In a recent ruling, the Bombay High Court quashed an arbitrary notice issued seeking to reopen the assessment for Lupin Limited without any fresh evidence.
The case involved Lupin Limited (the petitioner) and the Deputy Commissioner of Income Tax (the respondent). Lupin had filed its income tax return for AY 2016-17 on 26 November 2016, declaring a total income of Rs. 26,36,01,64,390.
The case was selected for scrutiny, and the Income Tax Department issued several notices between 2017 and 2018, seeking details and explanations regarding the computation of income, exemptions, and deductions claimed by Lupin. The department raised queries regarding deductions claimed under Section 35AC (contributions to social projects) and Section 80G (donations).
The company responded to these queries, providing detailed explanations and supporting documents. After considering the responses, the assessing officer passed an assessment order under Section 143(3) of the Income Tax Act on 28 December 2018, accepting the company’s claims for deductions under Section 35AC and Section 80G.
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On 31 March 2021, the department issued a notice under Section 148, seeking to reopen the assessment for AY 2016-17. The reasons for reopening, provided on 5 August 2021, stated that the Company had added back certain Corporate Social Responsibility (CSR) expenses (totaling Rs. 18,00,06,832) in its computation of income.
These expenses were originally disallowed as CSR expenses but were later claimed as deductions under Section 35AC and Section 80G. The department argued that allowing the same expense under two different heads (CSR and donations) would defeat the legislative intent behind the amendments introduced by the Finance Act No. 2 of 2014, which disallowed CSR expenses as deductions.
The Pharma Company filed objections to the reopening of the assessment, but these were rejected by the department on 30 November 2021 and then filed a writ petition before the Bombay High Court, challenging the notice and the rejection of its objections.
The Bombay High Court, comprising Justices M.S. Sonak and Jitendra Jain, observed that the department had not presented any fresh tangible material to justify the reopening of the assessment.
The court observed that the case had already been scrutinized, and the department had raised specific queries regarding the deductions under Section 35AC and Section 80G, which were addressed by the company in its responses. The court held that reopening an assessment based on a change of opinion without any new material is not permissible under the law.
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The court allowed the petition and set aside the reopening notice dated 31 March 2021 and the order dated 30 November 2021, which had rejected the company’s objections.
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