LAMBDA THERAPEUTIC RESEARCH LIMITED V. THE ASSISTANT COMMISSIONER OF INCOME TAX

SCA/16131/2018

AI Insights

Lambda Therapeutic Research Limited, a company engaged in providing clinical research solutions, filed a petition against the Assistant Commissioner of Income Tax challenging the reopening of their assessment for the year 2011-2012. The reopening was based on the same grounds as the previous year (2010-2011), which had been quashed by the court earlier. The main contention was whether the company was eligible for a deduction under section 80IB(8A) of the Income Tax Act, 1961, which pertains to deductions for scientific research and development. The court examined whether the reassessment constituted a mere change of opinion and whether it was within the legal framework to reopen the assessment after the lapse of four years without new material facts.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 761650 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 14-06-2022
• Assessment Year: misc
• Other Referred Cases: Cliantha Research Ltd. v. Deputy Commissioner of Income-Tax, Ahmedabad
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: KARAN SANGHANI
• Assessee Lawyers: TUSHAR HEMANI; VAIBHAVI PARIKH
• Keywords: Income Tax; Reopening of assessment; Research and Development; Deduction under section 80IB(8A)
• Section: 147; 148; 143(3); 144C; 80IB(8A)

Judgement Text

"C/SCA/16131/2018 JUDGMENT DATED: 14/06/2022 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 16131 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE A.J.DESAI and HONOURABLE MR. JUSTICE BHARGAV D. KARIA ========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ========================================================== LAMBDA THERAPEUTIC RESEARCH LIMITED Versus THE ASSISTANT COMMISSIONER OF INCOME TAX ========================================================== Appearance: MR TUSHAR HEMANI, SENIOR ADVOCATE WITH MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1 MR KARAN SANGHANI FOR M R BHATT & CO.(5953) for the Respondent(s) No. 1 ========================================================== CORAM:HONOURABLE MR. JUSTICE A.J.DESAI and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 14/06/2022 ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE A.J.DESAI) Page 1 of 12 C/SCA/16131/2018 JUDGMENT DATED: 14/06/2022 1.Rule returnable forthwith. Learned advocate Mr.Karan Sanghani for learned Senior Advocate Mr. Manish Bhatt waives service of notice of Rule for the respondent. 2.With the consent of learned advocates for both the parties, the petition is taken up for final hearing. 3.By way of present petition under Article 226 of the Constitution of India, the petitioner has prayed for the following reliefs : “(a) quash and set aside the impugned notice at ANNEXURE-A to this petition. (b) pending the admission, hearing and final disposal of this petition, to stay the implementation and operation of the notice at ANNEXURE-A to this petition and stay further proceedings for the Asst. Year 2011-12. (c) any other and further relief deemed just and proper be granted in the interest of justice. (d) to provide for the cost of this petition.” 4.Brief facts of the case are as under : 4.1) The petitioner, a Company incorporated under the provisions of the Companies Act, 1956, is engaged in the business of providing clinical research solutions to the pharmaceutical industries. The petitioner-company filed its original Page 2 of 12 C/SCA/16131/2018 JUDGMENT DATED: 14/06/2022 return of income for the Assessment Year 2011-2012 on 29.11.2011 declaring total income at Rs. 13,87,146/- after claiming deduction of Rs. 28,56,95,457/- under section 80IB(8A) of the Income Tax Act, 1961 (For short “the Act, 1961”). The petitioner thereafter filed revised return of income on 31.03.2012 declaring total income at Rs.8,31,738/- after claiming deduction of Rs.28,62,02,248/- under section 80IB(8A) of the Act, 1961. The petitioner also placed on record Form No.10CCB in support of the claim of such deduction. 4.2) The case of the petitioner was selected for scrutiny assessment and various details and information were called for by the Assessing Officer which were duly furnished by the petitioner vide letter dated 12.11.2014. 4.3) The Assessing Officer vide order dated 15.4.2015 framed the assessment under section 143(3) read with section 144C of the Act, 1961 after examining the claim of deduction and did not disturb the claim of deduction under section 80IAB(8A) of the Act, 1961. 4.4) The petitioner’s case for the Assessment Year 2010-2011 was reopened by issuance of notice dated 31.03.2017 under Page 3 of 12 C/SCA/16131/2018 JUDGMENT DATED: 14/06/2022 section 148 of the Act, 1961 on the ground that the petitioner was not eligible for claim of deduction under section 80IB(8A) of the Act, 1961. 4.5) The petitioner challenged such reopening of assessment before this Court by preferring Special Civil Application No.16338/2017 wherein this Court vide order dated 29.1.2018 quashed the notice for reopening the assessment. 4.6) The respondent thereafter issued the impugned notice dated 31.03.2018 under section 148 of the Act, 1961 to reopen the case of the petitioner for the assessment year 2011-2012 on the same facts as that of assessment year 2010-2011 for denying the deduction under section 80IB(8A) of the Act, 1961 on the ground that the certificate issued by DSIR could not have been accepted by the Assessing Officer so as to satisfy that the assessee company has carried out any research and development work either for self or for others which is foundation for availing deduction under the said section. 4.7) The petitioner vide letter dated 16.04.2018 requested the respondent to treat the original return of income as return in response to the notice issued under section 148 of the Act, 1961. However, the respondent Page 4 of 12 C/SCA/16131/2018 JUDGMENT DATED: 14/06/2022 vide notice dated 9.7.2018 informed the petitioner that it was mandatory to file fresh return of income electronically and therefore, the petitioner filed return of income electronically on 18.7.2018. 4.8) The respondent vide letter dated 3.8.2018 supplied the copy of reasons recorded for reopening to the petitioner which was received by the petitioner on 7.8.2018. 4.9) The petitioner vide letter dated 13.8.2018 raised the objections against the reopening of the assessment. 4.10) The respondent vide order dated 24.9.2018 disposed of the objections raised by the petitioner holding that reopening is valid. Hence, this petition. 5.Learned Senior Advocate Mr.Tushar Hemani assisted by learned advocate Ms. Vaibhavi Parikh for the petitioner submitted that reopening of the assessment for the assessment year 2011-2012 is based on the previous assessment year 2010-2011 and this Court has already quashed the reopening notice for the assessment year 2010-2011 by judgment and order dated 29.01.2018 in Special Civil Application No. 16338/2017 against which SLP preferred by the respondent Page 5 of 12 C/SCA/16131/2018 JUDGMENT DATED: 14/06/2022 is also dismissed by the Hon’ble Supreme Court on October 29, 2018. It was therefore, submitted that the facts of both the assessment years 2010-2011 and 2011-2012 are identical and in the reasons recorded in the assessment year 2011-2012, the basis for reopening the case is the same and therefore, the impugned notice deserves to be quashed and set aside. 5.1) Learned Senior Advocate Mr. Tushar Hemani further submitted that the impugned notice under section 148 is issued beyond a period of four years and as per the proviso to section 147 of the Act, 1961 as it existed at the relevant point of time, such action of reopening can be beyond a period of four years only if there is a failure on part of the petitioner to disclose truly and fully all material facts necessary for the assessment year 2011-2012. It was submitted that for the purpose of claiming deduction under section 80IB(8A) of the Act, 1961, the petitioner has disclosed all the material facts in the return of income as well as in the audit report in Form 10CCB along with the letter dated 12.11.2014 filed during the original assessment proceedings under section 143(3) of the Act, 1961. It was therefore, submitted that reopening of the assessment for the assessment year 2011-2012 would be Page 6 of 12 C/SCA/16131/2018 JUDGMENT DATED: 14/06/2022 nothing but change of opinion and in view of settled legal position, the Assessing Officer had no jurisdiction to reopen the assessment by issuing the impugned notice. 5.2) It was submitted that vide notice dated 27.10.2014 the petitioner was called upon to furnish all the details with regard to calculation of deduction under section 80IB(8A) and the explanation why such deduction should not be disallowed and thereafter, examining the claim of deduction under section 80IB(8A) of the Act, 1961, the Assessing Officer passed the assessment order under section 143(3) on 15.4.2015. It was therefore, submitted that the respondent has no jurisdiction to issue the impugned notice under section 148 to reopen the assessment under section 147 of the Act, 1961 merely because he has a different opinion than that of his predecessor on the same set of facts as there is nothing on record to indicate that the respondent has any other information in his possession which came subsequent to framing of the original assessment and on basis of such information he has reason to believe that income has escaped assessment. 5.3) Learned Senior Advocate Mr. Hemani submitted that on merits also the petitioner is eligible for claim of deduction under Page 7 of 12 C/SCA/16131/2018 JUDGMENT DATED: 14/06/2022 section 80IB(8A). 5.4) It was submitted that the respondent has no jurisdiction to issue the notice beyond a period of four years as per the proviso to section 147 in absence of any failure on part of the petitioner to truly and fully disclose all material facts necessary during the course of assessment under section 143(3) of the Act, 1961. 6.On the other hand learned advocate Mr. Karan Sanghani appearing for M.R. Bhatt and Co. for the respondent submitted that the respondent has issued the impugned notice under section 148 of the Act, 1961 for reopening the assessment of the assessment year 2011-2012 as new facts came to the knowledge of the Assessing Officer as it was noticed that the work done by the petitioner was merely that of testing laboratory and was not doing any research and development work and there was no development of technology. It was submitted that on the basis of material available on record with the respondent it was found that the petitioner company was engaged in providing professional services to their client which was not any research and development work and therefore, the petitioner was not eligible for deduction under section 80IB(8A) of the Act, 1961 as it Page 8 of 12 C/SCA/16131/2018 JUDGMENT DATED: 14/06/2022 did not satisfy the very first criteria of availing such deduction. 6.1) Learned advocate Mr. Sanghani would submit that as per explanation (1) to section 147, the Assessing Officer has reason to believe that the income has escaped assessment and therefore, mere production of balance-sheet, profit and loss account or account books will not necessarily amount to disclosure as required by the provision of section 147 of the Act 1961. It was submitted that during the course of inquiry, the Assessing Officer discovered that the petitioner is not engaged in technology development and the petitioner has failed to disclose the fact that it is engaged in providing professional services for research to their clients and did not carry out any research and development activities so as to qualify for deduction under section 80IB(8A) of the Act, 1961. 6.2) Learned advocate Mr. Sanghani submitted that there is no dispute that the petitioner after receiving the approval of DSIR was ready to do research and development work however as per the details submitted by the petitioner, the petitioner did not derive any income from research and development activity including during the year under consideration and therefore, the petitioner Page 9 of 12 C/SCA/16131/2018 JUDGMENT DATED: 14/06/2022 is not entitled to get deduction under section 80IB(8A) of the Act, 1961. It was therefore, submitted that the respondent had seen tangible material to show that income had escaped assessment. It was submitted that mere certificate issued by DISR cannot be a conclusive proof for granting deduction for research and development under section 80IB(8A) of the Act, 1961. It was therefore, submitted that petition may be dismissed as the respondent authority has rightly issued the notice under section 148 of the Act, 1961 by rejecting the objections raised by the petitioner. 7.We have heard learned advocates appearing for the respective parties and on perusal of the material on record, it is not in dispute that the respondent authority has issued the notice under section 148 of the Act, 1961 beyond a period of four years from the end of relevant assessment year on the basis of reopening notice issued for the assessment year 2010-2011 with regard to the claim of deduction under section 80IB(8A) of the Act, 1961 which is meant for scientific and industrial research and development. The respondent Assessing Officer has recorded reasons for issuing notice disputing the research activities of the petitioner so as to disallow such deduction. Page 10 of 12 C/SCA/16131/2018 JUDGMENT DATED: 14/06/2022 8.The Assessing Officer has merely reproduced the material which forms part of the reopening notice for the assessment year 2010-2011 for issuance of notice for reopening the assessment for assessment year 2011-2012. 9.It is pertinent to note that the coordinate Bench of this Court vide judgment and order dated 29.11.2018 quashed and set aside the notice under section 148 issued by the respondent Assessing Officer for the assessment year 2010-2011 applying the ratio of the decision in case of Cliantha Research Ltd. v. Deputy Commissioner of Income-Tax, Ahmedabad reported in (2013) 35 taxmann.com 61 (Gujarat). 10. It is also brought on record that Special Leave Petition (Civil) Diary No. 34524/2018 preferred by the respondent authority against the said judgment and order was also dismissed on October 29, 2018. 11. On perusal of the material on record, it appears that the Assessing Officer in original scrutiny assessment has examined the claim for deduction under section 80IB(8A) of the Act, 1961 in detail by raising series of queries which were answered at length by the assessee by filing several replies before the Assessing Officer. It is only after Page 11 of 12 C/SCA/16131/2018 JUDGMENT DATED: 14/06/2022 considering such documents and replies, the Assessing Officer framed the assessment for year under consideration. 12. In such circumstances, issuance of notice under section 148 of the Act, 1961 to reopen the assessment for the assessment year 2011-2012 is nothing but would amount to change of opinion on the part of the Assessing Officer as admittedly such notice is issued after a period of four years from the end of the relevant assessment year under consideration and there is nothing on record to show that there is any failure on part of the assessee to disclose fully and truly all material facts relevant for such assessment. 13. In view of the foregoing reasons, the petition requires consideration and same is accordingly allowed. Impugned notice dated 31.03.2018 issued by the respondent-Assessing Officer under section 148 of the Act, 1961 is hereby quashed and set aside. Rule is made absolute to the above extent. No order as to costs. (A.J.DESAI, J) (BHARGAV D. KARIA, J) RAGHUNATH R NAIR Page 12 of 12 "