Once a tax case is settled by the Settlement Commission, that settlement is conclusive. The Revenue, unhappy with a deduction it had allowed at the settlement, tried to undo it years later through an ordinary reassessment notice. The Supreme Court held that this route is closed: an Assessing Officer cannot reassess a Settlement Commission order, and the only way to reopen it is to go back to the Commission itself on proof of fraud or misrepresentation, which the Revenue had already tried and lost.
New Delhi: The Supreme Court has dismissed an appeal by the Income Tax department, holding that an order of the Income Tax Settlement Commission is conclusive and cannot be reopened by an Assessing Officer through reassessment under Sections 147 and 148 of the Income Tax Act, 1961, the only route being a reference back to the Commission itself under Section 245D(6) on grounds of fraud or misrepresentation [Assistant Commissioner of Income Tax and Another v. M/s. Omaxe Limited].
A Bench of Justice S.V.N. Bhatti and Justice N.V. Anjaria upheld a judgment of the Delhi High Court, which had quashed the reassessment notice and order.
The background
The assessee, a real estate company, had filed its return for the assessment year 2006-07 claiming a large deduction under Section 80IB(10) of the Act in respect of its housing projects. During the pendency of the regular assessment, it applied to the Income Tax Settlement Commission to settle its cases for several years, and in March 2008 the Commission passed a final settlement order under Section 245D(4), determining the net taxable income after allowing the Section 80IB(10) deduction.
In December 2009, the Revenue’s investigation wing conducted a survey and impounded documents which, it alleged, showed that the company’s executives had decided to transfer the commercial portions of certain projects to wholly owned subsidiaries in order to keep the commercial area within the statutory limit and preserve the deduction. On that basis, in June 2010, the Assessing Officer issued a notice under Section 148 proposing to disallow the deduction across four projects and, by a reassessment order of November 2011, added over Rs 65 crore to the company’s income for the year.
The company challenged the reassessment before the Delhi High Court, contending that the settlement order was conclusive under Section 245I and that the Assessing Officer had no jurisdiction to reopen it. The High Court agreed and quashed the notice and order, bringing the Revenue to the Supreme Court.
The statutory scheme
The Court set out the settlement machinery under Chapter XIX-A of the Act. A settlement application under Section 245C requires a full and true disclosure of income not disclosed before the Assessing Officer, and of the manner in which that income was derived. Once the Commission admits and disposes of the case under Section 245D(4), the order is, by Section 245I, conclusive on the matters stated in it, and no appeal lies against it; it can be challenged only in the writ jurisdiction of the constitutional courts on limited grounds such as lack of jurisdiction, procedural violation or breach of natural justice.
Crucially, the Court held, the Act itself provides the sole route for reopening a settlement obtained by fraud or misrepresentation. Under Section 245D(6), a settlement order so obtained can be declared void, whereupon the ordinary assessment machinery revives. That, the Court held, is the only mechanism, and it lies before the Commission, not the Assessing Officer.
What the Court held
The Court rejected the Revenue’s contention that a regular reassessment remained available once the settlement had attained finality. Relying on its earlier decisions in Brij Lal v. CIT and Kotak Mahindra Bank Ltd. v. CIT, it held that the finality attached to a settlement order would be defeated if the Assessing Officer’s powers under Sections 143(2), 148 and 154 were treated as independently available against it.
“…while reopening the issues before the ITSC is provided for, judicial review by the Constitutional Courts under Articles 226 and 32/136 is available, but the AO’s power to reassess the Settlement Order passed by the ITSC is unavailable.”
The Court captured the bargain in a memorable image. Through the settlement mechanism, it said, both sides take “the crust and the crumb” together: the Revenue forgoes the crust of penal interest and prosecution and realises the crumb of tax on the disclosed income beforehand, while the assessee, by making a complete and fair disclosure, avoids that same penal crust. Having accepted the crumb and avoided the crust, the Court held, neither side can return for “further crust and crumb”; that was not the intention of Chapter XIX-A.
The Court also recorded a fact that made the Revenue’s position untenable on the facts as well as the law: the Revenue had in fact already invoked its remedy under Section 245D(6) before the Commission, and that had resulted in an order of December 2011 which had become final. Having taken and lost that route, it could not pursue reassessment in parallel. The appeal was accordingly dismissed.
Why it matters
The ruling protects the integrity of the tax settlement process, and that is its real significance. The settlement mechanism works only if both sides can rely on the finality it offers: an assessee discloses income and pays tax up front precisely in exchange for closure, and if the Revenue could reopen the same year later by an ordinary reassessment whenever it found fresh material, the settlement would be worth little and few would use it. The Court’s insistence that finality means finality, subject only to the fraud route before the Commission itself, keeps the bargain intact.
The decision does not leave the Revenue helpless against a settlement procured by deceit. Where it can show fraud or misrepresentation, Section 245D(6) allows the settlement to be declared void and the ordinary assessment machinery to revive, without the constraints of limitation. What the Court has held is that this is the exclusive door: the Revenue must go back to the body that passed the order and satisfy it that the settlement was tainted, rather than bypass it through the Assessing Officer’s reassessment powers. The distinction matters because it channels the challenge to the forum Parliament chose and preserves the conclusiveness Section 245I confers.
On the facts, the Revenue’s difficulty was compounded by its own conduct: it had already pursued the correct Section 245D(6) route before the Commission and obtained a final order there. The parallel reassessment was therefore not merely legally impermissible but redundant. For taxpayers who have settled, the message is one of security; for the Revenue, it is a clear direction on the one path available where it believes a settlement was obtained by fraud.
Case Title: Assistant Commissioner of Income Tax and Another v. M/s. Omaxe Limited [Civil Appeal No. 9190 of 2013]
Bench: Justice S.V.N. Bhatti and Justice N.V. Anjaria, Supreme Court of India
Date of Judgment: September 16, 2026 | Neutral Citation: 2026 INSC 1000
Order Under Challenge: Judgment of the Delhi High Court dated July 13, 2012, quashing the reassessment notice and order
Status: Revenue’s appeal dismissed. Settlement Commission order held conclusive; reassessment by the Assessing Officer held impermissible.