AJEET SEEDS PVT LTD AURANGABAD vs. THE UNION OF INDIA THROUGH ASSISTANT COMMISSIONER OF INCOME TAX AURANGABAD

PDF · subscribers
WP/13871/2017HC BombayHCBM03044151201726 April 2018Author: HON'BLE SHRI JUSTICE S V GANGAPURWALA,HON'BLE SHRI JUSTICE ARUN M. DHAVALE19 pages
AI SummaryDismissed

What did the High Court hold?

The High Court declined to exercise its writ jurisdiction and dismissed the writ petitions. The Court found that it could not be said that the reopening of assessment was solely based on a change of opinion. It observed that the petitioner failed to fully and truly disclose the fact that it did not possess Form 3CM under Section 35(2AB) of the IT Act. Had the petitioner disclosed this fact during the scrutiny assessment under Section 143(3) and the Assessing Officer had still allowed the deduction, then the petitioner would have been justified in challenging the reopening. However, this was not the case. The Court explicitly stated that it had not dealt with the merits of the contentions regarding the requirement of Form 3CM for claiming deduction under Section 35(2AB), and these would be decided by the Assessing Officer on their own merits. The reasons recorded by the Assessing Officer for reopening were based on the fact that the assessee did not possess Form 3CM for the relevant period and had not disclosed this fact during the scrutiny assessment. The Court noted that the Assessing Officer had elaborated reasons and supplied them to the assessee, forming a belief based on relevant material in good faith.

What were the facts?

The assessee, Ajeet Seeds Pvt. Ltd., filed four writ petitions challenging the rejection of its objections against the reopening of assessments for Assessment Years 2010-11 to 2013-14. The reopening was initiated by the Assistant Commissioner of Income Tax under Section 147/148 of the Income Tax Act, 1961, based on the belief that the assessee was not entitled to deductions claimed under Section 35(2AB) for in-house research and development expenditure. The assessee contended that the reopening was based on a mere change of opinion and that the original assessments, conducted under Section 143(3), had already considered and allowed these deductions after thorough scrutiny. The assessee also argued that its in-house R&D facility was recognized by the Ministry of Science and Technology and that the prescribed authority, DSIR, had renewed its approval. The revenue, however, claimed that the assessee had not produced valid approval from the prescribed authority for the relevant periods.

What were the issues?

1. Whether the reopening of assessment under Section 147/148 of the Income Tax Act, 1961, is valid when it is based solely on a change of opinion by the Assessing Officer, despite the issue being considered during the original scrutiny assessment under Section 143(3)? (Question of law and fact, concerning Section 147/148). 2. Whether the assessee's claim for deduction under Section 35(2AB) of the Income Tax Act, 1961, is invalid due to the non-production of Form 3CM for the relevant periods, or if the approval by the Ministry of Science and Technology and renewal by DSIR are sufficient? Assessee's Contentions: - The reopening is based on a mere change of opinion, as the deduction under Section 35(2AB) was already considered and allowed in the scrutiny assessment under Section 143(3). - The assessee's in-house R&D facility is recognized by the Ministry of Science and Technology and approved by DSIR. - Form 3CM is a procedural requirement, and compliance with the substantive provision of Section 35(2AB) is paramount. - The objections to reopening were rejected mechanically without application of mind. - Reliance was placed on cases like Hindustan Lever Ltd. vs. R.B. Wadkar, CIT vs. Claris Life Science, CIT vs. Sandan Vikas, Kelvinator of India Ltd., Titanor Components Ltd. vs. ACIT, and Gemini Leather Stores. Revenue's Contentions: - The assessee failed to produce valid approval (Form 3CM) from the prescribed authority (DSIR) for the period from April 1, 2009, to March 31, 2010. - The assessee had not disclosed this fact during the original assessment, leading to escapement of income. - The reply from the Ministry of Science and Technology indicated that the company was not adhering to the condition of properly reporting R&D expenditure, and the R&D center was not approved for the relevant period.

Which sections of the Income-tax Act were involved?

Section 35(2AB),Section 147,Section 148,Section 143(3)

AI-generated summary — verify with the full judgment below

1 WP 13871.17 IN THE HIGH COURT OF JUDICATURE AT BOMBAY BENCH AT AURANGABAD WRIT PETITION NO. 13871 OF 2017 Ajeet Seeds Pvt. Ltd. Aurangabad ..    Petitioner Versus The Union of India through Assistant Commissioner of Income Tax Aurangabad..    Respondent WITH WRIT PETITION NO. 13872 OF 2017 Ajeet Seeds Pvt. Ltd. Aurangabad ..    Petitioner Versus The Union of India through Assistant Commissioner of Income Tax Aurangabad..    Respondent WITH WRIT PETITION NO. 13873 OF 2017 Ajeet Seeds Pvt. Ltd. Aurangabad ..    Petitioner Versus The Union of India through Assistant Commissioner of Income Tax Aurangabad..    Respondent WITH WRIT PETITION NO. 13874 OF 2017 Ajeet Seeds Pvt. Ltd. Aurangabad ..    Petitioner Versus

2 WP 13871.17 The Union of India through Assistant Commissioner of Income Tax Aurangabad..    Respondent Shri P. M. Shah, Senior Advocate i/by Shri Subhodh P. Shah, Advocate for the Petitioner in all matters. Shri Alok Sharma, Standing Counsel for the Respondent in all matters. CORAM : S. V. GANGAPURWALA AND A. M. DHAVALE, JJ. RESERVED FOR ORDERS ON : 01.03.2018 ORDER PRONOUNCED ON : 26.04.2018 FINAL ORDER (Per S. V. Gangapurwala, J.) :­

. The issue involved in all these writ petitions is based on same facts and involve common question, to avoid rigmarole they are decided together.

2.

The   issue   involved   in   these   writ   petitions   pertains   to assessment   years   2010­2011,   2011­2012,   2012­2013   and   2013­ 2014. 3. The   petitioner   in   all   these   writ   petitions   had   claimed deduction against the expenditure incurred on in­house research and development resorting to Sec. 35(2AB) of the Income Tax Act (for short "I. T. Act").  The assessment is proposed to be reopened by issuing a notice U/Sec 148 of the I. T. Act.   The respondent

3 WP 13871.17 claims that the petitioner company was not entitled to claim this deduction.     The   petitioner   raised   objection   to   the   proposed reopening   of   the   assessment.     The   objection   raised   by   the petitioner against reopening of the assessment U/Sec. 147 r/w Sec. 148 of the I. T. Act is rejected.  Aggrieved thereby present writ petitions.

4.

Mr.   P.   M.   Shah,   the   learned   senior   advocate   for   the petitioner strenuously contends that the action is proposed only because of the change in the opinion of the assessing officer.  The learned senior advocate submits that, the petitioner company is engaged in business of development and selling seeds.  Research and development of new variety of seeds including hybrid seeds is the integral part of the business of the petitioner company. The petitioner has set up a in­house research and development facility at Hanumantgaon, Tq. Gangapur, Dist. Aurangabad.  The in­house   research   and   development   facility   of   the   petitioner company is recognized by the Ministry of Science and Technology. According to the learned senior advocate, the recognition was renewed from time to time without any break upto 31.03.2019. 5. The   learned   senior   advocate   further   submits   that, objections   raised   by   the   petitioner   to   the   proposed   action   of reopening   the   assessment   are   rejected   mechanically   without application of mind.  The notice for reassessment is also beyond the prescribed period of limitation.

4 WP 13871.17

6.

The learned senior advocate further submits that, notice U/Sec. 148 of the I. T. Act issued to the assessee after expiry of are not based on any new material.  Re­assessment on change of opinion of a officer is not valid and is without jurisdiction.  The entire issue as to the entitlement of the deduction on expenditure of scientific research U/Sec. 35(2AB) of the I. T. Act is already considered in the earlier original assessment.  It was a scrutiny assessment U/Sec. 143(3) of the I. T. Act.  The general principle is that, once the assessment is complete, it becomes final.   The learned senior advocate further submits that, in the scrutiny assessment a pointed question was asked that is question No. 25 calling upon the petitioner to furnish full details regarding claim of in­house expenses U/Sec. 35 (2AB) of the I. T. Act for research and development.   The petitioner was also directed to furnish supportive evidence and to explain that these expenses should be allowed.  A comprehensive scrutiny was carried out to ascertain entitlement   to   claim   weighted   deduction   on   expenditure   of scientific   research.     The   entire   available   record   was   scanned thoroughly.  On complete satisfaction, the claim of deduction was

5 WP 13871.17 allowed   by   the   assessing   officer.     The   material   which   was available before the assessing officer was considered and on the basis of the material the assessing officer was convinced that the deduction is to be allowed.

8.

The   learned   senior   advocate   further   submits   that,   the statutory prescribed authority that is D.S.I.R. has renewed the approval   of   the   in­house   research   and   development   facility. research U/Sec. 35(2AB) of the I. T. Act having been raised by the assessing officer at the time of original assessment U/Sec. 143(3) of   the   I.   T.   Act   and   no   addition   having   been   made   by   the assessing   officer   that   issue   of   being   satisfied   with   the

6 WP 13871.17 explanation of the assessee, reopening of the assessment on the very   same   issue   is   a   mere   change   of   opinion   and   hence   not permissible.     In   the   original   assessment   proceedings   U/Sec. 143(3) of the I. T. Act, the point directly and substantially at issue was the entitlement of the petitioner to claim deduction U/Sec. 35(2AB).   It is not a case of non assessment of item of so as to claim re­assessment.   To buttress his submissions, the Dy. Commissioner  of Income  Tax  reported in  [2015]  232 Taxman 702 (Bom)  to submit that, failure to place a version favourable   to   the   revenue   cannot   be   a   reason   to   reopen   the assessment.  The assessee did not hold back any document, nor failed to supply any information.

10.

The learned senior advocate further contends that, order dated   12.07.2017   rejecting   the   objection   is   vitiated,   as   the objections raised by the petitioner are not even remotely adverted to in the order.  The objections raised by the petitioner are not at all dealt with and decided in the impugned order.  The impugned order is vitiated on account of lack of application of mind.  The learned   senior   advocate   further   submits   that,   the   impugned notices for assessment years 2010­2011 and 2011­2012 are barred the time of scrutiny assessment U/Sec. 143(3) of the I. T. Act, now there is a change of opinion.  Now the approach is that to claim deduction U/Sec. 35(2AB) of the I. T. Act, the approval in Form No. 3CM is a precondition.  Undisputedly, the D.S.I.R. approval

9 WP 13871.17 from the prescribed authority was never revoked attributing any non­compliance.   On the contrary, the said approval was being renewed   continuously,   from   time   to   time,   without   any interruption and successively from the year 2000 and now ending with 31.03.2019. Implicit in it, the fact that the requirement of ongoing   scientific   research   in   the   in­house   Research   and reopening U/Sec. 147 and 148 of the I. T. Act.  The assessee had Writ Petition No. 1017 of 2011 which reads thus : "Full and true disclosures must mean what the statute says.  These disclosures cannot be garbled or hidden in the crevices of the documentary material which has been   filed   by   the   assessee   with   the   Assessing Officer.   The assessee must act with candor and the disclosure must be full and true.  A full disclosure is a disclosure of all material facts which does not contain any hidden material or suppression of fact. A true disclosure is a disclosure which is truthful in all respects.  Just as a power of the Revenue to reopen an assessment beyond a period of four years is restricted by the conditions precedent spelt out in the proviso to Section 147, equally an assessee who seeks the benefit of the proviso to Section 147 must make   a   full   and   true   disclosure   of   all   primary facts."

14.

The   learned   advocate   further   submits   that,   this   Court would not invoke its writ jurisdiction to interdict a proceeding U/Sec.   148   of   the   I.   T.   Act   unless   it   is   a   case   of   without jurisdiction.     He   relies  on   the   judgment  of   this  Court  at   its principal seat at Bombay in  Writ Petition No. 2860 of 2012 dated 18th June, 2014. The learned advocate further submits that, unless and until petitioner has a certificate in Form No. 3CM,   the   petitioner   would   not   be   entitled   for   the   benefit   of

13 WP 13871.17 deduction   U/Sec.   35(2AB)   of   the   I.   T.   Act   while   granting   a certificate   in   Form   No.   3CM   various   guidelines   are   to   be observed and it is only if all the conditions are satisfied, then only   the   certificate   in   form   No.   3CM   is   issued   and   if   the petitioner possess the certificate under Form No. 3CM, then only the petitioner would be entitled for deduction U/Sec. 35(2AB) of the I. T. Act.

15.

We   have   considered   the   submissions   canvassed   by   the learned counsel for respective parties.

16.

This Court would invoke its writ jurisdiction, only if the issuance of notice is without jurisdiction or that while deciding the objection filed by the petitioner to the notice U/Sec. 148 of the I. T. Act, the principles of natural justice are not adhered to or ex­facie notice U/Sec. 148 of the I. T. Act is barred by limitation.

17.

It   is   a   settled   proposition   of   law   that   reopening   of assessment   cannot   be   at   a   mere   change   of   opinion,   more particularly when a scrutiny assessment is made U/Sec. 143(3) of the I. T. Act.  However, if all the material facts are not fully and truly   disclosed,   then   even   if   the   scrutiny   assessment   U/Sec. 143(3) of the I. T. Act, is made, the reopening of assessment would be permissible.

18.

At this stage, in the writ jurisdiction, we would not embark

14 WP 13871.17 upon the findings about the effect of not possessing certificate in Form No. 3CM.  The petitioner can agitate all these grounds at the time of re­assessment.   We would only restrict ourselves to the question as to whether the assessing officer was justified in reopening the assessment U/Sec. 147 and 148 of the I. T. Act.

19.

The returns filed by the petitioner were assessed U/Sec. 143(3) of the I. T. Act.  While issuing notice U/Sec. 142(3) of the I. T. Act, a specific query was raised by the Assessing Officer with regard   to   the   deductions   claimed   by   the   petitioner   U/Sec. 35(2AB) of the I. T. Act on account of expenditure incurred for in­ house research and development.  The petitioner had replied to the   said   query   stating   that   the   company   had   renewal   of recognition of the in­house R & D unit by the authority and it was renewed from time to time upto March 31, 2016. According to the petitioner the Government of India, Ministry of Science and Technology, Department Scientific and Industrial Research, Technology   Bhavan,   New   Delhi   had   granted   renewal   of recognition of  in­house   Research and Development Unit  from time   to   time.     The   same   was   with   regard   to   renewal   of recognition of in­house R. & D. unit.   Whereas vide Form No. 3CM recognition is granted by the same authority giving the details and specifically stating the order of approval of in­house research and development facility U/Sec. 35(2AB) of the I. T. Act. What is the effect of the petitioner's not being granted certificate in Form No. 3CM is for the authorities to consider, however, it

15 WP 13871.17 appears that, the petitioner had not disclosed that it was not granted certificate under Form No. 3CM for the relevant period. Form No. 3CM is required for the approval of R. & D. facility U/Sec. 35(2AB) of the I. T. Act.  The petitioner did not disclose that, after the year 2009, the petitioner could not get Form No. 3CM for approval of R. & D. facility U/Sec. 35(2­AB) of the I. T. Act,   though   it   had   certificate   of   registration   of   the   in­house research and development unit.   The petitioner ought to have fully and truly disclosed that after the year 2009, the petitioner could not get Form No. 3CM for the purpose of Sec. 35(2AB) of the I. T. Act.   The said information was not provided by the petitioner.

20.

In view of that, reopening the assessment cannot be said to be mere change of opinion.  However, the effect of not possessing Form No. 3CM on the deduction for the expenditure for in­house research and development would be a subject matter, which will be required to be dealt by the Assessing Officer at the time of assessment pursuant to the notice of reassessment.   We would not preempt any decision, as the same would be within the realm of the assessing officer.  The assessing officer would be the best judge   to   consider   the   said   aspect   upon   reopening   of   the assessment and the petitioner would have every opportunity to put forth its stand.

21.

The Deputy Commissioner of Income Tax while rejecting

16 WP 13871.17 the objection of the petitioner to the notice U/Sec. 148 of the I. T. Act  has observed as under :

"

4.

The   contents   of   the   objection   raised   are perused   minutely   and   considered   along   with   the citations mentioned therein.  But, the same is not acceptable for the reason that with effect from 01.04.1989   i.e.   financial   year   1989­90,   only condition before issue of notice u/s. 148 is that the Assessing Officer should have the reason to believe   that   the   income   chargeable   to   tax   has escaped assessment, irrespective of any failure on the part of the assessee.  At the outset, it does not   require   to   be   established   factum   of escapement.  At the stage of issue of notice the only question that arises is whether on the basis of the material, prima facie, there is escapement. Whether the material would conclusively prove the escapement or not is not the concern at the stage of   issue   of   notice   as   has   been   held   int   he following cases :­ . Raymond Woolen Mills Ltd. (1999) 236 ITR 34 (SC). . Central   Provinces   Mananese   Ore   Co.   Ltd. (1991) 91 ITR 66 (SC) . Sri   Krishna   Pvt.   Ltd.   (1996)   221   ITR   538 (SC)

5.

In   the   present   case,   the   A.O.   has elaborately recorded the reasons before issue of notice u/s. 148 which has been duly supplied.  The A. O. has clearly narrated the facts and material on which the 'reason to believe' for escapement of assessment   is   drawn.     The   belief   is   based   on relevant material and reasons were formed in good faith.

6.

In view of the above facts, your objection is   hereby  rejected   and   disposed   off.    You  are, requested,   to   attend   the   assessment   proceedings without any further loss of time."

22.

The reasons for reopening of assessment U/Sec. 148 of the I. T. Act recorded by the Assistant Commissioner of Income Tax

17 WP 13871.17 are as under : " During   the   assessment   proceedings   for   AY 2014­15 in the case of the assessee, ARs of the assessee   appeared   with   Form   No.   3CM   numbered T.U.IV­15(236)/35(2AB)/3CM217/2007. However, after perusal of the same it is observed that the facility is approved w.e.f. 1st Apr 2005 to 31st March 2009 for the purpose of section 35(2AB). The prescribed authority for the purpose of Section   35(2AB)   is   Secretary,   Department   of Scientific and Industrial Research, Government of India.  The assessee has not produced any document of   approval   of   the   facility   by   such   prescribed authority for the period of 1st Apr 2009 to 31st March  2010. The   document  that   is  produced   was valid only till 31st March 2009 and the same has not   been   renewed   by   the   prescribed   authority beyond 31st March 2009 meaning thereby that the prescribed Authority does not approve the assessee for the purpose of claiming deduction u/s 35(2AB). However,   the   assessee   has   wrongly   claimed deduction u/s 35(2AB). A   letter   was   issued   to   Dr.   Girish   Sahnia, Secretary, Department of Scientific & Industrial Research,   New   Delhi­110001   details   regarding approval of facility in respect of provisions of section 35(2AB) of the Income Tax Act in the case of Ajeet Seeds Pvt. Ltd. Reply received from Ministry of Science and Technology Department of Scientific and Industrial Research   Technology   Bhavan,   New   Delhi   on 24/01/2017   to   the   above   mentioned   letter   is   as under :­ Please refer to your letter No. ABD/ACIT/Cir­ 1/Ajeet

Seeds/2016­17/317

dated

28.12.

2016 on the subject cited above.  I am directed to convey as follows : . "The in­house R&D unit of M/s Ajeet Seeds Ltd. Aurangabad was accorded approval u/s 35(2AB) of IT Act 1961 from 01.04.2005 to 31.03.2009   and   Form   3CM   No.   TU/IV

15(236)35(2AB)/3CM/217/2007 dated 02.04.2007 was issued to company.

18 WP 13871.17 . R&D expenditure of the company for approved period was not reported to DGIT(E) because R&D expenditure was not reflected properly in   audited   portion   of   respective   years annual reports, which is mandatory as per departments' guidelines. . Company's request for extension of approval u/s 35(2AB) could not be considered because the company was not adhering the condition of properly reporting of R & D. expenditure in audited portion of Annual Report. . Company's   requested   for   reporting   of   R&D expenditure for FY 2009­10 & 2010­11 could not be considered because during this period R&D center of the company was not approved u/s 35(2AB) of IT Act, 1961." It is clear from the reply in above letter that the claim of deduction u/s 35(2AB) made by the assessee company for year under consideration is invalid. In view of the above facts, I have reason to believe that the income to the extent of claim of deduction   u/s   35(2AB)   made   by   the   assessee   has escaped assessment in terms of the provisions of Section   147   of   the   Act   which   amounts   to   Rs. 6,53,46,723/­."

23.

The recording of reasons while issuing the notice U/Sc. 148 of the I. T. Act and while rejecting objection of the petitioner is with regard to the effect of the petitioner's not possessing Form No. 3CM and the fact that the petitioner had not disclosed this fact at the time of scrutiny assessment U/Sec. 143(3) of the I. T. Act.

24.

The   petitioner   had   failed   in   its   duty   to   report   to   the assessing officer the Form No. 3CM being available only upto 2009 and thereafter not possessing the said Form No. 3CM and same is again issued only from the year 2016. 19 WP 13871.17

25.

Considering   the   above,   it   cannot   be   said   that   the reopening   of   assessment   is   only   based   on   change   of   opinion. However, it is observed that, the petitioner failed to fully and truly disclose the fact that it did not possess Form No. 3CM U/Sec. 35(2AB) of the I. T. Act.   If the petitioner would have disclosed said  fact at the time of scrutiny assessment U/Sec. 143(3) of the I. T. Act and still the assessing officer would have allowed   the   deduction,   then   the   petitioner   would   have   been justified   in   challenging   the   reopening   of   the   assessment. However, the same is not the fact as observed supra.

26.

For the aforesaid reasons, we decline to exercise our writ jurisdiction.  However, we make it clear that, we have not dealt with the merits of the contentions qua the requirement of Form No. 3CM to claim deduction U/Sec. 35(2AB) of the I. T. Act.  The same would be decided by the assessing officer on its own merits, naturally after considering contentions of the petitioner.

27.

The writ petitions as such are dismissed.  No costs. [A. M. DHAVALE, J.]               [S. V. GANGAPURWALA, J.] bsb/April 18

More judgments on Section 35(2AB)

All 842 judgments and leading authorities on Section 35(2AB) →

Recent GST High Court judgments

Search GST case law →