Follow Us :

The Income Tax Settlement Commission (ITSC) is a quasi-judicial body set up under the Income Tax Act. The objective of setting up of ITSC is to settle the tax liabilities in complicated cases, avoiding endless and prolonged litigation. The taxpayer can approach the ITSC during the pendency of assessment proceedings, subject to certain prescribed conditions. For making an application before the ITSC, the tax and interest on additional income disclosed before the ITSC has to be paid. The order passed by the ITSC is conclusive and no appeal to any authority can be made against the order.

Settlement Commission

Chapter XIX – A of Income Tax Act, 1961 provides for settlement of cases. Income Tax Settlement Commission (herein after referred to as ITSC) was set up in the year 1976 on the recommendation of Direct Tax Enquiry Committee headed by former Chief Justice of India, Shri K. N. Wanchoo. The purpose, intent and necessity of Settlement Commission is revealed by recommendation in para 2.32 to 2.34 of Chapter of the report:

“2.32 This, however, does not mean that the door for compromise with the errant tax payer should forever remain closed. In the administration of fiscal laws, whose primary objective is to raise revenue, there has to be room for compromise and settlement. A rigid attitude would not only inhibit a onetime tax evader or an un intending defaulter from making a clear breast of his affairs, but would also unnecessarily strain the investigational resources of the department in cases of doubtful benefit to revenue, while needlessly proliferating litigation and holding up collections. We would, therefore, suggest that there should be a provision in the law for a settlement with the taxpayer at any stage of the proceedings. In the United Kingdom, the confession method has been in vogue since 1923. In the U. S. law also, there is a provision for compromise with the taxpayer as to his tax liabilities. A provision of this type facilitating settlement in individual cases will have this advantage over general disclosure scheme that misuse thereof will be difficult and the disclosure will not normally breed further tax evasion. Each individual case can be considered on its merits and full disclosures not only of the income but of the modus operandi of its build up can be insisted on thus sealing off chances of continued evasion through similar practice.

2.33 To ensure that the Settlement is fair, prompt and independent, we would suggest that there should be a high level machinery for administering the provisions, which would also incidentally relieve the field officer of an onerous responsibility and risk of having to face adverse criticism which, we are told, has been responsible for the slow rate of disposal of disclosure petitions.”

Unique features of Income Tax Settlement Commission characterizing its role and responsibility are as follows:

The Income Tax Settlement Commission has certain unique features, such as:

  • It is a quasi judicial body (as per section 245L) and is a premier Alternative Dispute Resolution (ADR) body in India.
  • Only assessee can approach the settlement authority.
  • The application for settlement can be made only during the pendency of the assessment proceedings.
  • An institution, though within the Tax Department, but independent of the same to settle tax liability to give quietus to a dispute. In other words, the commission functions independently of the Department. It settles disputes relating to tax liability totally and finally.
  • The ITSC is empowered to grant immunity from prosecution for any offence and also to grant immunity from imposition of any penalty under the laws relating to Income Tax and Wealth Tax.
  • The all proceedings before the ITSC are confidential. The proceedings are not open to public. Confidentiality of assessee’s disclosure is maintained as the same could be used only in the Settlement Commission except as provided in section 245HA(3) of the Act. The order of the Settlement Commission is not answerable to audit, executive or parliament.
  • The orders of the ITSC are final and not appealable. The orders are only subject to judicial review in terms of Articles 136 and 226 of the Constitution of India. Thus, time consuming litigation in regular appellate procedure is avoided by Department and assessee as well.
  • The constitution of the ITSC is done 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 accounts” as specifically laid down in the statute itself.

Advantages for the Applicant:

  • Immunity from Penalty and Prosecution under the IT Act.
  • Avoid prolonged litigation time. 

Advantages for the Department:

  • The tax and interest on the additional income is paid in full before filing the application to ITSC.
  • Cost and efforts of the department is substantially reduced, as the applicant is revealing full and true disclosures. 

The Settlement Commission is a platform to avoid never ending litigation.

‘Telescoping theory’,

‘Peak Credit Theory’,

‘Real Income Theory 

Primary objective

The door for compromise should not be closed for an errant taxpayer permanently. 

Objectives of the Income Tax Settlement Commission

The Commission was constituted in the year 1976 as per the recommendations of the Direct Taxes Enquiry Committee (Wanchoo Committee) as an alternative dispute resolution mechanism with the following objectives:

  • To provide a machinery for defaulting tax payers to come clean through compromise and settlement
  • To offer speedy settlement of disputes
  • To reduce litigation by providing finality of proceedings
  • To resolve controversies in complicated cases
  • To ensure speedy collection of taxes at low cost 

Benefits of the Settlement Commission

The main benefits of the Settlement Commission to both Government and the assessee are :-

(i)   Department to get over long and continued litigation in complicated cases with doubtful benefit to revenue.

(ii) Final Settlement for settling liabilities across the board in complicated cases with doubtful benefit to Revenue, avoiding endless and prolonged litigation and subsequent strain on investigational resources of the Department.

(iii) Provided its disclosure was “full and true”, the assessee had a forum wherein complicated matters could be decided by one forum.

(iv) Time consuming litigation in the regular appellate procedure was avoided by the Department and the assessee.

(v)Provided its disclosure was full and true, benefits of waiver of penalties and prosecution are available to the assessee.

(vi) Confidentiality of the assessee’s disclosure is maintained, as the same could be used only in the Settlement Commission except as provided in Section 245HA(3) of the Act.

T0us, the best highlighting features of Settlement Commission are (a) To pass the Settlement order within 18 months of filling of the application (b) It has wide power of granting immunity from penalty and prosecution, which are major sources of litigation (c) The orders passed by the Commission are final and conclusive.

Income Tax Settlement Commission is not the part of the Income Tax Department

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.

 Basic features

  • ITSC is an Independent Judicial Forum
  • Choice given to tax payers to approach Commission as an alternative dispute resolution mechanism
  • Orders of ITSC binding on both Tax payers & Income Tax Department
  • Tax & Interest on Additional Amount Offered has to be paid when filing application
  • ITSC has power to Waive Penalties & Prosecution under Income Tax Act
  • Can be questioned before High Court and Supreme Court in writs on violation of constitutional rights

 Changes since inception

1. Many changes over the fourty four years of existence.

(a) Veto Power of CIT withdrawn

(b) Payment of tax after admission changed

(c) Time limit for final order set

2. Major changes by Finance Act 2007

(a) All old cases pending on 01.04.2008 – back to Income Tax Department – i.e. Abate

(b) New cases-One year time limit for final disposal

(c) Tax payment on income disclosed along with application

(d) Following types of cases excluded from the purview of the Commission

(i)  search cases,

(ii) matter pending at levels above Assessing Officer,

(iii) re-opened matter before Assessing Officer

3. Changes by Finance Act, 2010

(i) Big search cases brought back

(ii) Time limit for final order increased to 18 months

(iii) Search cases can come only after issue of notice under section 153A or 153C

 Chapter XIX-A of the Act providing for settlement of cases is a machinery provision

In S.P.A.M. RFA (OS) 2347/2008 Page 7 Krishnan Chettiar and Son v. Income Tax Settlement Commission and Another, (1993) 202 ITR 81 (Mad.), a Division Bench of the Madras High Court ruled that Chapter XIX-A of the Act providing for settlement of cases is a machinery provision; the following observations are relevant: –

“Chapter XIX-A in the Act, introduced by the Taxation Laws (Amendment) Act, 1975, was the result of implementing the recommendations of the Wanchoo Committee to arrest the evil of black money and large scale tax evasion. One of the recommendations made was a compromise measure by which a disclosure could be made and the quantum of tax is determined and the assessee not only secured quittance for himself, but also freedom from levy of penalty and prosecution. The machinery, initially conceived of by the Wanchoo Committee to achieve this, was a Tribunal, though, later, it was rechristened the Settlement Commission with full powers to investigate, quantify the amount of tax, penalty as well as interest, etc., and grant immunity from prosecution at its discretion. The details of the application, probe, consideration, hearing and disposal, found in the report, had been incorporated in the statutory provisions in Chapter XIX-A. Thus, a careful study of the anatomy of Chapter XIX-A clearly brings out that it was only in the nature of machinery provisions for the purpose of settlement of tax disputes between the assessee and the Revenue. The provisions do not compel any assessee to resort to section 245C, but that can be availed of, if the assessee so chooses. In other words, the remedy provided under section 245C, as a machinery provision for effecting settlement of tax disputes, was only in the nature of a concession or option open to the assessee who desired to settle his tax matters.” – [Krishnan Chettiar and Son v. Income Tax Settlement Commission and Another (1993) 202 ITR 81 (Mad.)]

It is a settled rule of construction that tax laws, like all other laws, shall be interpreted reasonably and in consonance with justice so as to avoid an absurd consequence that may lead to mischief or abuse: (Hegde, J., in Jodha Mal Kuthiala v. CIT (1971) 82 ITR 570 (SC). A machinery provision in the Income Tax Act cannot be subjected to the literal or strict rule of construction that is adopted to interpret a charging section. In Calcutta Jute Manufacturing Co. v. CTO, (AIR 1997 SC 2920), the Supreme Court held that a machinery provision must be so interpreted as to effectuate its purpose, and the distinction between a charging section and a machinery provision whose function is to effectuate the charge, was pointed out in the context of the rule of interpretation to be adopted. 

Powers of Settlement Commission

  • The Settlement Commission has all the powers of Income Tax authorities in respect of proceedings pending before it.
  • It may reopen completed proceedings under section 245E of the Income Tax Act, 1961.
  • It has inherent jurisdiction to rectify any error committed by it when such error is prejudicial to a party for which that party is not responsible. However, it does not have the power to review its own order if the matter raised by the applicant has been properly considered and a decision has been taken thereon.
  • The Commission has the power to grant immunity from prosecution and penalty
  • It also enjoys the power to order provisional attachment to protect the interest of revenue; the PCIT or CIT concerned may take advantage of this power in appropriate cases.
  • It may sent a case back to the Assessing Officer if the assessee does not cooperate
  • It may also bar subsequent applications for settlement in certain cases
  • The Commission may waive interest permitted under the provisions of the Income Tax Act and Rules and the circular s issued there under. 

Settlement Process

  • Settlement through a Judicial Process like in Courts
  • In Camera Proceedings
  • Both tax payer and ITD present their cases
  • Proceedings not purely as adversarial unlike those before other appellate forums- Discussion not pure arguments
  • Principles of natural justice adhered to
  • Decision by majority 

Role of Income Tax Department

First Stage – Prima facie Decision

  • Only Applicant given Opportunity – 7 days
  • Order in 15 days

Second Stage  –   Order to decide Validity

  • CIT’s Report within 1 Month
  • Order within 15 Days from receipt of CIT’s Report.

Third Stage – 245 D (3) Report – Enquiry

 — Rule 9 Report from CIT

Fourth Stage – Final Order

–   Within 18 months from the Filing of Application (12 months for applications upto   31.05.2010)

 Challenging the order of Settlement Commission – It can be challenged in court of law by filling a writ petition only when :

  • Principles of natural justice violated, or
  • Mandatory procedural requirements of law were not complied with.

 Similar forums abroad

Settlement is a concept that works and has worked well in other countries too for example the Hansard procedure of confession in the UK IRS and the Compromise Procedure of the US IRS.

  • In India, We have Settlement Procedure
  • In UK Confession Procedure
  • In USA Compromise Procedure 

Bench Composition

Principal Bench, Delhi Additional Bench. I, New Delhi Additional Bench. I, New Delhi
Chairman 24694049 Vice Cha irman 24694049 Vice Chair man 2462 9402(O)
Member 246294 02(O)
Member 24629 405(O) Member 24622621(O)
DIT (Inv.) 24698411(O) DIT (Inv.) 24629 406(O) DIT (Inv.) 24629 406(O)
Addl. DIT (Inv.) 24693319(O) Addl. DIT (Inv.) 24698 671(O) Addl. DIT (Inv.) 2469 8671(O)
CIT (DR) 24621761(O) CIT (DR) 24621 761(O) CIT (DR) 2464 0964(O)
AO 24690693(O)


Super intendent 24622564(O)



Additional Bench. I, Mumbai Additional Bench. II, Mumbai
Vice Chairman Vice Chairman 23516592(F)
Member 23522429(F) Member 23516592(F)
DIT(Inv.) 23537294, 23543236 DIT(Inv.) 23512503(O)
Addl. DIT (Inv.) – 1(1) 23537230(O) CIT (DR) 23533701(O)
Addl. DIT (Inv.) –  1(2) 23543526(O) Addl. DIT (Inv.) – 2(1) 23548815(O)
Secretary 23549503, 23543979 Superintendent 23549504(O)
Superintendent 23549504(O) 23548953(F)

 Kolkata & Chennai

Additional Bench, Kolkata Additional Bench, Chennai
Vice Chairman 22659677 (O) Vice Chairman 24348031(O)
Member 22178819 (O) Member 24343386(O)
Member 22177862 (O)

 Settlement Commission Address —

(1)  Delhi – Principal Branch

4th Floor, Lok Nayak Bhavan, New Delhi-110 003
EPBAX : 011-24690693, 011-24622608, 011-24622764

(2)  Chennai Bench:

640- Anna Salai Satguru Complex, Chennai.-600035
Tele/Fax –  044-24344404

(3)  Kolkata Bench

10-C, Middleton Road, 2nd Floor, Kolkata – 700071
Tel.: 033-22659677; FAX . 033-22658756

(4)  Mumbai Bench

Mahalaxmi Chamber, S.K. Rathod Marg, Mahalaxmi, Mumbai-400034
Tel. 022-23549503; FAX. 022-23549504 

 Sections dealing with Settlement Commission



S. No. Section Contents
(i) 245A Definitions.
(ii) 245B Income-tax Settlement Commission.
(iii) 245BA Jurisdiction and powers of Settlement Commission.
(iv) 245BB Vice-Chairman to act as Chairman or to discharge his functions in certain circumstances.
(v) 245BC Power of Chairman to transfer cases from one Bench to another.
(vi) 245BD Decision to be by majority.
(vii) 245C Application for settlement of cases.
(viii) 245D Procedure on receipt of an application under section 245C.
(ix) 245DD Power of Settlement Commission to order provisional attachment to protect revenue.
(x) 245E Power of Settlement Commission to reopen completed proceedings.
(xi) 245F Powers and procedure of Settlement Commission.
(xii) 245G Inspection, etc., of reports.
(xiii) 245H Power of Settlement Commission to grant immunity from prosecution and penalty.
(xiv) 245HA Abatement of proceeding before Settlement Commission.
(xv) 245HAA Credit for tax paid in case of abatement of proceedings.
(xvi) 245I Order of Settlement to be conclusive
(xvii) 245J Recovery of sums due under order of settlement.
(xviii) 245K Bar on subsequent application for settlement.
(xix) 245L Proceedings before Settlement Commission to be judicial proceedings.
(xx) 245M Certain persons who have filed appeals to the Appellate Tribunal entitled to make applications to the Settlement Commission.

[Omitted by the Finance Act, 1987, with effect from 01.06.1987]

 Rules dealing with Settlement Commission



S. No. Rule Contents
(i) 44C Form of application for settlement of case [and intimation to the Assessing Officer
(ii) 44CA Disclosure of information in the application for settlement of cases.
(iii) 44D Fee for furnishing copy of report.

 Period of Limitation

S. No. Section Nature of compliance Limitation of time
(i) 245C(1) Application for settlement of case to Settlement Commission At any stage of case (with effect from 01.07.2007 at any stage during the pendency of a case before the Assessing Officer)
(ii) 245(1E) Application for settlement before Settlement Commission under sub-section (1) where books of account, documents etc., have been seized. Not before 120 days of seizure
(iii) 245D(1) Rejecting/allowing the application for settlement Within 7 days, notice shall be issued to the applicant to justify admission of his application; within 14 days from the receipt of application, the order pertaining to rejecting/allowing the application shall be made
(iv) 245D(2B) Calling report by the Settlement Commission from Principal Commissioner/ Commissioner Within 30 days from the date of receipt of application
(v) 245(2B) Submission of report by the Principal Commissioner/ Commissioner to Settlement Commission Within 30 days from the date of communication from the Settlement Commission
(vi) 245(2C) Declaring application as invalid by the Settlement Commission Within 15 days from the date of receipt of report from the Principal Commissioner/Commissioner
(vii) 245D(3) Furnishing a report by the Principal Commissioner/Commissioner to the Settlement Commission in the matters covered by the application Within 90 days from the date of receipt of communication from the Settlement Commission
(viii) 245(4A) Passing order of settlement Within 18 months from the end of the month in which the application was made, if application is made on or after 01.06.2010
(ix) 245(6B) Passing of order by the Settlement Commission to amend an order passed by it in order to rectify any mistake apparent from records. (a) Within 6 months from end of the month in which order was passed; or

(b) Within 6 months from 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.

No application for rectification shall be made by the Principal Commissioner or the Commissioner or the applicant after the expiry of 6 months from the end of the month in which an order is passed by the Settlement Commission

(x) 245D(7) Completion of proceedings where settlement becomes void as provided in section 245D(6) Within 2 years from the end of the financial year in which the settlement becomes void
(xi) 245E,


Reopening of completed proceedings by Settlement Commission if an application is made before 01.06.2007 Reopening of proceeding is not possible where period between end of assessment year to which proceeding relates and the date of application for settlement under section 245C exceeds 9 years.

Author Bio

Born on 27 June, 1958 in Narnaul, Haryana joined Income-tax Department in the year 1983 and retired as Income Tax Officer on 30.06.2018. Have so far author of 31 books on Income Tax and also writer of his own blog Privileged to be recipient of first-ever Finance View Full Profile

My Published Posts

Interest on securities or house property income of co-op society – Section 80P(2)(f) deduction Section 80CCC deduction – Contribution to certain Pension Funds Provisional attachment to protect revenue in certain cases [Section 281B] Income by way of interest on compensation or on enhanced compensation referred to in Section 145B(1) [Section 56(2)(viii)] Understanding of revisionary powers of PCIT- Section 263 View More Published Posts

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Post by Date
April 2024