judgment in Star Television News Ltd. v. Union of India, [2009] 317 ITR 66 (Bom.), heavily relied upon by the revenue. That decision concerned applications made before 1 June 2007, predating the Finance Act, 2010 that introduced the 18-month statutory period. It also dealt with an arbitrary cut-off date for disposal of all pending applications. The bench held the Star Television ratio was not applicable to the present facts.

On the mandatory versus directory question, the bench followed RNS Infrastructure Ltd. v. Income Tax Settlement Commissioner, [2017] 77 taxmann.com 103 (Karnataka), affirmed by the Karnataka High Court Division Bench and the SLP dismissed by the Supreme Court. That line of authority held categorically that the 18-month period is mandatory, and any order passed beyond it is barred by limitation and a nullity, except where the delay is attributable to the applicant. No such attribution to the petitioner was found on the facts.

The bench also rejected the respondents' argument that the petitioner was estopped by participation in the proceedings. It held that there can be no estoppel against statute and that a pure question of statutory limitation going to the root of jurisdiction cannot be waived by participation or acquiescence.

Scope of the Judgment

The bench took care to limit the scope of its ruling. It addressed only the limitation issue and expressly declined to decide whether the proceedings would abate under Section 245HA and what the consequences of any such abatement would be. The petitioner had argued extensively on limitation, and the relief sought was confined to quashing the orders under Sections 245D(4) and 245D(6B). The bench stated that since it had not gone into the abatement question, the principles of res judicata and constructive res judicata would not apply to that issue.

Order

The Division Bench allowed all three writ petitions. The order dated 30 October 2023 passed by IBS-VII, Chennai under Section 245D(4) and the consequential order dated 15 December 2023 under Section 245D(6B) are quashed and set aside. The court held that the mandatory 18-month limitation period under Section 245D(4A)(iii) commenced when the petitioner's application first stood allotted to IBS-III, Delhi, and that the period cannot be restarted by an administrative inter-board transfer under Section 245M(3).