Lupin Gets Rs 18 Crore Relief as HC Bars Arbitrary Tax Reassessment

The Division Bench of Justice M.S. Sonak and Justice Jitendra Jain delivered the verdict while hearing Writ Petition No. 1530 of 2022, stating that the reassessment was based on a mere change of opinion, which is not permissible under tax laws.

Background of the Case

Lupin Limited, a leading pharmaceutical company, had filed its income tax return for AY 2016-17 on November 26, 2016, declaring a total income of ₹2,636 crore under normal provisions and ₹3,928 crore as book profit under Section 115JB. The company’s case was selected for scrutiny, and the Income Tax Department issued multiple notices between 2017 and 2018, seeking clarifications on various deductions, exemptions, and disallowances.

Among the key issues examined during scrutiny were the company’s claims under Section 35AC for CSR (Corporate Social Responsibility) donations and deductions under Section 80G for charitable donations. After reviewing all submissions, the Assessing Officer (AO) passed a final assessment order under Section 143(3) on December 28, 2018, accepting Lupin's claims and making no additions.

Reassessment Notice and Reasons for Reopening

Despite the completion of scrutiny, the Income Tax Department issued a reassessment notice under Section 148 on March 31, 2021, seeking to reopen the 2016-17 assessment. The department claimed that Lupin had claimed CSR expenses amounting to ₹18 crore, which were disallowed under the Finance Act, 2014. However, Lupin reclaimed the same amount under Section 35AC and 80G, effectively receiving double benefits on the same expenditure.

The department argued that CSR expenses and donations under Section 80G are separate provisions, and treating them as deductible under both heads violated the intent of tax laws. The AO further contended that Lupin had not fully disclosed this information, leading to an underassessment of income, and justifying the reassessment.

Lupin’s Objections and Legal Challenge

Lupin challenged the reassessment notice, arguing that the issue of deductions under Section 35AC and 80G had already been scrutinized during the original assessment, and that all necessary details were provided to the AO at that time. The company maintained that there was no fresh material or new evidence that justified reopening the case.

The company further contended that reassessing the same deductions that were already examined amounted to a "change of opinion" by the AO, which is not a valid ground for reopening under tax laws. Additionally, since this was a case of reopening within four years, the Income Tax Department had to prove that Lupin failed to disclose material facts, which it failed to do.

Despite these arguments, the Income Tax Department rejected Lupin’s objections on November 30, 2021, prompting the company to file a writ petition before the Bombay High Court.

After detailed examination, the Bombay High Court ruled in favor of Lupin, stating that the AO had already examined the deductions under Section 35AC and 80G during the original assessment and no fresh tangible material was available to justify reopening the case. The court emphasized that reopening an assessment without new evidence amounts to a "change of opinion," which is not permissible under tax law.

The court also examined the Finance Act, 2014, which disallows CSR expenses under Section 37 of the Income Tax Act but does not explicitly prohibit CSR donations from being eligible under Section 35AC. The High Court further referenced previous rulings, including Castrol India Ltd. vs. DCIT, where it was held that reassessment cannot be based on re-examining the same facts that were already considered during scrutiny.

In its judgement, the Bombay High Court noted;

"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. For all these reasons, the impugned notice and the consequential orders will have to be set aside."

Subsequently, the court allowed Lupin’s writ petition and made the Rule absolute in terms of prayer clause (a), noting;

"This Hon'ble Court may be pleased to issue a Writ of Certiorari or a writ in the nature of Certiorari or any other appropriate writ, order, or direction under Article 226 of the Constitution of India calling for the records of the Petitioner's case and after examining the legality and validity thereof quash and set aside the notice dated March 31, 2021, issued by Respondent No.1 under Section 148 of the Act seeking to reopen the assessment for AY 2016-17."

To view the original order, click on the link below:

https://indiankanoon.org/doc/90115199/