Supreme Court Upholds ITAT Order Restoring Income Tax Appeal Despite Pending Settlement Proceedings [Read Order]

The Supreme Court has upheld the order of the Income Tax Appellate Tribunal (ITAT) restoring an income tax appeal even though settlement proceedings before the Income Tax Settlement Commission were pending.

The case arose from a Gujarat High Court judgment which had dismissed the Revenue’s petitions and supported the ITAT’s order. The Tribunal had condoned the delay in filing the appeal, restored the appeal before the Commissioner of Income Tax (Appeals), and directed that the appeal should remain pending till the Settlement Commission decided the settlement application.

M D Industries Pvt Ltd, The Assessee Had First Challenged The Assessment Order By Filing An Appeal Before The Commissioner (Appeals). At The Same Time, The Assessee Also Filed A Settlement Application Before The Settlement Commission. Since The Settlement Case Was Pending, The Appeal Proceedings Did Not Move Further.

Later, the ITAT condoned the delay and restored the appeal. The Tribunal made it clear that the appeal should not be decided on merits and should remain pending till the Settlement Commission passes its order. The Revenue did not agree with this and challenged the Tribunal’s decision before the Gujarat High Court.

Before the High Court, the revenue counsel argued that once an assessee goes to the Settlement Commission, the assessee cannot continue with appeal proceedings. According to the Revenue, the Tribunal was wrong in restoring the appeal and condoning the delay when settlement proceedings were pending.

On the other hand, the assessee’s counsel argued that filing a settlement application does not take away the legal right to pursue an appeal. The counsel explained that as per Section 245HA of the Income Tax Act, appeal proceedings start again only if the settlement application is rejected without settlement. Till then, appeal proceedings can be kept on hold.

The Gujarat High Court held that the Tribunal had not decided the appeal on merits. It had only restored the appeal and kept it pending. The Court observed that Section 245HA applies only after the Settlement Commission rejects the settlement application. Till that time, the assessee’s right to appeal does not end. The High Court found no mistake in the Tribunal’s order and dismissed the Revenue’s petitions.

The Revenue then filed a Special Leave Petition before the Supreme Court. The Supreme Court bench of Justice Abhay S. Oka and Justice Ujjal Bhuyan observed that the issue raised by the Revenue was already covered by an earlier Supreme Court order in a similar matter.

The court observed that appeal proceedings revive only if the settlement application is rejected without settlement. The Supreme Court dismissed the petition and upheld the Gujarat High Court’s judgment.

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