Assessing Officer Cannot Reopen Income Tax Settlement Through Reassessment: Supreme Court

The Supreme Court on Wednesday ruled that once a taxpayer's case has been finally settled by the Income Tax Settlement Commission, the Assessing Officer cannot reopen matters covered by the settlement through the ordinary reassessment route under Section 148 of the Income Tax Act.

The Court said the Revenue can seek to reopen a settlement on the ground of fraud or misrepresentation by moving the Settlement Commission under Section 245D(6). The Assessing Officer, however, cannot independently reopen the settled assessment.

A Bench of Justice S.V.N. Bhatti and Justice N.V. Anjaria made the ruling while dismissing the Income Tax Department's appeal against Omaxe Limited. The Court upheld the Delhi High Court's decision quashing the reassessment proceedings against the company.

“If the jurisdiction of the AO under Sections 143(2), 148, 154, etc., is made independent and available for exercise again, the finality attached to the Settlement Commission will be defeated. Parliament did not envisage this course,” the Court observed.

It further held that “the AO's power to reassess the Settlement Order passed by the ITSC is unavailable.”

The dispute arose from Omaxe's assessment for 2006-07. The real estate company had claimed a deduction under Section 80IB(10) for its housing projects and subsequently approached the Income Tax Settlement Commission. The Commission passed a final settlement order on March 17, 2008.

The Income Tax Department conducted a fresh survey of Omaxe's premises on December 17 and 18, 2009. According to the Department, documents found during the survey indicated that commercial portions of some of the company's housing projects exceeded the limits prescribed under Section 80IB(10).

The Department subsequently issued a notice under Section 148 proposing to disallow a deduction of ₹55.58 crore across four projects. The projects were Omaxe City Lucknow, Omaxe City Sonepat, Omaxe Heights Sonepat and Omaxe Heights Faridabad.

The Assessing Officer later completed the reassessment and disallowed the deduction, adding ₹65.65 crore to Omaxe's total taxable income for the assessment year.

Omaxe challenged the reopening, arguing that the Settlement Commission's final order was conclusive under Section 245-I. It contended that the Assessing Officer had no jurisdiction to reopen matters covered by the settlement.

The Department had also approached the Settlement Commission under Section 245D(6), alleging that Omaxe had obtained the settlement through misrepresentation of facts.

The Settlement Commission rejected the application. It found that the material relied upon by the Department did not make out a case of misrepresentation.

The Commission also held that the dispute over whether the commercial area of Omaxe's projects exceeded the statutory limit was a legal dispute. It said that such a dispute could not “by any stretch of imagination” be treated as misrepresentation by the company.

The Supreme Court explained that once the Settlement Commission allows an application to proceed under Section 245D(1), it assumes exclusive jurisdiction over the case. The regular assessment machinery is placed in abeyance during the settlement proceedings.

Once the Commission passes its final order under Section 245D(4), the decision attains finality. The Assessing Officer cannot thereafter independently invoke the ordinary reassessment machinery in respect of matters covered by the settlement.

The court clarified that this does not take away the Revenue's remedy in cases involving fraud or misrepresentation. Under Section 245D(6), the Revenue can approach the Settlement Commission and seek to have the settlement order declared void.

“By making out a case under either head, the ITSC's Order is reopened, which ultimately leads to the Settlement Order being declared void,” the Court ruled.

However, the Assessing Officer cannot independently reopen a final settlement order. The Court said making the AO's reassessment powers available after settlement would defeat the finality attached to the Settlement Commission's order.

The Court also referred to the settlement mechanism as one where the Revenue and the assessee must take the “crust and the crumb together.”

It said allowing further reassessment after the settlement proceedings have attained finality would be contrary to the scheme of Chapter XIX-A.

In the present case, the Revenue had already invoked Section 245D(6), but the Settlement Commission had rejected its application. That order had become final.

The top court therefore found no merit in the Revenue's appeal and dismissed it.

For Revenue: Senior Advocate Arijit Prasad

For Omaxe Limited: Advocate Kavita Jha