ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 3 4 MUMBAI, MUMBAI vs. GLENMARK PHARMACEUTICALS LIMITED, MUMBAI

Being aggrieved, the Assessee preferred appeal before the CIT(A) challenging the validity of the reassessment proceedings and the disallowance of deduction of INR 2,09,15,000/- claimed under Section 80G of the Act on merits. The CIT(A), vide order dated 24/1/2024, upheld the reopening of the assessment proceedings. However, the CIT(A) granted relief to the Assessee by deleting the disallowance made under Section 80G of the Act.

Aggrieved by the relief granted by the CIT(A), the Revenue has preferred the present appeal before the Tribunal. While the Assessee has filed cross objections challenging the order of CIT(A) upholding the validity of the reassessment proceedings.

We have heard both the sides and perused the material on record.

Subsequently, notice dated 27/03/2021 under Section 148 of the Act was issued to the Assessee initiating reassessment proceedings under Section 147 of the Act after recording following reasons for reopening assessment. “1. The assessee has filed the return of income on 28.11.2015 declared income of Rs. 579.06.14 40 computed under normal provision of The Act and book profit of Rs 1261,54,80,329/- u/s 115JB of this Act. This case was selected for scrutiny and the assessment for the AY 2015-16 was finalized u/s 143(3) r.w.s. 144C(3) on 15.01.2019 with assessed income at Rs. 715,03,76,410/- under normal provision of the Act and that at Rs. 1266,35,45,089/- u/s 115JB of the Act. 2. Subsequently it was observed from the records esp, computation of income that the Assessee had added back in the computation of income the amount of Rs. 5,89,82,022 pertaining to CSR Expenses. However, an amount of Rs.2,14,15,000 was claimed as deduction under section 80G of the Act. Thus, the total CSR expenditure of Rs. 5,89,82,022, which was originally disallowed as CSR expenses was again claimed at Rs. 2,14,15,000 through the route of 80G deductions, as mentioned in the computation itself. Since both CSR expense and 80G donations are two different mode of ensuring fund for public welfare, hence treating the same expense under two different heads would defeat the very purpose of it. As mentioned in budget memorandum explaining provisions of the Finance Bill (No.2), 2014, the legislative intention was to ensure that companies with certain strong financials make the expenditure towards this purpose and by allowing deduction, the Government would be subsidizing one third of it by way of revenue foregone thereon and hence the same was required to be disallowed in the assessment. This resulted into underassessment to the same extent. 2.1 Therefore I am of the view that income to the extent of amount of Rs.2,14,15,000/-, as explained above, has escaped assessment.”

The contention advanced on behalf of the Assessee is that the reassessment proceedings have been initiated after expiry of four years from the end of relevant assessment year. Since regular assessment under Section 143(3) of the Act was framed on the Assessee, reassessment proceedings can be initiated against the Assessment Year: 2015-16 Assessee only on the basis of fresh tangible material and on account of failure of the Assessee to disclose fully and truly all material facts necessary for assessment. It was vehemently contended by the Learned Authorised Representative for the Assessee that in the present case, the Assessing Officer had no tangible material available to initiate reassessment proceedings. Further, in the return of income as well as during the assessment proceedings, the Assessee had made full and true disclosure of all material facts. The reassessment proceedings had been initiated merely on account of change of opinion. Therefore, the same should be quashed as being in contravention of the provisions contained in Section 147(1) of the Act.

Per contra, the learned Departmental Representative had contended that the reassessment proceedings could be initiated even on the basis of information obtained from the record of the original assessment on the investigation of the material already on record. The Learned Departmental Representative supported the oral submissions by way of the written submissions, dated 19/06/2024, the relevant extract of which reads as under:

Reliance is also placed on the decision of Hon'ble Delhi High Court in the case of Consolidated Photo and Finvest Ltd. Vs ACIT Assessment Year: 2015-16 (151 Taxmann 41) wherein it is held that action u/s 147 is permissible even if the Assessing Officer gathered his reasons to believe from very same record as has been subject matter of completed assessment proceedings and the principle of mere change of opinion cannot be a basis for re-opening completed assessment would have no application where order of assessee does not address itself to the aspect which is basis for re-opening of assessment is affirmed.

Therefore, considering the facts and circumstances of the case, Explanation 2 to section 148 (relevant for A.Y. 2015-16) clearly applies in the case of the assessee. For the sake of ready reference the same is reproduced as under……..

Hence, there is no question of change of opinion as held in the judgments (i) Kalyanji Mavji and Co Vs. CIT 102 ITR 287 (SC); (ii) Esskat Engineering Pvt. Ltd Vs. CIT 247 ITR 818 and (iii) ITO Vs. Purushottom Das Bangur and Anr. 224 ITR 362 (SC). The details of such case laws are submitted herewith for your kind perusal and your favourable consideration.” (Emphasis Supplied) 11. We have given thoughtful consideration to the rival submissions. On perusal of reasons recorded for reopening assessment, we find that the sole basis on which the reassessment proceedings have been initiated is that the Assessing Officer had, on examining the assessment records (specially computation of income), got to know that the Assessee had claim deduction under Section 80G of the Act in respect of CSR expenses. According to the Assessing Officer, deduction under Section 80G could not have been allowed in respect of CSR expenses. Excessive deduction was allowed to the Assessee and therefore, income chargeable to tax had escaped assessment. We note that in the reasons recorded for reopening assessment, there is no Assessment Year: 2015-16 averment/ allegation that the Assessee had failed to disclose fully and truly all material facts during the assessment proceedings. During the course of hearing, the Learned Authorized Representative for the Assessee had placed reliance upon Judgment of the Hon‟ble High Court in the case of Castro India Limited Vs. Deputy Commissioner of Income Tax, Circle (1)(2), Mumbai & Ors: Writ Petition No. 3079 of 2022: Dated 05/03/2024. In that case, the Assessee had challenged initiation of reassessment proceedings on the ground that the Assessee had made similar disclosures regarding CSR expenses and deduction claimed under Section 80G of the Act is made in annual accounts, tax audit report, computation of income. The Hon‟ble Bombay High Court quashed the reassessment proceedings holding as under:

It is a well settled principle of law that an AO has no power to review and this power is not to be confused with the power to reassess. The Apex Court in Commissioner of Income Tax, Delhi v. Kelvinator of India Ltd., has reiterated that mere change of opinion cannot be a ground for reopening concluded assessment. The observations made in paragraphs 6 and 7 read as below: “6. We must also keep in mind the conceptual difference between power to review and power to reassess. The assessing officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of Assessment Year: 2015-16 certain precondition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place.

One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the assessing officer. Hence, after 1-4-1989, the assessing officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief………….”

We have also noted the contents of the impugned order rejecting the objections of Petitioner. An identical and common place assertion is seen in various such orders rejecting the objections of Assessees. The Department routinely relies upon an observation of the Supreme Court in the case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers Pvt. Ltd., 3 which reads as follows: “At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove 01the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction.”

In these circumstances, we have no hesitation in holding that the notice dated 27th March 2021 under Section 148 of the Act in respect of income having escaped assessment and the order dated 21st December 2021 passed by the AO rejecting the objections of Petitioner impugned herein, are untenable and cannot be sustained in law. The Petition is allowed.” (Emphasis Supplied) 12. We are of the view that in the present case also the Assessee has discharge the duty to place before the Assessing Officer fully and truly all primary facts necessary for assessment. The Assessing Officer has failed to make any allegation or averment in the reasons recorded for reopening assessment that there was failure on the part of the Assessee to disclose fully and truly facts necessary for framing assessment. We have noted hereinabove that specific query was raised by the Assessing Officer during the assessment proceedings and that the Assessee had, during the original scrutiny assessment proceedings, disclosed relevant facts and furnished the relevant material. The fact that the assessment order passed during the regular assessment proceedings does not contain any discussion cannot lead to adverse inference against the Assessee since the Assessee has made relevant disclosure and furnished supporting documents in support of claim of deduction under Section 80G of the Act. There was no new tangible material with the Assessing Officer. In facts of the present case, it cannot be said that the Assessing Officer had failed to consider the material on record during the regular scrutiny assessment proceedings. Therefore, the judicial precedents relied upon by the Learned Departmental Representative are not applicable to the facts of the present case. Thus, we accept the contention of the Assessee that the reassessment proceedings initiated in the present case on account of mere change of opinion and in violation of provisions contain in Proviso to Section 147 of the Act. Accordingly, the reassessment notice, dated 27/03/2021, issued under Section Assessment Year: 2015-16 148 of the Act and the Assessment Order, dated 30/03/2022, passed by the Assessing Officer under Section 147 read with Section 144B of the Act are quashed. The submissions made by the parties relating to merits of deduction claimed by the Assessee under Section 80G of the Act do not require adjudication having been rendered academic.