Supreme Court Bars Reassessment After Final Income Tax Settlement Order

The Supreme Court of India dismissed the appeal filed by the revenue through Asst Commissioner of IT ACIT against the Ms Omaxe Ltd.

The dispute arose out of assessment proceedings for the Assessment Year (AY) 2006–07. Following a search and seizure operation under Section 132 of the Income Tax Act, 1961 in September 2005, the assessee, a public limited real estate developer, filed its return declaring a taxable income of ₹89.20 crores after claiming a housing project deduction of ₹78.99 crores under Section 80IB(10).

While the regular assessment was pending, the company approached the Income Tax Settlement Commission (ITSC) under Section 245C for settlement of its tax liabilities.

The ITSC passed a final settlement order under Section 245D(4) on March 17, 2008, determining the net taxable income at ₹89.38 crores after accepting an additional surrendered income of ₹18 lakhs and preserving the Section 80IB(10) deduction.

About 2 years later, following a fresh survey under Section 133A, the Assessing Officer (AO) issued a reassessment notice under Section 148 alleging that commercial built-up areas in four projects exceeded statutory limits, making the Section 80IB(10) deduction disallowable.

The AO subsequently completed reassessment under Section 147, disallowing the deduction and adding back ₹65.65 crores. Simultaneously, the Revenue moved the ITSC under Section 245D(6) to declare the settlement order void due to alleged misrepresentation, but the ITSC rejected the Revenue's application.

The Delhi High Court quashed the reassessment notice and order, leading the Revenue to appeal to the Supreme Court.

A Supreme Court Division Bench comprising Justice S.V.N. Bhatti and Justice N.V. Anjaria dismissed the Revenue's appeal and upheld the High Court's judgment.

The Apex Court held that once an assessment attains finality through a settlement order under Section 245D(4), the statutory machinery under Chapter XIX-A permanently displaces the regular assessment powers of the Assessing Officer, and that the AO lacks statutory jurisdiction under Section 147/148 to reopen any aspect of an assessment year covered by an ITSC settlement order.

The Apex Court held that the under Section 245-I an order passed by the Settlement Commission under Section 245D(4) is conclusive on all matters stated therein. The AO cannot assume parallel or appellate jurisdiction to review or reopen issues that fell within the purview of the settled assessment year.

The Supreme Court reaffirmed that Chapter XIX-A constitutes a specialized alternate dispute resolution mechanism. The objective of settlement is the "Settlement of Liability" rather than the routine "Determination of Liability," creating a self-contained statutory framework that overrides regular assessment machinery under Sections 142 to 156.

• The "Crust and the Crumb" Doctrine: Describing the settlement framework, the Apex Court observed that both the Revenue and the assessee must take "the crust and the crumb together". The Revenue avoids prolonged litigation and collects tax upfront on voluntary disclosures, while the assessee secures immunity from penal interest and prosecution. Once this mutual bargain is concluded, neither party can selectively revive regular assessment channels.

• The Apex Court reaffirms the Exclusive Remedy under Section 245D(6) ifthe Revenue suspects a settlement was obtained through fraud or misrepresentation of facts, then the Revenue can approach the ITSC under Section 245D(6) to declare the order void.

However, the Reassessment under Section 148 is completely unavailable as a backdoor mechanism to bypass the ITSC.

Thus, the Supreme Court dismissed the Revenues appeal finding it to me without the merits, since the Revenue availed the remedy under Section 245D(6) of the Act, 1961 before the ITSC, resulting in the findings recorded in the Order dated 16.12.2011, which has become final.

BENCH: Justice S.V.N. Bhatti and Justice N.V. Anjaria