CBDT notifies rules, form and procedure for withdrawal of pending application before Settlement Commission

 

Executive summary

 

·         This Flash News summarizes a recent notification no. 40/2021 dated 30 April 2021 (Notification) issued by the Central Board of Direct Taxes ^[1] (CBDT) notifying the rules, procedure and form for withdrawing the applications pending before Settlement Commission (SetCom) as on 31 January 2021. 

Background: 

·         The Indian Tax Law ^[2] (ITL) contained separate set of provisions for settlement of proceedings pending with the tax authority before Settlement Commission (SetCom). SetCom is one of the alternate dispute resolution mechanisms. The ITL provides for a separate mechanism for making application before SetCom, acceptance or rejection of such application, settlement of cases, waiver of penalty and immunity from prosecution, etc.

·         Recently, the Finance Act (FA) 2021 had discontinued the operation of SetCom immediately with effect from 1 February 2021. For valid pending applications as on 31 January 2021, an Interim Board for Settlement was proposed to be set-up for the limited purpose of disposal of pending applications and/or for passing rectification orders.

·          Simultaneously, the ITL also grants an option to the taxpayer whose application is pending before SetCom as on 31 January 2021 and who does not wish to pursue application with Interim Board for Settlement, to withdraw such application within three months from the date of commencement of FA 2021 in the prescribed manner. Once such application is withdrawn, the proceedings before SetCom shall abate and thereupon, proceedings before the tax authority from which application to SetCom was originated earlier stand revived as if no application for settlement was made.

·         The CBDT, vide Notification No. 40/2021 dated 30 April 2021, has now prescribed the rules, procedure and form for withdrawal of applications pending before SetCom.

CBDT Notification:

·         The CBDT has notified following procedure for the withdrawal of pending settlement applications:

·         The application for withdrawal shall be made in Form No.34BB within three months from the date of commencement of FA 2021 i.e. up to 30 June 2021.

·         The said form is to be, mandatorily, submitted electronically in accordance with the procedures, formats and standards as specified by the prescribed tax authority^[3] and, thereafter, a signed copy of the said form shall be uploaded in the manner as specified.

·         The form shall be verified by the person who is authorized to verify tax return of the applicant under the ITL.

·         The CBDT Notification is effective from 30 April 2021.

Comments:

·         Every applicant has an option to withdraw its application pending before SetCom. It appears that a withdrawal request, validly made, cannot be rejected. Also, once the application is validly withdrawn by the applicant, the ITL provides that the tax authority shall not be entitled to use any material, evidence and other information produced by taxpayer before SetCom or the results of the inquiry held by SetCom in the course of proceeding before it.

·         Further, if the applicant does not exercise such an option within the specified time, such applications will be dealt by Interim Board for Settlement which is yet to be set-up.

·         The legislature’s action of abandoning SetCom immediately w.e.f. 1 February 2021 has been challenged before few High Courts. Illustratively, Allahabad High Court (HC), in the case of Kanhaiya Lal Rastogi v. UOI (Appeal No. 7395/2021), has directed tax department to admit application before SetCom until final decision by the HC. The ruling of HC is still awaited.