In a recent ruling, the Madras High Court ruled that the Income Tax Settlement Commission ( ITSC ) does not have the power to invoke Section 154 of the Income Tax Act, 1961, to rectify concluded proceedings or levy interest prior to the introduction of rectification powers in 2011.
The petitions were filed by R. Kasi Viswanathan (Hotel Vaibhav) and Neelgiri Engineering Co. filed a writ petitioner challenging the rectification orders issued by the ITSC under Section 245F(1) read with Section 154 of the Income Tax Act, 1961.
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The rectification orders were issued on March 21, 2003, to revise interest levied under Section 245D(4) orders dated January 19, 1998.
The petitioner’s counsel argued that the Income Tax Settlement Commission (ITSC) lacked rectification authority in 2003, as such power was introduced only on June 1, 2011, through Section 245D(6B) of the Income Tax Act, 1961
The bench comprising Justice Anita Sumanth and Justice G. Arul Murugan observed that this issue had already been detailed in the Supreme Court ruling in the case of Brij Lal v. Commissioner of Income Tax (328 ITR 477) which held that the Income Tax Settlement Commission (ITSC) cannot invoke Section 154 to reopen proceedings for interest adjustments under Sections 234A, 234B, or 234C of the Income Tax Act, 1961.
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The court in the Brij Lal case explained that proceedings before the ITSC are distinct from regular assessments and form a unique code under Chapter XIX-A of the Income Tax Act. It was observed that Section 245I declares ITSC orders as final and conclusive, barring fraud or misrepresentation, thereby excluding the applicability of Section 154.
Thus, the Court ruled that the rectification orders dated March 21, 2003, were invalid as the ITSC lacked statutory power to issue them at the time.
The court allowed the writ petition and the impugned rectification orders were quashed.
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