Settlement Commission Order cannot be Rectified u/s 154 of Income Tax Act: Madras HC [Read Order]

The Madras High Court ruled that the Assessing Officer ( AO ) cannot rectify the order issued by the Settlement Commission. The rectification under Section 154 of Income tax Act, 1961 cannot be invoked for the settlement proceedings.

Both counsels for the petitioner and the income tax department (respondents) submitted that the issue at hand regarding the Assessing Officer’s jurisdiction to rectify an order of the Settlement Commission under Section 154 should be resolved in favour of the petitioner. This was supported by the judgment in the case of Brij Lal and Others v. Commissioner of Income Tax.

The key point from the decision in the Brij Lal case is that the Settlement Commission cannot reopen its concluded proceedings using Section 154 to levy interest under Section 234B if it was not addressed in the original proceedings.

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The judgment explained that the Settlement Commission operates like an arbitration process, distinct from regular assessments and procedures outlined in Chapter XIV of the Income Tax Act. This chapter includes Section 154, but the Settlement Commission’s procedures are governed by Chapter XIX-A, which does not incorporate Section 154 for rectification.

It further clarified that the Settlement Commission’s orders are final and conclusive on matters mentioned in the settlement application, except in cases of fraud or misrepresentation. Unlike the ITAT, which has the power to rectify errors under Section 254(2), the Settlement Commission does not have such authority. The decision stated that the Settlement Commission’s role is to settle liability rather than determine it and that invoking Section 154 in such cases is unjustified.

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Thus, following the above decision, the bench of Justice Anita Sumanth and Justice G. Arul Murugan quashed the impugned order and allowed the petitioner. 

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