SAHAJANAND MEDICAL TECHNOLOGIES PVT. LTD. vs. DY. COMMISSIONER OF INCOME TAX CIRCLE 2(1)(2)

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SCA/14840/2018HC GujaratGJHC24057983201817 March 2021Bench: HONOURABLE MR. JUSTICE J.B.PARDIWALA,HONOURABLE MR. JUSTICE ILESH J. VORA4 pages
AI SummaryAllowed

What did the High Court hold?

The High Court allowed the writ application. The Court found that the Revenue's case for reopening was not convincing. A significant ground for allowing the application was that the order dated 17th August 2018, disposing of the assessee's objections, was not a speaking order. The Court observed that not a single objection raised by the assessee had been even prima facie dealt with in the order. Consequently, the Court concluded that the impugned notice for reopening was not sustainable in law. The Court quashed and set aside the impugned notice. No specific issue was left undecided; the Court decided on the sustainability of the reopening notice and the validity of the objection rejection order.

What were the facts?

The assessee, Sahajanand Medical Technologies Pvt. Ltd., filed a writ application challenging a notice dated 15.12.2017 under Section 148 of the Income-Tax Act, 1961, and the subsequent order dated 17.08.2018 rejecting its objections. The notice initiated reassessment proceedings for Assessment Year 2012-13, which was a scrutiny assessment under Section 143(3). The Revenue's reasons for reopening involved an alleged excess deduction of Rs. 93,74,533/- claimed by the assessee under Section 35 of the Act, specifically concerning research and development expenditure. The assessee had claimed a total deduction of Rs. 5,31,84,533/-, while the Assessing Officer believed only Rs. 4,38,10,000/- was allowable under Section 35(2AB). The assessee had lodged detailed objections to the reopening.

What were the issues?

1. Whether the notice dated 15.12.2017 under Section 148 of the Income-Tax Act, 1961, for reassessment for AY 2012-13, issued beyond four years from the end of the relevant assessment year and in a case of scrutiny assessment, is sustainable in law, particularly when the reasons for reopening appear to be a mere change of opinion by the Assessing Officer? (Mixed question of law and fact, concerning Section 147 and Section 148). 2. Whether the order dated 17.08.2018, rejecting the assessee's objections to the reopening, is a speaking order, having dealt with the objections raised by the assessee? Assessee's Contentions: The assessee argued that the reopening was based on a mere change of opinion by the Assessing Officer and that the notice was not sustainable. The assessee also contended that the order rejecting its objections was not a speaking order. Revenue's Contentions: The Revenue opposed the writ application, arguing that it was not a case of mere change of opinion. The Revenue contended that something tangible had come to the notice of the Assessing Officer that was not considered at the relevant time, justifying the reopening even beyond four years in a scrutiny assessment case.

Which sections of the Income-tax Act were involved?

Section 148,Section 143(3),Section 35,Section 35(1)(i),Section 35(1)(iv),Section 35(2AB),Section 147

AI-generated summary — verify with the full judgment below

C/SCA/14840/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 14840 of 2018 ========================================================== SAHAJANAND MEDICAL TECHNOLOGIES PVT. LTD. Versus DY. COMMISSIONER OF INCOME TAX CIRCLE 2(1)(2) ========================================================== Appearance: DARSHAN R PATEL(8486) for the Petitioner(s) No. 1 MRS KALPANAK RAVAL(1046) for the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE ILESH J. VORA

Date : 17/03/2021

ORAL ORDER (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1. By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs; “(A) Issue a writ of certiorari and/or a writ of mandamus and/or any other writ direction or order to quash and set aside the impugned notice dated 15.12.2017 under section 148 of the Income-Tax Act, 1961 annexed hereto at Annexure-D along with objection rejection order dated 17.08.2018 annexed hereto at Annexure-H for proceeding and completing Reassessment proceedings. (B) Pending admission, hearing and disposal of this petition, ad-interim relief be granted and the Respondent be ordered to restrain from enforcing compliance of the impugned notice dated 15.12.2017 under section 148 of the Income-Tax Act, 1961 annexed hereto at Annexure-D and/or taking any other steps in this regard including reassessment order or implementation of objection rejection order dated 17.08.2018 Annexure-H and further Page 1 of 4

C/SCA/14840/2018 ORDER notices issued for purpose of reassessment. (C ) Award the cost of this petition. (D) Grant such other and further reliefs as this Hon'ble Court deems fit.” 2. This is a case of reopening of the assessment for the A.Y.2012-13 beyond the period of four years and that of a scrutiny assessment undertaken under Section 143(3) of the Act. 3. The reasons assigned for reopening of the assessment are as under; “The assessee has filed its return of income for A.Y. 2012-13 on 28.09.2012 declaring income of Rs.1,50,57,760/-. The case was selected for scrutiny and order u/s. 143(3) passed on 27.03.2015 determining total income of Rs.2,38,27,380/-. 2. On perusal of the case record, it is seen that the assessee has made revenue expenditure of Rs.2,83,53,871/-

and

capital

expenditure

of Rs.29,25,662/- on research and development. In computation of income, assessee added back revenue expenditure of Rs.2,83,53,871/-. Thereafter, assessee claimed this revenue expenditure of Rs.2,83,53,871/- u/s.35(1)(i). The assessee claimed capital expenditure of Rs.29,25,662/- u/s. 35(1)(iv). Thereafter, assessee claimed deduction u/s.35(2AB) of Rs.2,73,88,086/- by calculating this amount as revenue expenditure of Rs.2,83,53,871/- less foreign consultancy expenditure of Rs.9,65,786/-. The total deduction claim u/s.35 by assessee was of Rs.5,86,67,619/- (Rs.2,83,53,871 + 29,25,662 + 2,73,88,086). The DSIR determined revenue expenditure of Rs.190.15 lakh and capital expenditure of Rs.28.90 Lakh as R & D expenditure eligible for deduction u/s.35 (2AB). 3. it is further noticed that Rs.54,83,086/- (Rs.2,73,88,086 claimed by assessee less Rs.2,19,05,000 admitted by DSIR) u/s. 35(2AB) was disallowed during Page 2 of 4

C/SCA/14840/2018 ORDER the assessment proceeding. Therefore, the total deduction allowed to assessee u/s. 35 of the Act was of Rs.5,31,84,533/- (Rs.2,83,53,871 + 29,25,662 + 2,19,05,000). 2.2 The total deduction allowable was of Rs.4,38,10,000/- being 2 times of expenditure of Rs.2,19,05,000 approved by DSIR. As total revenue expenditure was of Rs.2,83,53,871/- and total capital expenditure was of Rs.29,25,662 on R & D as per P/L, Balance sheet and submission of assessee and also stipulation that expenditure under any sub-section of section 35 cannot be claimed as deduction under another sub-section of section 35 or under any section of the Act. 2.3 In view of the above, the assessee was eligible for deduction of Rs.4,38,10,000/- only u/s. 35 (2AB) of the Act. However, the assessee had claimed deduction of Rs.5,31,84,533/- which was incurred. Hence, excess deduction was allowed to the assessee, which resulted in under assessment of income to the tune of Rs.93,74,533/- (5,31,84,533 + 4,38,10,000) 3. In view of the above, I have reason to believe that the income chargeable to tax has escaped assessment to the tune of Rs.93,74,533/- on account of excess relief granted to the Assessee. Therefore, I am satisfied that it is a fit case for reopening the case u/s.147 of the I.T. Act read with explanation 2C”. 4. To the aforesaid reasons, the assessee lodged his objections in details vide communication dated 3rd August, 2018. 5. The objections raised by the assessee, referred to above, came to be disposed of by the Assessing Officer vide order dated 17th August,2018. 6. We have heard Mr. Darshan Patel, the learned counsel appearing for the writ applicant (assessee) and Ms. Raval, the learned senior standing counsel appearing for the Revenue. Page 3 of 4

C/SCA/14840/2018 ORDER 7. It appears to be a case of change of opinion. The objections raised by the assessee are quite exhaustive going to the root of the issue. Ms. Raval, the learned senior standing counsel appearing for the Revenue vehemently opposed this writ application submitting that it is not a case of mere change of opinion. According to her, something tangible has come to the notice of the Assessing Officer of which cognizance at the relevant point of time was not taken and, therefore, the reopening though beyond the period of four years in a case of scrutiny assessment, 8. We are not convinced with the case put up by the Revenue for the purpose of opposing this writ application. There is one another good ground to allow this writ application. It is evident on plain reading of the order dated 17th August, 2018, disposing of the objections, that the same is not a speaking order. Not a single objection raised by the Assessee has been even prima facie dealt with. 9. In the overall view of the matter, we are convinced that the impugned notice for reopening is not sustainable in law. 10. In the result, this writ application succeeds and is hereby allowed. The impugned notice is hereby quashed and set aside. (J. B. PARDIWALA, J) (ILESH J. VORA,J) Vahid Page 4 of 4

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