Income Tax Department Reopens Omaxe’s Settled Assessment to Disallow ₹65.65 Crore Deduction; Supreme Court Says Settlement Commission’s Final Order Cannot Be Reassessed
Tax Settlement Cannot Be Followed by Regular Reassessment: Supreme Court Explains Finality of Settlement Commission Orders Under Section 245-I
Facts
The dispute arose from the Income Tax Department’s attempt to reopen Omaxe Limited’s assessment for Assessment Year 2006–07, despite a final settlement order having already been passed by the Income Tax Settlement Commission (“ITSC”).
Omaxe Limited, a public limited company engaged in real estate, filed its return on 30 November 2006, declaring taxable income of approximately ₹89.20 crore and claiming a deduction of approximately ₹78.99 crore under Section 80IB(10) in relation to its housing projects.
During the pendency of regular assessment proceedings, Omaxe approached the ITSC under Section 245C of the Income Tax Act, 1961 for Assessment Years 2000–01 to 2006–07.
On 17 March 2008, the Settlement Commission passed its final order under Section 245D(4). For AY 2006–07, it accepted an additional income surrender of ₹18 lakh and determined the taxable income after taking into account the Section 80IB(10) deduction.
Fresh Survey and Reassessment
On 17 and 18 December 2009, the Department conducted a fresh survey under Section 133A.
According to the Revenue, documents recovered during the survey showed that Omaxe had substantial commercial components in certain housing projects and was considering transferring those portions to wholly owned subsidiaries in order to strengthen its Section 80IB claim.
The Department alleged that commercial areas in four projects exceeded the statutory limit applicable under Section 80IB(10). It therefore issued a Section 148 notice on 30 June 2010, initially proposing disallowance of approximately ₹55.59 crore.
Omaxe objected that the Settlement Commission’s order had attained statutory finality under Section 245-I, leaving the Assessing Officer without jurisdiction to reopen the assessment.
The Assessing Officer rejected those objections and, on 8 November 2011, passed a reassessment order disallowing the deduction and adding ₹65,65,17,999 to Omaxe’s taxable income.
The Delhi High Court quashed both the reassessment notice and reassessment order.
The Revenue consequently appealed to the Supreme Court.
Issues
The central question before the Supreme Court was:
Can an Assessing Officer invoke Section 148 to reassess an issue relating to an assessment year after the Income Tax Settlement Commission has passed a final order under Section 245D(4) covering that assessment?
Connected questions were:
- Whether Omaxe’s Section 80IB(10) deduction formed part of the matters covered by the Settlement Commission;
- whether the Assessing Officer retained independent reassessment jurisdiction after the ITSC’s final order;
- what remedy remained available to the Revenue if it subsequently discovered alleged fraud or misrepresentation; and
- the legal effect of the finality provision contained in Section 245-I.
Appellant’s Arguments — Revenue
The Revenue argued that Omaxe had approached the Settlement Commission to disclose additional undisclosed income and pay tax upon that disclosure.
According to the Revenue, the Settlement Commission had not specifically adjudicated Omaxe’s entitlement to the Section 80IB(10) deduction.
It therefore contended that the subsequent Section 148 notice did not reopen an issue finally settled by the ITSC. Instead, it concerned a separate issue discovered through the 2009 survey—namely Omaxe’s alleged ineligibility for the housing-project deduction.
The Revenue maintained that the Section 80IB issue arose from fresh material obtained during the survey and was therefore capable of reassessment independently of the earlier settlement proceedings.
Respondent’s Arguments — Omaxe
Omaxe argued that the Revenue was artificially separating the deduction from the computation of taxable income placed before and accepted by the Settlement Commission.
The company’s Section 80IB(10) deduction had already been claimed in its original income-tax return. When Omaxe approached the Settlement Commission, its revised computation started with that return, added the additional disclosed income and ultimately arrived at the taxable amount.
Therefore, determination of taxable income necessarily incorporated the Section 80IB deduction.
Once the Settlement Commission admitted the application, heard both parties and passed its final order under Section 245D(4), the order became binding and conclusive.
Omaxe further argued that if the Revenue genuinely believed that the settlement had been procured through fraud or misrepresentation, the statute provided a specific remedy under Section 245D(6).
Indeed, the Revenue had already pursued that remedy, and the Settlement Commission rejected its application on 16 December 2011.
Analysis of the Law
The Supreme Court undertook a detailed examination of the statutory architecture of Chapter XIX-A of the Income Tax Act.
The Court described the settlement framework as a specialised alternative dispute-resolution mechanism which, once activated, intersects with and temporarily overrides the ordinary assessment machinery.
What Happens Once Settlement Application Is Admitted?
The Court explained that once a settlement application is admitted under Section 245D(1), Section 245F(2) is triggered.
At that point, the Settlement Commission assumes exclusive jurisdiction over the case.
The regular assessment machinery—including inquiry, reassessment, search assessment, rectification and demand proceedings—is placed in statutory abeyance because two authorities cannot simultaneously exercise jurisdiction over the same matter.
If the settlement proceedings culminate in a final order under Section 245D(4), that order permanently displaces the ordinary assessment machinery for the assessment years covered by the settlement.
This was central to the Supreme Court’s rejection of the Revenue’s case.
Precedent Analysis
Jyotendrasinhji v. S.I. Tripathi
The Supreme Court reiterated that the finality clause under Section 245-I restricts ordinary reopening of Settlement Commission orders.
Judicial review remains available before constitutional courts, but its scope is limited. Courts examine the legality of the decision-making process and statutory compliance rather than sit in appeal over the merits of the settlement.
Interference may also arise in cases involving fraud, bias or malice.
CIT v. Express Newspapers Ltd.
This judgment established an important principle: once the Settlement Commission admits an application, its jurisdiction is not confined merely to the additional undisclosed income mentioned in the application.
The Commission takes over the entire case for that assessment year and deals with it exclusively.
This directly undermined the Revenue’s argument that Omaxe’s Section 80IB deduction remained outside the settlement merely because it was not itself additional undisclosed income.
Brij Lal v. CIT
The Constitution Bench characterised Chapter XIX-A as a self-contained code dealing with settlement of tax liability.
Importantly, even the Settlement Commission itself cannot reopen concluded proceedings by invoking general rectification provisions such as Section 154 when Chapter XIX-A does not authorise such reopening.
The Supreme Court used this reasoning to reinforce the statutory finality attached to settlement proceedings.
Kotak Mahindra Bank Ltd. v. CIT
The Court reiterated the restricted scope of judicial interference with Settlement Commission orders.
Constitutional courts are not appellate forums for reassessing the sufficiency of material considered by the Commission. Intervention is ordinarily confined to statutory contravention, prejudice, fraud, bias or malice.
Court’s Reasoning
The Supreme Court rejected the Revenue’s attempt to isolate Omaxe’s Section 80IB deduction from the Settlement Commission proceedings.
The Court observed that Omaxe had disclosed its gross total income and then arrived at its net taxable income after claiming deductions under the Income Tax Act.
Therefore, once the Settlement Commission admitted the case, the matter before it included the return for the relevant assessment year along with the deductions claimed therein.
The Revenue had participated in those proceedings and had the opportunity to file its report and raise objections.
Once the Settlement Commission passed its final order under Section 245D(4), the matter acquired statutory finality.
Revenue Was Not Without a Remedy
The Court clarified that this did not mean the Revenue was helpless if the settlement had actually been obtained through fraud or misrepresentation.
The specific statutory remedy was Section 245D(6).
If fraud or misrepresentation is established, the Settlement Commission’s order may be declared void and the ordinary assessment machinery can revive.
But what the Revenue cannot do is bypass this mechanism and independently invoke Sections 143(2), 148 or 154 to reopen a concluded settlement.
In this case, the Revenue had actually invoked Section 245D(6). The Settlement Commission rejected that application on 16 December 2011, and that decision became final.
The Supreme Court’s “Crust and Crumb” Principle
One of the most quotable portions of the judgment is the Court’s description of the settlement mechanism as requiring both sides to accept the “crust and the crumb together.”
The Revenue benefits by recovering tax on voluntarily disclosed suppressed income without undertaking the entire ordinary assessment process.
The assessee, in turn, receives the benefit of settlement and potential protection from the harsher consequences of ordinary proceedings.
Neither side can accept the advantages of settlement and then, after the proceedings attain finality, attempt to return selectively to the ordinary assessment mechanism.
The Court therefore concluded that permitting the Assessing Officer to independently reopen a completed settlement would defeat the statutory finality Parliament deliberately attached to Chapter XIX-A.
Conclusion
The Supreme Court found no merit in the Revenue’s appeal and dismissed it.
Consequently, the Delhi High Court’s decision quashing the Section 148 reassessment notice dated 30 June 2010 and reassessment order dated 8 November 2011 remained undisturbed.
The attempted ₹65.65 crore addition against Omaxe therefore could not survive through the reassessment proceedings.
The key proposition emerging from the judgment is:
Once the Settlement Commission admits the case and ultimately passes a final order under Section 245D(4), the Assessing Officer cannot independently reopen matters covered by that settlement through Section 148. If fraud or misrepresentation is alleged, the Revenue must proceed through the special mechanism under Section 245D(6).
Case Details
Case: Assistant Commissioner of Income Tax & Anr. v. M/s Omaxe Limited
Court: Supreme Court of India
Case No.: Civil Appeal No. 9190 of 2013
Judges: Justice S.V.N. Bhatti and Justice N.V. Anjaria
Date: 16 September 2026
Neutral Citation: 2026 INSC 1000
Result: Revenue’s appeal dismissed; Delhi High Court’s quashing of the reassessment proceedings stands.
