The Supreme Court has held that an Assessing Officer cannot reopen an issue settled by the Income Tax Settlement Commission by resorting to reassessment proceedings under Section 148 of the Income Tax Act.
Once the Settlement Commission passes a final order under Section 245D(4), the regular assessment machinery cannot be used to reopen what has already been settled.
The court made it clear that “the AO’s power to reassess the Settlement Order passed by the ITSC is unavailable” and that the finality of the Settlement Commission’s order cannot be defeated by giving the Assessing Officer an independent power to reassess the same matter.
A bench of Justice S.V.N. Bhatti and Justice N. V. Anjaria dismissed the Revenue’s appeal against the Delhi High Court judgment in the case of Assistant Commissioner of Income Tax and another versus M/s Omaxe Limited.
The High Court had earlier quashed the notice issued under Section 148 and the reassessment order passed against the real estate company for the assessment year 2006-07.
Omaxe, a public limited company engaged in real estate development, had faced a search under Section 132 of the Act on September 22, 2005.
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It filed its return for the assessment year 2006-07 on November 30, 2006, declaring taxable income of Rs.89.20 crore and claiming deduction under Section 80IB(10).
The company subsequently approached the Settlement Commission under Section 245C for the assessment years 2000-01 to 2006-07.
The Settlement Commission passed its final order under Section 245D(4) on March 17, 2008, determining the net taxable income for 2006-07 at Rs.89.38 crore after allowing the applicable deductions.
The dispute resurfaced after the Income Tax Department conducted a survey under Section 133A on December 17 and 18, 2009.
According to the Revenue, material found during the survey showed that Omaxe had planned to transfer the commercial portions of certain projects to its wholly owned subsidiaries so as to remain within the permissible limit for claiming deduction under Section 80IB(10).
The Department alleged that the commercial area in four projects, namely Omaxe City Lucknow, Omaxe City Sonepat, Omaxe Heights Sonepat and Omaxe Heights Faridabad, exceeded the statutory limit.
On June 30, 2010, the Assessing Officer issued a notice under Section 148 for the AY 2006-07 proposing to reopen the assessment and disallowed a deduction of Rs.55.58 crore.
Omaxe objected, contended that the issue could not be reopened after the Settlement Commission’s final order and also that the AO had no jurisdiction to reopen the assessment.
The objections were rejected, and, on November 8, 2011, the Assessing Officer completed the reassessment, disallowed the deduction and made an addition of Rs.65,65,17,999 to the company’s total taxable income for AY 2006-07.
Meanwhile, the Revenue had itself moved the Settlement Commission under Section 245D(6), seeking to have the 2008 settlement order declared void on the ground of alleged misrepresentation.
The Settlement Commission rejected that application on December 16, 2011. It found that the material relied upon by the Revenue did not establish misrepresentation.
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According to the Commission, the minutes relied upon merely showed discussions concerning the company’s claim under Section 80IB, while the dispute over what constituted a project eligible for deduction was essentially a legal issue and “can by no stretch of imagination be said to be misrepresentation.”
The application was ultimately described as “devoid of merit, misconceived and non-maintainable.”
The Delhi High Court thereafter quashed both the reassessment notice and order.
It held that once the Settlement Commission had admitted the application and passed its final order, the Assessing Officer could not assume jurisdiction to reopen the assessment.
The Supreme Court examined the scheme of Chapter XIX-A of the Income Tax Act and noted that the Settlement Commission provides an alternative mechanism through which an assessee can make a full and true disclosure and settle its tax liability.
The bench observed that,
“The AO’s jurisdiction is not automatically fettered the moment an assessee files a Settlement Application. The Settlement Commission assumes exclusive jurisdiction to exercise the powers of an Income Tax Authority only after it passes an Order under Section 245D(1) permitting the Application to proceed.”
Once the application is admitted, the Settlement Commission assumes exclusive jurisdiction and the regular assessment machinery remains in abeyance.
A final order under Section 245D(4), the court said, permanently displaces that machinery for the assessment years covered by the settlement.
The court, however, pointed out that the Act itself provides a specific remedy where a settlement order has been obtained through fraud or misrepresentation.
Under Section 245D(6), the Settlement Commission can revisit the matter and declare its earlier order void.
“The words ‘fraud and misrepresentation’ depend on the circumstances and are to be decided on a case-to-case basis, 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 said.
If such a case is established, the settlement order can be reopened and the normal assessment proceedings restored, “but not otherwise.”
The bench said that allowing the Assessing Officer to independently exercise powers under Sections 143(2), 148 or 154 after the Settlement Commission had passed its final order would undermine the statutory finality given to settlement proceedings.
“Parliament did not envisage this course,” the court observed.
It added that while reopening of the settlement order through Section 245D(6) is available, and constitutional judicial review also remains open, “the AO’s power to reassess the Settlement Order passed by the ITSC is unavailable.”
Since the Revenue had already invoked Section 245D(6) and the Settlement Commission had rejected its application, the Supreme Court found no ground to interfere.
The appeal was accordingly dismissed and the pending applications were disposed of.
Case: Assistant Commissioner of Income Tax & Another vs M/s. Omaxe Limited
Case No: Criminal Appeal No. – 9190 of 2014
Date of Order: 16.09.2026
Status: Allowed
