Once the Settlement Commission has spoken, the Assessing Officer cannot reopen the same years

Justices S.V.N. Bhatti and N.V. Anjaria dismissed the Revenue's appeal, holding that a settlement order is revisited only through Section 245D(6) and not by a fresh reassessment notice.

A real estate company settled its assessments for seven years before the Income Tax Settlement Commission in 2008. Two years later the Assessing Officer issued a show cause notice for one of those same years and disallowed a deduction of about Rs 79 crore, adding over Rs 65 crore to the company's income. The Delhi High Court quashed the notice and the reassessment order. On 16 September 2026 the Supreme Court dismissed the Revenue's appeal, holding that the scheme of Chapter XIX-A does not leave the ordinary reassessment power intact alongside a settlement that has become final.

Search, return, settlement

The sequence matters. On 22 September 2005 the Revenue conducted a search and seizure under Section 132 of the Income Tax Act, 1961 at the assessee's business premises, at its associate concerns and at the residential premises of its directors. On 30 November 2006 the assessee filed its return for assessment year 2006-07, declaring taxable income of Rs 89,20,76,630 and claiming a deduction of about Rs 79 crore under Section 80IB(10) in respect of housing projects.

On 31 May 2007, while the regular assessment for that year was still pending, the assessee applied under Section 245C to settle its cases for the assessment years 2000-01 to 2006-07. The Settlement Commission passed its final order under Section 245D(4) on 17 March 2008. For assessment year 2006-07 it accepted an additional surrender of Rs 18,00,000, and after allowing the deduction under Section 80IB(10) it determined the net taxable income for that year.

On 30 June 2010 the Assessing Officer issued a show cause notice, followed by a reassessment order of 8 November 2011 under Sections 148 and 147 read with Section 143(3), disallowing the Section 80IB(10) deduction and adding Rs 65,65,17,999 to the assessee's income. The Delhi High Court quashed both in a writ petition, and the Revenue appealed.

What the settlement mechanism trades

The judgment explains Chapter XIX-A as a bargain in which each side gives something up. The Revenue forgoes the full measure of what it might have recovered and takes instead the tax on suppressed or undisclosed income through the assessee's voluntary disclosure. The assessee, by making a complete and fair disclosure of suppressed income and entries, avoids penal interest and prosecution, and pays the tax beforehand. The Court's phrase for it is that the Revenue and the assessee must take the crust and the crumb together.

The procedural consequences follow from that. By operation of Section 245C(3) the assessee cannot withdraw an application once filed. The Revenue, for its part, is not a bystander: it can oppose the continuation of proceedings before the Commission on the basis of material and grounds discovered during the search and seizure, and it participates in the proceedings on the application, including on any income the assessee discloses later.

Why reassessment does not survive

Against that structure, the Court held that the argument that regular assessment or reassessment remains available to the Revenue after the Commission's proceedings attain finality is contrary to the defining expressions in Sections 245C, 245D(2), 245D(3) and 245D(4). If the jurisdiction of the Assessing Officer under provisions such as Sections 143(2), 148 and 154 were independent and available for exercise again, the finality attaching to the Settlement Commission's order would be defeated, and Parliament did not envisage that course.

What remains open is a different route. The Act provides for reopening the issues before the Commission itself, and judicial review by the constitutional courts under Article 226 and under Articles 32 and 136 is available. The Revenue must revisit the procedure under Section 245D(6) by making out a case before the Commission, and not otherwise. Once the crust has been avoided and the crumb accepted, the Court said, further crust and crumb are not the intention of Chapter XIX-A.

The remedy the Revenue had already used

On the facts there was a further answer. The Revenue had in fact availed of the remedy under Section 245D(6) before the Settlement Commission, which resulted in the findings recorded in an order of 16 December 2011. Those findings have become final.

Order

The Court found no merit in the appeal. The appeal failed and was dismissed, with pending applications disposed of accordingly.