“The Crust and the Crumb”: Supreme Court Says a Settled Tax Case Cannot Be Reopened by an Assessing Officer

Case at a glance: The Supreme Court has held that once the Income Tax Settlement Commission has passed a final settlement order, an Assessing Officer cannot reopen that settled assessment through ordinary reassessment proceedings under Sections 147/148 — the only route to unwind a settlement order alleged to be fraudulent is Section 245D(6), decided by the Commission itself, not the Assessing Officer.

Omaxe Limited, a real estate developer, had claimed a deduction under Section 80-IB(10) of the Income Tax Act for a housing project, in the course of proceedings before the Income Tax Settlement Commission following a search and seizure operation. The Commission passed a final settlement order in 2008, determining the taxable income and allowing the deduction.

Following a later survey and investigation, the tax department alleged that the developer's executives had transferred commercial portions of the housing projects to subsidiaries to artificially preserve eligibility for the deduction. On this basis, the Assessing Officer issued a reassessment notice under Section 148 and, in 2011, passed a reassessment order disallowing the deduction. The Delhi High Court quashed the reassessment, and the Revenue appealed to the Supreme Court.

The Key Question Before the Court

Once the Income Tax Settlement Commission has passed a final settlement order determining an assessee's taxable income, can an Assessing Officer later reopen that same assessment through ordinary reassessment proceedings, or does the finality of the settlement order foreclose that route entirely?

Why Reassessment Could Not Reopen a Settled Case

The Court held that Section 245-I of the Income Tax Act makes ITSC settlement orders conclusive, and that reviving the Assessing Officer's ordinary reassessment jurisdiction after such finality would make the statutory promise of finality illusory. In a memorable formulation, the Court observed that both the taxpayer and the Revenue accept “the crust and the crumb” of a settlement together, and neither side can return later for further crust and crumb.

The only statutory route to unwind a settlement order, the Court held, is Section 245D(6) — under which the Settlement Commission itself, not the Assessing Officer, can declare its own order void if it was obtained by fraud or misrepresentation. Notably, the Revenue had already invoked that very provision before the Commission, resulting in an earlier order on that question — meaning it could not simultaneously pursue a parallel reassessment on the same allegations.

What the Court Actually Held

• An Assessing Officer cannot use Sections 147/148 reassessment powers to reopen an assessment already concluded by a final ITSC settlement order.
• Section 245D(6), decided by the Settlement Commission itself, is the exclusive route to challenge a settlement order alleged to have been obtained by fraud or misrepresentation.
• Where the Revenue has already invoked Section 245D(6) before the Commission on a given set of allegations, it cannot simultaneously pursue a separate reassessment on the same allegations before the Assessing Officer.
• Judicial review of ITSC settlement orders remains available through Articles 226, 32 or 136, but that is distinct from the Assessing Officer's own reassessment powers.

Why This Judgment Matters

• It significantly restricts the Revenue's ability to reopen settled tax positions via ordinary reassessment machinery once a taxpayer has gone through ITSC settlement, reinforcing finality for such settlements.
• It confirms Section 245D(6) before the Commission, not Section 147/148 before the Assessing Officer, as the exclusive avenue for the Revenue to challenge a settlement alleged to be fraudulent.
• It is particularly relevant for real estate developers and other assessees who historically used ITSC settlements to resolve search-and-seizure disputes.
• It reaffirms established authority on settlement finality, aligning with the Court's earlier reasoning in cases addressing the conclusiveness of Settlement Commission orders.

What Should Advocates Take Away From the Judgment?

For Taxpayers With Existing ITSC Settlements

• Treat a final ITSC settlement order as genuinely conclusive protection against reassessment on the same issues, and resist any Section 148 notice seeking to reopen a settled assessment by citing this judgment directly.
• If the Revenue alleges fraud or misrepresentation in obtaining a settlement, insist that the challenge proceed under Section 245D(6) before the Commission, not as an ordinary reassessment.

For Revenue Counsel and Tax Authorities

• Where fraud or misrepresentation in obtaining an ITSC settlement is suspected, the correct and exclusive route is Section 245D(6) before the Commission itself — parallel reassessment proceedings on the same allegations are not permissible.

For Tax Litigation Practitioners Generally

• Cite this ruling, alongside Brij Lal v. CIT and Kotak Mahindra Bank Ltd. v. CIT, whenever finality of a Settlement Commission order is challenged through ordinary assessment or reassessment machinery.

Key Takeaways

Frequently Asked Questions

Only through Section 245D(6) of the Income Tax Act, where the Settlement Commission itself can declare its own order void if it was obtained by fraud or misrepresentation. An Assessing Officer cannot use ordinary reassessment powers under Sections 147/148 to achieve the same result.

It was the Court's way of describing how both the taxpayer and the Revenue must accept a settlement in its entirety once concluded — neither side can later return seeking a better outcome on parts of the settlement they are dissatisfied with.

It protects them from ordinary reassessment on that basis. The Revenue's remedy is to pursue the fraud allegation specifically under Section 245D(6) before the Settlement Commission, not through a parallel reassessment before the Assessing Officer.

Conclusion