In a relief to Alukkas Jewellers, the Madras High Court ruled that the Income Tax Settlement Commission had no authority to rectify its orders under Section 154 of the Income Tax Act 1961 (ITA) before the 2011 amendment that granted such power. The Court held that the rectification made by the Settlement Commission in 2003, pertaining to the jeweler’s tax liabilities, was beyond its jurisdiction and thus invalid.
The case, which dates back to the assessment years 1988-89 to 1995-96, centers around Alukkas Jewellers’ application to the Settlement Commission for resolving its tax disputes. The Commission had originally passed an order on April 10, 1998, under Section 245D(4) of the tax statute, finalizing the company’s tax liabilities. However, in 2003, the Commission attempted to rectify that order, adjusting the interest levied under Sections 234A, 234B, and 234C—sections dealing with interest on delayed tax payments.
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The assessee, Alukkas Jewellers, challenged this rectification, arguing that the Commission did not have the authority to amend its settled orders under Section 154 of the tax legislature, as the power to rectify was only introduced with the insertion of Section 245D(6B) in 2011. The counsel maintained that without statutory backing, the Commission’s rectification was unlawful.
The Income Tax Department, in defense of the rectification, argued that it was necessary to correct an error in the original settlement order.
The bench of Justice Arul Murugan and Justice Anitha Sumanth, after evaluating the case, rejected the Revenue’s argument, citing a 2010 Supreme Court decision in Brij Lal & Ors. v. Commissioner of Income Tax, which clarified that the Settlement Commission could not reopen or rectify its concluded proceedings under Section 154 of ITA. In the case, the Supreme Court ruled that the finality of settlement orders under Chapter XIX-A of the Income Tax Act could not be disturbed, and the Commission had no power to make rectifications unless explicitly authorized by law.
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Delivering the judgment, the bench declared that the Settlement Commission’s rectification in 2003 was without jurisdiction, as the legal provision allowing such actions was only introduced in 2011. The Court held that any rectification made before this amendment was invalid and quashed the impugned order.
In conclusion, the Court allowed the appeal of the assessee.
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