Income Tax Act | Rejection Of Settlement Application Does Not Affect Assessee's Right To Contest Assessment Order On Merits : Supreme Court

Rejection of an assessee's settlement application by the Income Tax Settlement Commission without offering settlement terms does not bar the assessee's right to challenge the assessment order on merits under the Income Tax Act, observed the Supreme Court.

"The stand of the Revenue that the assessee must give up his right to contest the assessment order on merits, if the settlement application is rejected without providing for terms of settlement, is misconceived and must be rejected.", a bench of Justices Pankaj Mithal and Prasanna B Varale said, dismissing the department's appeal.

The dispute was centered on the legal consequences of the Respondent's application filed before the Income Tax Settlement Commission. The Revenue had argued that the respondent company should be compelled to give up its right to contest the original assessment order on merits since its settlement application was rejected.

Section 245HA relates to the abatement of proceedings before the Income Tax Settlement Commission when the settlement application fails. The provision outlines that when the settlement proceedings failed or could not be processed, the case is returned to the standard operating procedures under the Act.

The case related to the Respondent being involved in alleged bogus capital entries. The company had initially filed applications before the Income Tax Settlement Commission. However, due to legislative amendments, these applications were abated.

Subsequently, the company sought to revive its first appeal before the Commissioner of Income Tax (Appeals), which had been dismissed earlier due to the pendency of the settlement proceedings. The Respondent challenged the decision of CIT (Appeals) before the Income Tax Appellate Tribunal (ITAT), which condoned a significant delay of over 4,300 days and restored the appeals, remanding the matter to the CIT(A) for a fresh hearing on merits.

The Revenue challenged this, first by filing a recall application before the ITAT, which was rejected, and then by approaching the Gujarat High Court. The High Court decision to upheld the ITAT's order, prompted the department to move to the Supreme Court.

Refusing to interfere with the High Court's decision, the Court noted that the ITAT's “was justified in condoning the delay, as well as setting aside the order of the Commissioner of Income Tax (Appeals) and restoring the first appeal” before the CIT(A).

Accordingly, the appeal was dismissed.

Cause Title: THE PRINCIPAL COMMISSIONER OF INCOME TAX-1 SURAT VERSUS M. D. INDUSTRIES PVT LTD.

Citation : 2025 LiveLaw (SC) 1111

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Appearance:

For Petitioner(s) Mr. S Dwarakanath, A.S.G. Ms. Madhulika Upadhyay, AOR Mr. Aditya Dixit, Adv. Mr. Padmesh Mishra, Adv. Mr. Gopi Chand, Adv. Mr. Rajat Vaishnaw, Adv.

For Respondent(s) None