Does a final Settlement Commission order under Section 245D(4) of the Income Tax Act, 1961 bar the Assessing Officer from reopening that assessment year under Section 148?

Paragraph 21The precedents on the point make a few issues canvassed in the Civil Appeal fairly settled. The precedents may not be closer to the circumstances considered by this Court in this Appeal. In one sense, the circumstances are more solid and favourable to the Assessee, and in another, independent sense, the precedents referred to above provided useful guidance to this Court in appreciating the challenge to the Reassessment Notice under Section 148 of the Act, 1961. The question is whether, notwithstanding an Order under Section 245D(4) of the Act, 1961, the AO has jurisdiction under Section 148 of the Act, 1961, to propose reassessment of an aspect covered by the Settlement Order. The Judgment of this Court in Brij Lal (supra) considered whether the Settlement Commission can reopen its concluded proceedings by recourse to Section 154 of the Act, 1961, to levy interest under Section 234B of the Act, 1961, if it was not done in the original proceedings. The answer is that invocation of Section 154 of the Act by the Settlement Commission cannot be justified. The precedent is to the effect that even the scope of reopening by the ITSC is not complete or referable to any other Section in the Act, 1961, except through Chapter XIX-A of the Act, 1961. The circumstances and the reasons for incorporating Chapter XIX-A of the Act, 1961, are considered in the precedents noted supra. The facility of resolution through Chapter XIX-A can be said to be summed up as a purification of accounts from distorted, suppressed and misrepresented entries of income and expenditure by an Assessee. This is not a simple holy shower but an opportunity to purge by paying the tax, penalty, and interest as may be determined by the ITSC. The procedure under Chapter XIX-A of the Act, 1961, is optional and enables voluntary disclosure by the Assessee for the final determination of tax payable for disputes before the ITSC. Once the Assessee makes an Application, the Assessee cannot withdraw it.

Paragraph 23The Revenue’s argument for issuing the Reassessment Notice rests on the words in Section 245C of the Act, 1961, viz., “containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer”, but it overlooks the expression in Section 245C, viz., “the manner in which such income has been derived”. On a plain construction of both the italicised expressions, what constitutes a case for consideration before the ITSC would be an Assessee making an Application containing a full and true disclosure of the Assessee’s income which has not been disclosed before the AO, and the manner in which such income has been derived. Therefore, the additional amount of income-tax payable in the disclosure will depend on the manner in which such income has been derived by the Assessee. In the case on hand, the Assessee has disclosed the revenue included in the Assessee's gross total income, and, by claiming deductions under the Act, 1961, the net income liable for tax is set out. Once the ITSC admits the case for settlement, the consideration is the return for the assessment year, including deductions. The Report is called for on the Assessee's Application, and there is no gainsaying that, while participating in the Settlement before ITSC, the Revenue allowed a deduction that is otherwise disallowable. The normal presumption is that the Revenue filed its Report on the Assessee's application. Once the matter is concluded under Section 245D(4), the decision attains finality, and the scope of judicial review, in view of the precedents referred to above, is also limited.

Paragraph 24The Revenue is not without recourse to realise tax on undisclosed income, even in cases filed under Chapter XIX-A of the Act, 1961. The Revenue has the option to move under Section 245D(6) of the Act, 1961 on the grounds of fraud and misrepresentation. 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 normal assessment procedure is restored or enabled, but not otherwise. If the jurisdiction of the AO under Sections 143(2), 148, 154, etc., is made independent and available for exercise again, the finality attached to the Settlement Commission will be defeated. Parliament did not envisage this course. On the contrary, 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.