Section 245D — Procedure on Receipt of an Application Under Section 245C
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Provision: The procedural core of the Chapter — notice and order admitting or rejecting the application (245D(1)); call for the Commissioner's report; declaring an application invalid (245D(2C)); the inquiry; the final order of settlement “in accordance with the provisions of this Act” (245D(4)); provision for the terms of settlement (245D(6)); the void-for-fraud rule (245D(7)); and time-limits for passing the order, with the corresponding Interim Board provisions.
Heading: Procedure on receipt of an application under section 245C.
Finance Act, 2026: Not amended.
Operational status: Live for pending applications before the Interim Board; the body of pre-2021 authority governs.
Authorities digested: 12 (the most heavily litigated section of the Chapter — interest, finality, reopening and natural justice).
A. SECTION COMMENTARY
1. The procedural spine
Section 245D takes the application from the door to the final order. On receipt, the Commission (now the Interim Board) issues notice and decides whether to allow the application to be proceeded with (245D(1)); it calls for the Commissioner's report; it may declare an application invalid for want of full and true disclosure (245D(2C)); it holds an inquiry; and it passes a final order of settlement (245D(4)). The order provides for the terms of settlement (245D(6)) and is void if obtained by fraud or misrepresentation (245D(7)).
2. “In accordance with the provisions of this Act” — mandatory interest
The single most consequential holding on section 245D is that the Commission's order must be “in accordance with the provisions of this Act”. The Constitution Bench in Anjum M.H. Ghaswala held that interest under sections 234A, 234B and 234C is mandatory and that the Commission has no power to waive or reduce it while passing an order under section 245D(4); at most it could extend the relief that CBDT circulars under section 119 already permitted. The settlement is a settlement of the quantum, not a dispensation from the statute's mandatory levies.
When does the section 234B interest stop running in a settlement? The Constitution Bench in Brij Lal held that sections 234A to 234C apply to settlement proceedings, but that interest under section 234B is chargeable only up to the date of the order under section 245D(1) (admission), not up to the section 245D(4) order, and that the Commission cannot resort to section 154 to re-open a concluded settlement so as to levy further interest. This reconciled the earlier three-Judge decisions in Hindustan Bulk Carriers and Damani Brothers.
4. No reopening of a concluded settlement
A settlement order is meant to be final. Section 154 cannot be used to re-open it to enhance interest (Brij Lal). Where the Commission did purport to rectify and reverse a waiver, the Supreme Court in Kakadia Builders set aside both the rectification and so much of the original order as dealt with interest, and remanded for fresh consideration consistent with Ghaswala — i.e. the Commission cannot re-open under section 154, but the original order itself had to conform to the mandatory-interest rule.
5. Natural justice at the threshold
An application cannot be rejected without hearing the applicant. In R.B. Shreeram Durga Prasad the Supreme Court held that natural justice requires the applicant to be heard before the application is rejected, and an order made in breach is of no value. The principle now informs the 245D(1)/(2C) stages: rejection or a declaration of invalidity must follow notice and hearing.
6. Invalidity vs. legal issue
At the 245D(2C) stage the Commission may declare an application invalid for want of full and true disclosure, but it must distinguish a genuine failure of disclosure from a contestable question of law: the latter is to be decided at the 245D(4) stage and does not, by itself, render the application invalid (Kandathil M. Mammen; Pr. CIT v. ITSC). The Commission has, broadly, three stages at which it may reject or invalidate — admission (245D(1)), invalidity (245D(2C)) and final order (245D(4)).
7. Void for fraud or misrepresentation
Section 245D(6)/(7) (read with section 245-I) preserve the power to treat a settlement as void if it is found to have been obtained by fraud or misrepresentation of facts. The conclusiveness of a settlement does not immunise a fraudulent one (Om Prakash Mittal, digested under section 245-I).
B. STATUTORY POSITION (verbatim text)
The text of the section, as it stands in the Act (FA-2025 base), is set out below.
245D.
(1) On receipt of an application under section 245C, the Settlement Commission shall, within seven days from 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.
(1A) [Omitted by the Finance (No. 2) Act, 1991, w.e.f. 27-9-1991.]
(2) A copy of every order under sub-section (1) shall be sent to the applicant and to the Principal Commissioner or 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 with 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 (2A) 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 Principal Commissioner or Commissioner, and the Principal Commissioner or 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 Principal Commissioner or 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 and the Principal Commissioner or 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 Principal Commissioner or Commissioner has not furnished the report within the aforesaid period, the Settlement Commission shall proceed further in the matter without the report of the Principal Commissioner or Commissioner:
Provided also that where in respect of an application, an order, which was required to be passed under this sub-section on or before the 31st day of January, 2021, has not been passed on or before the 31st day of January, 2021, such application shall deemed to be valid.
(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 Principal Commissioner or 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 Principal Commissioner or 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 Principal Commissioner or Commissioner shall furnish the report within a period of ninety days of the receipt of communication from the Settlement Commission:
Provided that where the Principal Commissioner or 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 Principal Commissioner or Commissioner, if any, received under— (i) sub-section (2B) or sub-section (3), or (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 Principal Commissioner or Commissioner to be heard, either in person or through a representative duly authorised 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 Principal Commissioner or 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 (2D), 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 but before the 1st day of June, 2010, within twelve months from the end of the month in which the application was made; (iii) in respect of an application made on or after the 1st day of June, 2010, within eighteen 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 of such tax or has allowed payment thereof by instalments, the assessee shall be liable to pay simple interest at one and one-fourth per cent for every month or part of a month on the amount remaining unpaid from the date of expiry of the period of thirty-five days aforesaid.
(6B) The Settlement Commission may, with a view to rectifying any mistake apparent from the record, amend any order passed under sub-section (4)— (a) at any time within a period of six months from the end of the month in which the order was passed; or (b) at any time within the period of six months from the end of the month in which an application for rectification has been made by the Principal Commissioner or the Commissioner or the applicant, as the case may be:
Provided that no application for rectification shall be made by the Principal Commissioner or the Commissioner or the applicant after the expiry of six months from the end of the month in which an order under sub-section (4) is passed by the Settlement Commission:
Provided further that an amendment which has the effect of modifying the liability of the applicant shall not be made under this sub-section unless the Settlement Commission has given notice to the applicant and the Principal Commissioner or Commissioner of its intention to do so and has allowed the applicant and the Principal Commissioner or Commissioner an opportunity of being heard.
(7) Where a settlement becomes void as provided under sub-section (6), the proceedings with respect to the matters 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 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.
(9) On and from the 1st day of February, 2021, the provisions of sub-sections (1), (2), (2B), (2C), (3), (4), (4A), (5),
(6) and
(6B) shall apply to pending applications allotted to Interim Board with the following modifications, namely:— (i) for the words "Settlement Commission", wherever they occur, the words "Interim Board" shall be substituted; (ii) for the word "Bench", the words "Interim Board" shall be substituted; (iii) for the purposes of this section, 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; 56[(iv) where the time-limit for amending any order or filing of rectification application under sub-section (6B) expires on or after the 1st day of February, 2021, but before the 1st day of February, 2022, such time-limit shall be extended to the 30th day of September, 2023.]
(10) On and from the 1st day of February, 2021, the provisions of sub-sections
(6A) and
(7) shall have effect as if for the words "Settlement Commission", the words "Settlement Commission or Interim Board of Settlement" had been substituted.
(11) The Central Government may by notification in the Official Gazette, make a scheme, for the purposes of settlement in respect of pending applications by the Interim Board, so as to impart greater efficiency, transparency and accountability by— (a) eliminating the interface between the Interim Board and the assessee in the course of proceedings to the extent technologically feasible; (b) optimising utilisation of the resources through economies of scale and functional specialisation; (c) introducing a mechanism with dynamic jurisdiction.
(12) The Central Government may, for the purposes of giving effect to the scheme made under sub-section (11), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the said notification:
Provided that no such direction shall be issued after the 31st day of March, 2023.
(13) Every notification issued under sub-section (11) and sub-section (12) shall, as soon as may be after the notification is issued, be laid before each House of Parliament.
Words/sub-sections omitted by amendment carry the marker [***].
C. AUTHORITIES
Twelve decisions, grouped by issue: mandatory interest and its terminus; the bar on reopening; natural justice at admission/rejection; invalidity; and the comprehensiveness of the settlement.
Cluster 1 — Mandatory interest: no power to waive (245D(4))
The settlement must conform to the Act's mandatory levies.
Facts: Whether the Settlement Commission, while passing an order under section 245D(4), can reduce or waive interest chargeable under sections 234A, 234B and 234C.
Held: The charge of interest under sections 234A, 234B and 234C is mandatory; the Commission has no power to waive or reduce it, save to the extent permitted by CBDT's circulars under section 119, which the Commission may itself apply. The order of settlement must be in accordance with the provisions of the Act.
Ratio: A settlement is a determination of liability under the Act, not a dispensation from its mandatory provisions.
Relevance: The Constitution Bench foundation for all subsequent interest jurisprudence under section 245D; the most cited authority in the Chapter.
Held: Interest under section 234B is payable on the income disclosed in the return and before the Commission, and is chargeable till the Commission acts under section 245D(1); the mandatory interest must be included in the settlement.
Relevance: Companion to Hindustan Bulk Carriers; an important step in fixing the terminus of section 234B interest later settled by Brij Lal.
CIT v. Hindustan Bulk Carriers, (2003) 259 ITR 449 (SC)
Held: Where, on the section 245D(4) order, there is a deficit in advance tax, the terminus of the period for section 234B interest is the date of the section 245D(4) order (a view later modified by the Constitution Bench in Brij Lal to the 245D(1) date).
Relevance: Part of the interest-terminus debate ultimately resolved by Brij Lal; retains importance for the principle that mandatory interest must be reckoned and included.
Cluster 2 — Terminus of interest and the bar on reopening
The Constitution Bench reconciliation, and the prohibition on using section 154.
Facts: Whether sections 234A–234C apply to settlement proceedings; up to which order interest runs; and whether the Commission can re-open a concluded settlement under section 154 to levy interest.
Held: Sections 234A–234C apply to Chapter XIX-A proceedings; interest under section 234B is chargeable only up to the date of the section 245D(1) order (admission), not the 245D(4) order; and the Commission cannot invoke section 154 to re-open concluded proceedings to levy further interest. Settlement proceedings are akin to assessment by settlement, not regular assessment.
Ratio: Mandatory interest applies but stops at admission; finality bars rectification-led reopening.
Relevance: The controlling Constitution Bench authority on interest and finality under section 245D; modifies Hindustan Bulk Carriers on the terminus.
Facts: The Commission passed a 245D(4) order waiving interest, then partly allowed the Revenue's rectification reversing the waiver; the High Court upheld the rectification.
Held: Set aside both the High Court's order and so much of the Commission's order as dealt with interest; the Commission could not re-open a concluded settlement under section 154, and the matter was remanded for de novo consideration of interest consistent with Ghaswala.
Relevance: Applies Brij Lal/Ghaswala: no reopening under section 154, and the original order must itself conform to the mandatory-interest rule.
Cluster 3 — Natural justice and the admission/invalidity stages
Hearing before rejection; the line between invalidity and a legal issue.
R.B. Shreeram Durga Prasad & Fatehchand Nursing Das v. Settlement Commission, (1989) 176 ITR 169 (SC)
Citation: (1989) 176 ITR 169 (SC); decided 27 January 1989.
Held: Natural justice requires that an applicant be heard before his application under section 245C is rejected; an order made in violation of natural justice is of no value.
Relevance: Foundational on the procedural fairness owed at the section 245D admission/rejection stage.
Kandathil M. Mammen v. Income-tax Settlement Commission, (2022) (Mad)
Citation: Madras High Court, decided 27 June 2022.
Held: A contestable question of law does not, by itself, make an application invalid under section 245D(2C); it is to be adjudicated at the 245D(4) stage; invalidity attaches only on a genuine failure of full and true disclosure.
Relevance: Distinguishes invalidity (disclosure failure) from a legal issue at the 245D(2C) stage.
Pr. CIT v. Income-tax Settlement Commission, (2015) (Del)
Citation: Delhi High Court, decided 8 December 2015.
Held: Surveyed the three stages at which the Commission may reject/invalidate an application and the limited scope of the Revenue's challenge to an admission order.
Relevance: On the structure of the section 245D admission/invalidity scheme and the bounds of writ challenge.
Cluster 4 — Comprehensiveness, fraud, and the nature of the order
What the settlement order is, and when it is void.
Major Metals Ltd. v. Union of India, (2012) 207 Taxman 185 (Bom)
Held: The entire assessment is before the Commission, which completes it as part of the settlement; comprehensiveness, finality and conclusiveness are the attributes of its function. A disclosure made to shut out investigation is not full and true, and section 68 and penalty under section 271(1)(c) could be applied.
Relevance: On the comprehensiveness of the section 245D(4) determination and the Commission's power to look behind a coloured disclosure.
CIT v. Om Prakash Mittal, (2005) 273 ITR 326 (SC)
Citation: (2005) 273 ITR 326 (SC).
Held: A settlement order can be declared void under section 245D(6) if obtained by fraud or misrepresentation; section 245-I's conclusiveness does not take away that power, which would otherwise be rendered otiose.
Relevance: On the void-for-fraud exception built into section 245D(6)/(7). Full digest under section 245-I.
Jyotendrasinhji v. S.I. Tripathi, (1993) 201 ITR 611 (SC)
Citation: (1993) 201 ITR 611 (SC).
Held / relevance: The settlement order is a package; judicial review goes to the legality of the process, not the adequacy of the bargain. Full digest under section 245-I.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced from the Income-tax Act, 1961 (text as printed in the local Act, base text amended up to the Finance Act, 2025), with the publisher's footnote apparatus and amendment-marker brackets removed; three asterisks (***) denote words or a provision omitted by amendment and retained only to mark the omission. The Income-tax Settlement Commission ceased to operate for applications made on or after 1 February 2021 (Finance Act, 2021); pending applications stand transferred to the Interim Board for Settlement (section 245AA). Finance Act, 2026 makes no change to any section of Chapter XIX-A. Citations are stated as reported; orders of the Tribunal and High Courts are flagged as such. Where a section has not been judicially construed, that is stated candidly and the nearest governing authority is given. This material is for professional reference and is not legal advice.
CHAPTER XIX-A — SETTLEMENT OF CASES
Section 245D — Procedure on Receipt of an Application Under Section 245C
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Provision: The procedural core of the Chapter — notice and order admitting or rejecting the application (245D(1)); call for the Commissioner's report; declaring an application invalid (245D(2C)); the inquiry; the final order of settlement “in accordance with the provisions of this Act” (245D(4)); provision for the terms of settlement (245D(6)); the void-for-fraud rule (245D(7)); and time-limits for passing the order, with the corresponding Interim Board provisions.
Heading: Procedure on receipt of an application under section 245C.
Finance Act, 2026: Not amended.
Operational status: Live for pending applications before the Interim Board; the body of pre-2021 authority governs.
Authorities digested: 12 (the most heavily litigated section of the Chapter — interest, finality, reopening and natural justice).
A. SECTION COMMENTARY
1. The procedural spine
Section 245D takes the application from the door to the final order. On receipt, the Commission (now the Interim Board) issues notice and decides whether to allow the application to be proceeded with (245D(1)); it calls for the Commissioner's report; it may declare an application invalid for want of full and true disclosure (245D(2C)); it holds an inquiry; and it passes a final order of settlement (245D(4)). The order provides for the terms of settlement (245D(6)) and is void if obtained by fraud or misrepresentation (245D(7)).
2. “In accordance with the provisions of this Act” — mandatory interest
The single most consequential holding on section 245D is that the Commission's order must be “in accordance with the provisions of this Act”. The Constitution Bench in Anjum M.H. Ghaswala held that interest under sections 234A, 234B and 234C is mandatory and that the Commission has no power to waive or reduce it while passing an order under section 245D(4); at most it could extend the relief that CBDT circulars under section 119 already permitted. The settlement is a settlement of the quantum, not a dispensation from the statute's mandatory levies.
3. The terminus of interest under section 234B
When does the section 234B interest stop running in a settlement? The Constitution Bench in Brij Lal held that sections 234A to 234C apply to settlement proceedings, but that interest under section 234B is chargeable only up to the date of the order under section 245D(1) (admission), not up to the section 245D(4) order, and that the Commission cannot resort to section 154 to re-open a concluded settlement so as to levy further interest. This reconciled the earlier three-Judge decisions in Hindustan Bulk Carriers and Damani Brothers.
4. No reopening of a concluded settlement
A settlement order is meant to be final. Section 154 cannot be used to re-open it to enhance interest (Brij Lal). Where the Commission did purport to rectify and reverse a waiver, the Supreme Court in Kakadia Builders set aside both the rectification and so much of the original order as dealt with interest, and remanded for fresh consideration consistent with Ghaswala — i.e. the Commission cannot re-open under section 154, but the original order itself had to conform to the mandatory-interest rule.
5. Natural justice at the threshold
An application cannot be rejected without hearing the applicant. In R.B. Shreeram Durga Prasad the Supreme Court held that natural justice requires the applicant to be heard before the application is rejected, and an order made in breach is of no value. The principle now informs the 245D(1)/(2C) stages: rejection or a declaration of invalidity must follow notice and hearing.
6. Invalidity vs. legal issue
At the 245D(2C) stage the Commission may declare an application invalid for want of full and true disclosure, but it must distinguish a genuine failure of disclosure from a contestable question of law: the latter is to be decided at the 245D(4) stage and does not, by itself, render the application invalid (Kandathil M. Mammen; Pr. CIT v. ITSC). The Commission has, broadly, three stages at which it may reject or invalidate — admission (245D(1)), invalidity (245D(2C)) and final order (245D(4)).
7. Void for fraud or misrepresentation
Section 245D(6)/(7) (read with section 245-I) preserve the power to treat a settlement as void if it is found to have been obtained by fraud or misrepresentation of facts. The conclusiveness of a settlement does not immunise a fraudulent one (Om Prakash Mittal, digested under section 245-I).
B. STATUTORY POSITION (verbatim text)
The text of the section, as it stands in the Act (FA-2025 base), is set out below.
245D.
(1) On receipt of an application under section 245C, the Settlement Commission shall, within seven days from 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.
(1A) [Omitted by the Finance (No. 2) Act, 1991, w.e.f. 27-9-1991.]
(2) A copy of every order under sub-section (1) shall be sent to the applicant and to the Principal Commissioner or 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 with 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 (2A) 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 Principal Commissioner or Commissioner, and the Principal Commissioner or 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 Principal Commissioner or 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 and the Principal Commissioner or 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 Principal Commissioner or Commissioner has not furnished the report within the aforesaid period, the Settlement Commission shall proceed further in the matter without the report of the Principal Commissioner or Commissioner:
Provided also that where in respect of an application, an order, which was required to be passed under this sub-section on or before the 31st day of January, 2021, has not been passed on or before the 31st day of January, 2021, such application shall deemed to be valid.
(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 Principal Commissioner or 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 Principal Commissioner or 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 Principal Commissioner or Commissioner shall furnish the report within a period of ninety days of the receipt of communication from the Settlement Commission:
Provided that where the Principal Commissioner or 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 Principal Commissioner or Commissioner, if any, received under— (i) sub-section (2B) or sub-section (3), or (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 Principal Commissioner or Commissioner to be heard, either in person or through a representative duly authorised 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 Principal Commissioner or 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 (2D), 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 but before the 1st day of June, 2010, within twelve months from the end of the month in which the application was made; (iii) in respect of an application made on or after the 1st day of June, 2010, within eighteen 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 of such tax or has allowed payment thereof by instalments, the assessee shall be liable to pay simple interest at one and one-fourth per cent for every month or part of a month on the amount remaining unpaid from the date of expiry of the period of thirty-five days aforesaid.
(6B) The Settlement Commission may, with a view to rectifying any mistake apparent from the record, amend any order passed under sub-section (4)— (a) at any time within a period of six months from the end of the month in which the order was passed; or (b) at any time within the period of six months from the end of the month in which an application for rectification has been made by the Principal Commissioner or the Commissioner or the applicant, as the case may be:
Provided that no application for rectification shall be made by the Principal Commissioner or the Commissioner or the applicant after the expiry of six months from the end of the month in which an order under sub-section (4) is passed by the Settlement Commission:
Provided further that an amendment which has the effect of modifying the liability of the applicant shall not be made under this sub-section unless the Settlement Commission has given notice to the applicant and the Principal Commissioner or Commissioner of its intention to do so and has allowed the applicant and the Principal Commissioner or Commissioner an opportunity of being heard.
(7) Where a settlement becomes void as provided under sub-section (6), the proceedings with respect to the matters 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 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.
(9) On and from the 1st day of February, 2021, the provisions of sub-sections (1), (2), (2B), (2C), (3), (4), (4A), (5),
(6) and
(6B) shall apply to pending applications allotted to Interim Board with the following modifications, namely:— (i) for the words "Settlement Commission", wherever they occur, the words "Interim Board" shall be substituted; (ii) for the word "Bench", the words "Interim Board" shall be substituted; (iii) for the purposes of this section, 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; 56[(iv) where the time-limit for amending any order or filing of rectification application under sub-section (6B) expires on or after the 1st day of February, 2021, but before the 1st day of February, 2022, such time-limit shall be extended to the 30th day of September, 2023.]
(10) On and from the 1st day of February, 2021, the provisions of sub-sections
(6A) and
(7) shall have effect as if for the words "Settlement Commission", the words "Settlement Commission or Interim Board of Settlement" had been substituted.
(11) The Central Government may by notification in the Official Gazette, make a scheme, for the purposes of settlement in respect of pending applications by the Interim Board, so as to impart greater efficiency, transparency and accountability by— (a) eliminating the interface between the Interim Board and the assessee in the course of proceedings to the extent technologically feasible; (b) optimising utilisation of the resources through economies of scale and functional specialisation; (c) introducing a mechanism with dynamic jurisdiction.
(12) The Central Government may, for the purposes of giving effect to the scheme made under sub-section (11), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the said notification:
Provided that no such direction shall be issued after the 31st day of March, 2023.
(13) Every notification issued under sub-section (11) and sub-section (12) shall, as soon as may be after the notification is issued, be laid before each House of Parliament.
Words/sub-sections omitted by amendment carry the marker [***].
C. AUTHORITIES
Twelve decisions, grouped by issue: mandatory interest and its terminus; the bar on reopening; natural justice at admission/rejection; invalidity; and the comprehensiveness of the settlement.
Cluster 1 — Mandatory interest: no power to waive (245D(4))
The settlement must conform to the Act's mandatory levies.
CIT v. Anjum M.H. Ghaswala, (2001) 252 ITR 1 (SC) (Constitution Bench)
Citation: (2001) 252 ITR 1 (SC); Constitution Bench; decided 18 October 2001.
Facts: Whether the Settlement Commission, while passing an order under section 245D(4), can reduce or waive interest chargeable under sections 234A, 234B and 234C.
Held: The charge of interest under sections 234A, 234B and 234C is mandatory; the Commission has no power to waive or reduce it, save to the extent permitted by CBDT's circulars under section 119, which the Commission may itself apply. The order of settlement must be in accordance with the provisions of the Act.
Ratio: A settlement is a determination of liability under the Act, not a dispensation from its mandatory provisions.
Relevance: The Constitution Bench foundation for all subsequent interest jurisprudence under section 245D; the most cited authority in the Chapter.
CIT v. Damani Brothers, (2003) 259 ITR 475 (SC)
Citation: (2003) 259 ITR 475 (SC); three-Judge Bench; decided 17 December 2002.
Held: Interest under section 234B is payable on the income disclosed in the return and before the Commission, and is chargeable till the Commission acts under section 245D(1); the mandatory interest must be included in the settlement.
Relevance: Companion to Hindustan Bulk Carriers; an important step in fixing the terminus of section 234B interest later settled by Brij Lal.
CIT v. Hindustan Bulk Carriers, (2003) 259 ITR 449 (SC)
Citation: (2003) 259 ITR 449 (SC); three-Judge Bench; decided 17 December 2002.
Held: Where, on the section 245D(4) order, there is a deficit in advance tax, the terminus of the period for section 234B interest is the date of the section 245D(4) order (a view later modified by the Constitution Bench in Brij Lal to the 245D(1) date).
Relevance: Part of the interest-terminus debate ultimately resolved by Brij Lal; retains importance for the principle that mandatory interest must be reckoned and included.
Cluster 2 — Terminus of interest and the bar on reopening
The Constitution Bench reconciliation, and the prohibition on using section 154.
Brij Lal v. CIT, (2010) 328 ITR 477 (SC) (Constitution Bench)
Citation: (2010) 328 ITR 477 (SC); five-Judge Bench.
Facts: Whether sections 234A–234C apply to settlement proceedings; up to which order interest runs; and whether the Commission can re-open a concluded settlement under section 154 to levy interest.
Held: Sections 234A–234C apply to Chapter XIX-A proceedings; interest under section 234B is chargeable only up to the date of the section 245D(1) order (admission), not the 245D(4) order; and the Commission cannot invoke section 154 to re-open concluded proceedings to levy further interest. Settlement proceedings are akin to assessment by settlement, not regular assessment.
Ratio: Mandatory interest applies but stops at admission; finality bars rectification-led reopening.
Relevance: The controlling Constitution Bench authority on interest and finality under section 245D; modifies Hindustan Bulk Carriers on the terminus.
Kakadia Builders Pvt. Ltd. v. ITO, (2019) 412 ITR 128 (SC)
Citation: (2019) 412 ITR 128 (SC).
Facts: The Commission passed a 245D(4) order waiving interest, then partly allowed the Revenue's rectification reversing the waiver; the High Court upheld the rectification.
Held: Set aside both the High Court's order and so much of the Commission's order as dealt with interest; the Commission could not re-open a concluded settlement under section 154, and the matter was remanded for de novo consideration of interest consistent with Ghaswala.
Relevance: Applies Brij Lal/Ghaswala: no reopening under section 154, and the original order must itself conform to the mandatory-interest rule.
Cluster 3 — Natural justice and the admission/invalidity stages
Hearing before rejection; the line between invalidity and a legal issue.
R.B. Shreeram Durga Prasad & Fatehchand Nursing Das v. Settlement Commission, (1989) 176 ITR 169 (SC)
Citation: (1989) 176 ITR 169 (SC); decided 27 January 1989.
Held: Natural justice requires that an applicant be heard before his application under section 245C is rejected; an order made in violation of natural justice is of no value.
Relevance: Foundational on the procedural fairness owed at the section 245D admission/rejection stage.
Kandathil M. Mammen v. Income-tax Settlement Commission, (2022) (Mad)
Citation: Madras High Court, decided 27 June 2022.
Held: A contestable question of law does not, by itself, make an application invalid under section 245D(2C); it is to be adjudicated at the 245D(4) stage; invalidity attaches only on a genuine failure of full and true disclosure.
Relevance: Distinguishes invalidity (disclosure failure) from a legal issue at the 245D(2C) stage.
Pr. CIT v. Income-tax Settlement Commission, (2015) (Del)
Citation: Delhi High Court, decided 8 December 2015.
Held: Surveyed the three stages at which the Commission may reject/invalidate an application and the limited scope of the Revenue's challenge to an admission order.
Relevance: On the structure of the section 245D admission/invalidity scheme and the bounds of writ challenge.
Cluster 4 — Comprehensiveness, fraud, and the nature of the order
What the settlement order is, and when it is void.
Major Metals Ltd. v. Union of India, (2012) 207 Taxman 185 (Bom)
Citation: (2012) 207 Taxman 185 / 251 CTR 385 (Bom).
Held: The entire assessment is before the Commission, which completes it as part of the settlement; comprehensiveness, finality and conclusiveness are the attributes of its function. A disclosure made to shut out investigation is not full and true, and section 68 and penalty under section 271(1)(c) could be applied.
Relevance: On the comprehensiveness of the section 245D(4) determination and the Commission's power to look behind a coloured disclosure.
CIT v. Om Prakash Mittal, (2005) 273 ITR 326 (SC)
Citation: (2005) 273 ITR 326 (SC).
Held: A settlement order can be declared void under section 245D(6) if obtained by fraud or misrepresentation; section 245-I's conclusiveness does not take away that power, which would otherwise be rendered otiose.
Relevance: On the void-for-fraud exception built into section 245D(6)/(7). Full digest under section 245-I.
Jyotendrasinhji v. S.I. Tripathi, (1993) 201 ITR 611 (SC)
Citation: (1993) 201 ITR 611 (SC).
Held / relevance: The settlement order is a package; judicial review goes to the legality of the process, not the adequacy of the bargain. Full digest under section 245-I.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced from the Income-tax Act, 1961 (text as printed in the local Act, base text amended up to the Finance Act, 2025), with the publisher's footnote apparatus and amendment-marker brackets removed; three asterisks (***) denote words or a provision omitted by amendment and retained only to mark the omission. The Income-tax Settlement Commission ceased to operate for applications made on or after 1 February 2021 (Finance Act, 2021); pending applications stand transferred to the Interim Board for Settlement (section 245AA). Finance Act, 2026 makes no change to any section of Chapter XIX-A. Citations are stated as reported; orders of the Tribunal and High Courts are flagged as such. Where a section has not been judicially construed, that is stated candidly and the nearest governing authority is given. This material is for professional reference and is not legal advice.