The Delhi High Court has ruled that the order of the Income Tax Settlement Commission ( ITSC ) is final and conclusive for the assessment year ( AY ) for which the application was filed.
The bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav observed that the ITSC’s order is deemed conclusive for all matters pertaining to the concerned AY for which the settlement application was accepted and processed by the ITSC. If the Income Tax Department is dissatisfied with the ITSC’s computation of income for the relevant AY, it can only challenge it according to the provisions under Sections 245D(6) and 245D(7) of the Income Tax Act.
The appellant-assessee, a charitable trust involved in education and part of the Santosh Group, which offers medical courses, filed its income tax return showing an excess expenditure of ₹2,69,34,371 and declared its income as nil. The case was processed under Section 143(1) and selected for scrutiny. A notice under Section 143(2) was issued to the trust.
The assessing officer determined the total income of the trust to be ₹15,03,47,006 after various additions. The trust appealed to the Commissioner of Income Tax (Appeals), who partly allowed the appeal and deleted the addition. The ITAT upheld the CIT(A)’s order, and the appeal against the ITAT order is pending in court.
On June 27, 2013, a search under Section 132 of the Income Tax Act was conducted on the Santosh Group, including the trust. It was found that the group charged a capitation fee for admissions, not mentioned in the ITR. Consequently, reassessment proceedings were initiated under Sections 147/148, and a notice was served after recording reasons to believe.
The trust responded to the notice, requesting that the originally filed ITR be treated as filed in response to the notice under Section 148. A notice under Section 143(2) was issued. The trust’s objections were rejected on February 2, 2015.
An assessment order under Section 143(3) read with Section 148 was framed on March 19, 2015. It was observed that ₹1,17,85,000 pertained to AY 2005-06, and ₹7,46,51,210 was already included by the trust in the income and expenditure account as fees. The AO held that the undeclared fees amounted to ₹10,38,30,790. Consequently, the AO disallowed the exemption under Section 11 and assessed the income as ₹21,19,29,461, considering the trust as an association of persons.
The income tax appellate tribunal had dismissed the department’s appeal and quashed the reopening of assessment proceedings under Section 148. The department contended that the CIT(A) and the ITAT erroneously relied on the decision of ITSC for AYs 2008-09 and 2009-10. The ITSC order is deemed conclusive for all matters pertaining to the concerned AY only, the Delhi High Court Bench noted.
The High Court of Delhi further noted that the finality of the ITSC’s order arises from Section 245-I of the Income Tax Act, which states that every order of settlement under Section 245D(4) shall be conclusive and not reopened in any proceedings under this Act or any other law, except as provided in Chapter XIX-A.
The bench observed that, “A conspectus of the above discussion would indicate that in the
case at hand, the AO had sufficient cogent reasons to initiate reassessment proceedings and the ITAT has erred in holding that the said proceedings were bad in law. It cannot be gainsaid that the difference in the quantum of capitation fee could not be a valid reason for setting aside the reassessment proceedings at the juncture of issuance of notice under Section 148 of the Act.”
It was also observed that “Undeniably, the material seized by the Revenue and the admission made by P. Mahalingam, as already noted above, would constitute fresh tangible material which would warrant reassessment of the income of the assessee. Thus, the reopening of assessment ought not to have been interdicted by the ITAT vide the impugned order.”
Allowing the department’s appeal, the Delhi High Court Bench of Justices Purushaindra Kumar Kaurav and Yashwant Varma held that “ the ITAT has wrongly placed reliance on the decision of the ITSC for subsequent years and the same is liable to be quashed”, quashing the impugned order, giving the matter finality in favour of revenue.
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