Income Tax Dept Can’t Revive Time-Barred Assessments After Settlement Proceedings: Madras HC

The Madurai Bench of the Madras High Court has quashed a series of assessment and recovery proceedings holding that the Income Tax Department could not seek to enforce assessment orders after failing to pass fresh assessments within the statutory limitation period following the rejection of settlement applications. The bench of Justice D. Bharatha Chakravarthy has observed that once settlement proceedings terminated with rejection of the applications, the Department was required to proceed in accordance with Section 245HA and complete the assessment process within the time permitted by law. The Department could not merely seek to resurrect earlier assessment orders and enforce them after expiry of the statutory limitation period. A batch of writ petitions arising out of search proceedings conducted by the Income Tax Department in October 2018 and the subsequent controversy surrounding the abolition of the Income Tax Settlement Commission (ITSC) and the creation of the Interim Board for Settlement (IBS). The controversy traces its origin to search operations conducted under Section 132 of the Income Tax Act on October 25, 2018, at the premises of DSSPL, VV Minerals and related entities. Following the search, the Department initiated assessment proceedings for multiple assessment years. While these proceedings were pending, both DSSPL and VV Minerals sought to approach the Income Tax Settlement Commission. However, the Union Government, through the Finance Bill, 2021, proposed abolishing the ITSC and replacing it with an Interim Board for Settlement. This led to litigation by taxpayers who feared losing access to the settlement mechanism. Pursuant to interim orders of the High Court, the petitioners were permitted to file settlement applications before the authorities in March 2021. DSSPL disclosed additional income of more than ₹36.31 crore before the settlement forum, while VV Minerals disclosed additional income exceeding ₹1.85 crore. During the pendency of constitutional challenges concerning the abolition of the ITSC, the High Court had directed that assessment proceedings could continue but any final assessment orders should be kept in a sealed cover and not be implemented. Despite these directions, assessment orders were passed and communicated to the assessees in June 2021. For DSSPL, the Department assessed income aggregating more than ₹1,336 crore and raised tax demands exceeding ₹724 crore across various assessment years. For VV Minerals, assessed income exceeded ₹317 crore with tax demands of more than ₹254 crore. Subsequently, after contempt proceedings were initiated, the Assessing Officer issued supplementary orders acknowledging that the assessment orders had been communicated contrary to the High Court's directions and expressly kept the assessments and consequential tax demands in abeyance pending final adjudication of the writ petitions. Following legislative changes and CBDT clarifications, the settlement applications of the petitioners were processed by the Interim Board for Settlement. However, on November 20, 2023, the Interim Board rejected the applications on the ground that the applicants had failed to make a full and true disclosure of income, a mandatory requirement for settlement under Chapter XIX-A of the Income Tax Act. After the rejection, the Department sought to revive the assessment orders passed in 2021 and proceeded with recovery action through notices issued at the end of 2024 and early 2025. The petitioners challenged both the assessments and recovery proceedings before the High Court. The central question before the Court was whether assessment orders passed while settlement proceedings were pending could automatically revive after rejection of settlement applications, or whether the Department was required to pass fresh assessment orders within the limitation period prescribed under Section 245HA read with Section 153 of the Income Tax Act. The petitioners argued that once their settlement applications were entertained and proceeded with by the settlement machinery, exclusive jurisdiction vested in the settlement authorities. Consequently, the regular Assessing Officer lost jurisdiction to continue with the assessments. They further contended that after rejection of the settlement applications in November 2023, the Department had one year to complete fresh assessments. Since no fresh assessments were passed within that period, the entire proceedings became time-barred. The High Court undertook a detailed examination of the statutory scheme governing settlement proceedings and their impact on ordinary assessment jurisdiction. The Court noted that the settlement applications had not been summarily rejected at the threshold. Instead, they had been entertained, reports had been called for from the Principal Commissioner, objections were considered and hearings were conducted before the applications were eventually rejected in November 2023. The Court held that the settlement machinery had assumed jurisdiction over the cases and that the statutory consequences flowing from the settlement provisions had to be given full effect. The Court found merit in the petitioners' contention that the Department had failed to pass fresh assessment orders within the prescribed period after the settlement applications were rejected. Case Details Case Title: M/s.Dhanalakshmi Srinivasan Sugars Private Limited Versus Deputy Commissioner of Income Tax Citation: JURISHOUR-1567-HC-2026(MAD) Case No.: W.P.(MD)Nos.10711 to 10716, 5709, 5710 and 11470 to 11478 of 2025 and W.M.P.(MD) Nos.4171, 4173, 8529 and 8530 of 2025 Date: 01.06.2026 Counsel For Petitioner: R.Sivaraman Counsel For Respondent: AR.L.Sundaresan Click Here To Read Order Read More: ICAI Announces CA September–November 2026 Examination Schedule; Applications Open from July 6

Income Tax Dept Can’t Revive Time-Barred Assessments After Settlement Proceedings: Madras HC

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