IT Act | Once Settlement Commission Admits Application Under Section 245C, Assessing Officer Loses Jurisdiction To Reopen Assessment Under Section 148: Supreme Court

"The statutory settlement framework under Chapter XIX-A of the Income Tax Act, 1961, serves as a specialised alternate dispute resolution mechanism that directly intersects with and temporarily overrides the regular assessment machinery under Sections 142 to 156 of the Act, 1961," Supreme Court.

The Supreme Court, in a significant ruling dated September 16, 2026, held that once the Income Tax Settlement Commission (ITSC) admits an application for settlement under Section 245C of the Income Tax Act, 1961, it assumes exclusive jurisdiction over the case, thereby rendering the Assessing Officer (AO) devoid of power to initiate reassessment proceedings under Section 148. A bench comprising Justice S.V.N. Bhatti and Justice N.V. Anjaria emphasized that the ITSC framework functions as a self-contained code, and the finality of a settlement order precludes any parallel or subsequent reassessment by the tax authorities.

Assessment Proceedings and Settlement Application

The dispute arose after the Revenue conducted a search and seizure operation at the premises of Omaxe Limited and subsequently sought to reopen the assessment for the Assessment Year 2006-07. The Revenue contended that the assessee had claimed an inadmissible deduction under Section 80IB(10) of the Act and had allegedly misrepresented facts before the ITSC. However, the assessee maintained that the ITSC had already settled the tax liability and that the AO lacked the statutory authority to override a final order passed under Section 245D(4).

Exclusive Jurisdiction of the Settlement Commission

The court observed that the moment an application for settlement is admitted by the ITSC, the regular assessment machinery under Sections 142 to 156 of the Act is placed in statutory abeyance. The bench noted that the scheme of Chapter XIX-A is designed to purify the assessee's accounts through a mechanism of voluntary disclosure and finality. Once the commission is seized of the matter, it exercises exclusive jurisdiction to determine the total income, tax liability, and any applicable penalties or immunities.

Finality of Settlement Orders

The apex court clarified that an order passed by the ITSC attains finality and cannot be questioned through collateral proceedings or by the AO invoking Section 148. The bench underscored that if the Revenue perceives that a settlement order was obtained through fraud or misrepresentation, the only permissible legal remedy is to move an application before the ITSC itself under Section 245D(6). Any other attempt by an Assessing Officer to reopen matters concluded by the commission is legally impermissible and contrary to the legislative intent of the settlement mechanism.

Settlement Procedure as a Self-Contained Code

The court further elucidated that the procedure under Chapter XIX-A is a self-contained code akin to arbitration, where the primary objective is the settlement of liability rather than a mere determination. The bench reasoned that since the statute does not permit two divergent orders from different tax authorities regarding the same assessment year, the AO's attempt to exercise independent jurisdiction would cause administrative chaos and frustrate the fundamental purpose of the settlement process.

"The Revenue has to revisit the procedure under Section 245D(6) by making out a case before the ITSC, but not otherwise."

Revenue's Recourse to Section 245D(6)

While dismissing the appeal, the Supreme Court pointed out that the Revenue had already attempted to invoke Section 245D(6) before the ITSC, which was rejected by a reasoned order that had since attained finality. The court held that since the Revenue had failed to establish fraud or misrepresentation before the competent forum, it could not subsequently attempt to re-litigate the issue by issuing a reassessment notice. The bench concluded that the settlement order remains binding, and the Revenue is not entitled to further tax on the same matter outside the established statutory framework.

Date of Decision: 16 September 2026