Dhanalakshmi Srinivasan Sugars Private Limited Vs DCIT (Madras High Court)
Conclusion: Assessment orders passed pursuant to express liberty granted by the High Court during pendency of settlement-related litigation remain valid and enforceable. Mere keeping of demand in abeyance did not invalidate already communicated assessment orders, nor did it require passing of fresh assessment orders after rejection or abatement of settlement proceedings. The Court dismissed the writ petitions challenging the assessment orders and the subsequent recovery notices involving a tax demand exceeding Rs. 700 crores.
Held: Search under section 132 was conducted at the premises of DSSPL, VVM and related entities, pursuant to which notices under section 153A were issued for AYs 2013-14 to 2018-19. While assessment proceedings were pending, assessees intended to approach the Income Tax Settlement Commission (ITSC). Meanwhile, the Finance Bill, 2021 proposed abolition of ITSC with effect from 01.02.2021 and constitution of the Interim Board for Settlement (IBS). Since no fresh settlement applications could be filed after 01.02.2021, assessees filed writ petitions seeking directions to receive their settlement applications. Pursuant to interim orders of the High Court, the applications were received. Subsequently, the High Court permitted AO to continue assessment proceedings but directed that final assessment orders should be kept in sealed cover and not implemented. However, assessment orders were passed and communicated to assessees without being kept in sealed cover. Contempt petitions were thereafter filed. Department issued supplementary orders stating that the assessment orders would not be given effect to and resultant demands would remain in abeyance till disposal of the writ petitions. Eventually, the IBS rejected the settlement applications on the ground that full and true disclosure had not been made. Assessees then contended that the assessment orders had become void since fresh orders were not passed within one year from abatement of settlement proceedings under section 245HA. Assessee contended that assessment orders communicated in violation of the High Court’s interim directions were void ab initio; once settlement applications were filed, jurisdiction vested exclusively with the ITSC/IBS. After rejection of settlement applications, fresh assessment orders ought to have been passed within the limitation prescribed under section 245HA(2). Since no fresh assessment orders were passed within the statutory period, the earlier orders became unenforceable. Revetnue contended that he settlement applications were not validly pending under the Act as on 01.02.2021 and were entertained only pursuant to interim orders of the High Court. Section 245HA permitted continuation of proceedings as if no settlement application had been made. It was held that assessees had not filed settlement applications before 01.02.2021 as contemplated under section 245C. Their applications were received only because of interim orders passed by the Court. Therefore, exclusive jurisdiction never vested with the ITSC/IBS. The Court observed that the interim orders specifically permitted the Assessing Officer to proceed with assessment proceedings. Though the assessment orders were communicated contrary to the sealed-cover direction, subsequent orders passed in contempt proceedings merely kept the demand in abeyance and protected limitation rights of the assessees. The Court further held that the assessment orders were never set aside in any proceedings. The communication of the orders remained valid, and only their enforcement was deferred. Therefore, it could not be argued that fresh assessment orders were required after rejection of settlement applications. The Court also clarified that section 245HA(2) enabled the authorities to proceed as if no settlement application had been made once proceedings abate.
