Safiya Malik

The Bombay High Court has quashed the reassessment notice issued under Section 148 of the Income Tax Act, 1961, against Lupin Limited, ruling that the reopening was not based on fresh tangible material but rather a change of opinion by the Assessing Officer. The court observed that the assessment had already been subject to scrutiny under Section 143(3), where detailed queries were raised and addressed, precluding reassessment on the same grounds.

Lupin Limited, a prominent pharmaceutical company, had filed its return of income for the assessment year 2016-17, declaring a total income of Rs. 26,36,01,64,390. The return was selected for scrutiny, and multiple notices were issued, including those dated 19 September 2017, 13 July 2018, 18 September 2018, 24 October 2018, and 03 December 2018. These notices sought comprehensive details regarding disallowable and allowable amounts, exemptions, and deductions claimed, particularly under Sections 35AC and 80G of the Income Tax Act.

The scrutiny proceedings entailed a thorough examination of the company’s financials. The Assessing Officer raised specific queries concerning deductions claimed for donations made under Section 35AC and contributions under Section 80G. The company, in its responses dated 30 July 2018 and 03 August 2018, provided documentary evidence supporting its claims. The Petitioner submitted Form 58A to substantiate its claim under Section 35AC for donations made to Lupin Human Welfare & Research Foundation and People for Animals.

Following these responses, an assessment order was passed on 28 December 2018 under Section 143(3), explicitly accepting the claims made by the company under Section 35AC and Section 80G. However, on 31 March 2021, the Assessing Officer issued a notice under Section 148, reopening the assessment on the premise that Lupin Limited had claimed deductions for Corporate Social Responsibility (CSR) expenses, which were not eligible for deduction under law.

The Revenue contended that CSR expenses of Rs. 18,00,06,832 had initially been disallowed as CSR expenditure but were subsequently claimed as deductions under Section 35AC and Section 80G, thus creating a scenario where the company effectively derived double benefits. The department argued that CSR expenses, as clarified by the Finance Act (No.2) of 2014, were not deductible under Section 37, and treating them as eligible under different provisions contradicted legislative intent.

The Petitioner challenged the reassessment, arguing that all deductions had been duly disclosed, scrutinized, and accepted in the initial assessment proceedings. It asserted that no fresh tangible material had surfaced to justify reopening the assessment and that the reassessment was based solely on a reassessment of previously examined facts.

The High Court examined whether the Revenue had relied on any new material to justify reopening the assessment. It stated: "From the reasons furnished to the Petitioner, we find that no fresh tangible material could be said to have come to the knowledge of the assessing officer for reopening of the assessment." The court held that reassessment is impermissible when based solely on a re-evaluation of existing records.

The court referred to the precedent set in Castrol India Ltd. v. Deputy Commissioner of Income-tax, where it was held that reassessment in the absence of fresh material amounts to a mere change of opinion, which is not a valid basis for reopening an assessment. It reiterated that reopening must be predicated on newly discovered information that was not available at the time of the original scrutiny.

Addressing the Revenue’s argument concerning CSR deductions, the court analyzed the Finance Act’s explanatory memorandum, which specified that while CSR expenses were disallowed under Section 37, they could still qualify for deductions under Sections 30 to 36 if they met the specified conditions. The court noted that Lupin Limited had claimed deductions under Section 35AC, which was permissible, rather than under Section 37.

Further, the court examined a circular issued by the Central Board of Direct Taxes (CBDT) on 21 January 2015, which explicitly stated: "CSR expenditure, which is of the nature described in Sections 30 to 36, shall be allowed as deductions under those Sections, subject to the fulfilment of conditions, if any, specified therein." The court also referenced the ruling in Principal Commissioner of Income Tax-7 v. PEC Ltd., where the Delhi High Court held that CBDT circulars are binding on the Revenue.

The court stated that the Petitioner had responded to all queries during scrutiny, and the assessment was concluded based on those responses. It stated that a change in the Assessing Officer’s opinion on the same set of facts does not justify reassessment. The ruling also observed that various tribunal decisions, including those of the jurisdictional tribunal, had consistently upheld that CSR-related deductions under Sections 30 to 36 remained valid if the statutory conditions were met.

The Bombay High Court set aside the notice issued under Section 148 and the subsequent orders rejecting Lupin Limited’s objections. It ruled: "On the ground that some other view was possible, the assessing officer could not have changed his earlier opinion and, based upon such change of opinion, issued the impugned notice seeking to reopen the assessment." The court held that reassessment proceedings were not justified in the absence of fresh material.

Case Title: Lupin Limited v. Deputy Commissioner of Income Tax-3(4), Mumbai & Ors.
Case Number: Writ Petition No. 1530 of 2022
Bench: Justice M.S. Sonak and Justice Jitendra Jain

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