Supreme Court: Assessing Officer cannot reopen issues settled by Income Tax Settlement Commission under Section 148

The respondent-assessee, a real-estate company, filed its return for AY 2006–07 claiming a deduction of approximately ₹78.99 crore under Section 80IB(10) of the Income Tax Act, 1961 (“the Act”) in respect of housing projects.

During the pendency of the assessment, the assessee applied under Section 245C for settlement of its tax liabilities for AYs 2000–01 to 2006–07. The Income Tax Settlement Commission (“ITSC”) passed a final order under Section 245D(4) on 17.03.2008, accepting additional income of ₹18 lakh for AY 2006–07 and determining the total income after allowing the claimed deductions.

Following a survey under Section 133A in December 2009, the Revenue alleged that the assessee’s projects contained commercial areas exceeding the limits prescribed under Section 80IB(10)(vi), rendering the assessee ineligible for the deduction. A notice under Section 148 was issued on 30.06.2010 proposing reassessment and disallowance of the deduction.

The Assessing Officer rejected the assessee’s objections and passed a reassessment order under Section 147, adding ₹65,65,17,999 to the assessee’s income.

The Revenue also applied under Section 245D(6), seeking a declaration that the ITSC’s settlement order was void for misrepresentation. The ITSC rejected that application, holding that the dispute concerned the legal interpretation of Section 80IB(10), not fraud or misrepresentation.

The Delhi High Court quashed the reassessment notice and order, holding that the ITSC’s final order was conclusive and that the Assessing Officer lacked jurisdiction to reopen matters covered by it.

Whether, after the ITSC has passed a final order under Section 245D(4), the Assessing Officer can invoke Sections 147 and 148 to reopen and reassess an issue covered by the settlement order.

Whether the deduction claimed under Section 80IB(10), having been reflected in the assessee’s computation and accepted while determining the settled total income, formed part of the matters concluded by the ITSC.

Whether the Revenue’s remedy, if the settlement order was allegedly obtained by fraud or misrepresentation, lay exclusively under Section 245D(6) rather than through ordinary reassessment proceedings.

The Court applied Sections 245C, 245D, 245D(6), 245F(2), 245H and 245-I of the Income Tax Act. Section 245C requires a full and true disclosure of undisclosed income and the manner in which it was derived; once a settlement application is admitted under Section 245D(1), Section 245F(2) confers exclusive jurisdiction on the ITSC over the case; and under Section 245-I, a final settlement order is conclusive on the matters stated therein.

A settlement order may be challenged for fraud or misrepresentation through Section 245D(6), but the Assessing Officer cannot independently reopen matters concluded by the ITSC under Sections 147 and 148.

The Court relied on CIT v. Express Newspapers Ltd., which recognised the comprehensive jurisdiction of the Settlement Commission after admission; Brij Lal v. CIT, which described Chapter XIX-A as a self-contained code and emphasised the finality of settlement orders; Jyotendrasinhji v. S.I. Tripathi, which limited judicial review to jurisdictional, statutory, procedural, fraud, bias or malice grounds; and Kotak Mahindra Bank Ltd. v. CIT, which reiterated the restricted scope of judicial review of ITSC orders.

The Court held that the Revenue’s attempt to characterise the Section 80IB(10) deduction as outside the settlement was inconsistent with the record. The assessee’s return disclosed the gross income, claimed the deduction, and computed the net taxable income; the ITSC’s final order adopted that computation while adding the further income disclosed in the settlement application.

Thus, the settlement concerned the assessee’s total income for the relevant assessment year, including the deductions forming part of the computation, and not merely the additional income separately offered before the ITSC.

Once the ITSC had passed its final order, Section 245-I attached finality to the matters settled. Permitting reassessment under Section 148 would allow the Assessing Officer to indirectly reopen the settlement and would defeat the exclusive and comprehensive jurisdiction created by Section 245F(2).

If the Revenue believed that the settlement had been procured through fraud or misrepresentation, it had to establish that case before the ITSC under Section 245D(6). The Revenue did invoke that provision, but the ITSC rejected the allegation and its order remained undisturbed.

It held that the deduction under Section 80IB(10), as reflected in the assessee’s computation and taken into account in the ITSC’s final settlement order, was covered by the settlement. The Assessing Officer had no jurisdiction to reopen that matter under Sections 147 and 148.

The Revenue’s only statutory route to challenge the settlement on grounds of fraud or misrepresentation was Section 245D(6), which had already been invoked and rejected by the ITSC.