Once IBS rejects Income Tax Settlement Applications, Dept can Revive & Enforce Existing Assessment Orders: Madras HC [Read Order]

In a recent ruling, the Madras High Court held that once settlement applications filed before the Interim Board for Settlement are rejected, the Income Tax Department can act on existing assessment orders which were earlier kept in abeyance.

Dhanalakshmi Srinivasan Sugars Private Limited and V.V. Minerals filed writ petitions challenging income tax assessment orders and recovery notices issued by the Income Tax Department.

The case arose after the Income Tax Department conducted search proceedings under Section 132 of theIncome Tax Act in October 2018. Later, notices were issued for different assessment years. While the assessment proceedings were pending, the petitioners sought to approach the Income Tax Settlement Commission. However, the Finance Act, 2021 abolished the Settlement Commission and created the Interim Board for Settlement.

The petitioners earlier approached the High Court seeking permission to file settlement applications. The Court permitted the applications to be received and also allowed the assessment proceedings to continue. The Court had directed that the final assessment orders should be kept in sealed cover and should not be published or implemented.

The assessment orders were later passed in June 2021 and communicated to the petitioners. Since this was against the earlier direction, contempt proceedings were initiated. The department then stated that the assessment orders would not be given effect to and the tax demand would be kept in abeyance till the writ petitions were decided.

The Interim Board for Settlement later rejected the settlement applications on 20 November 2023, holding that the petitioners had not made full and true disclosure of income. After this, the department sought to enforce the earlier assessment orders and issued recovery notices.

The petitioners argued that once their settlement applications were taken up by the Interim Board for Settlement, the assessing officer had no jurisdiction to pass assessment orders. They further argued that after the settlement applications were rejected, the department should have passed fresh assessment orders within one year. Since no fresh orders were passed, they argued that the earlier assessment orders could not be revived or enforced.

The Income Tax Department argued that the High Court itself had permitted the assessment proceedings to continue. It was submitted that the assessment orders were validly passed under the interim orders of the Court and only their enforcement was kept in abeyance. The department also argued that once the settlement applications were rejected, the existing assessment orders could be enforced.

Justice D. Bharatha Chakravarthy observed that the petitioners’ settlement applications were received only because of interim orders passed by the Court. The Court explained that on the date when the assessment orders were passed, exclusive jurisdiction had not vested with the Settlement Commission or the Interim Board for Settlement.

The court pointed out that the assessment orders were passed pursuant to liberty granted by the High Court. It further observed that the orders were already communicated to the petitioners in June 2021 and only the demand and recovery were kept in abeyance.

The court rejected the argument that fresh assessment orders had to be passed after the rejection of the settlement applications. It held that the earlier assessment orders did not become void and could be acted upon after the settlement proceedings failed.

The court dismissed all the writ petitions and upheld the assessment orders and recovery proceedings. The connected miscellaneous petitions were also closed.

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