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2018 (5) TMI 441 - HC - Income TaxReopening of assessment - disallowance of expenditure incurred on in house research and development resorting to Sec. 35(2AB) - period of limitation for issuing the notice - relevant material on which reasonable person could have formed a requisite belief - Held that - 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. 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. 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. Thus 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 merit - Decided against assessee.
Issues Involved:
1. Legitimacy of reopening assessments under Section 147/148 of the Income Tax Act. 2. Validity of deductions claimed under Section 35(2AB) of the Income Tax Act. 3. Jurisdictional and procedural aspects of reassessment notices. 4. Compliance with statutory requirements for in-house research and development facilities. Detailed Analysis: 1. Legitimacy of Reopening Assessments: The court examined whether the reopening of assessments for the years 2010-2011 to 2013-2014 was justified under Sections 147 and 148 of the Income Tax Act. The petitioner argued that the reassessment was based on a mere change of opinion by the assessing officer, which is not permissible. The petitioner contended that all material facts were disclosed during the original assessment under Section 143(3), and the reassessment was initiated without any new material. The court highlighted that reopening an assessment cannot be based on a mere change of opinion, especially when a scrutiny assessment under Section 143(3) has been completed. However, if all material facts are not fully and truly disclosed, reopening is permissible. The court found that the petitioner did not disclose that it did not possess Form No. 3CM after 2009, which was necessary for claiming deductions under Section 35(2AB). Therefore, the reopening was not merely a change of opinion but was based on the non-disclosure of material facts. 2. Validity of Deductions Claimed: The petitioner claimed deductions for in-house research and development expenses under Section 35(2AB). The court noted that the petitioner’s in-house R&D facility was approved by the Ministry of Science and Technology until 31.03.2009, and the approval was not renewed thereafter. The assessing officer found that the petitioner did not possess Form No. 3CM for the relevant period, which is required for claiming such deductions. The court deferred the determination of the validity of the deductions to the assessing officer, who would consider the effect of not possessing Form No. 3CM during reassessment. 3. Jurisdictional and Procedural Aspects: The petitioner argued that the reassessment notices were issued beyond the prescribed period of limitation and without jurisdiction. The court examined whether the issuance of notice under Section 148 was within the jurisdiction and whether principles of natural justice were adhered to while deciding the objections. The court found that the notice was issued based on the non-disclosure of material facts regarding Form No. 3CM, which justified the reopening of the assessment. The court also noted that the petitioner failed to disclose the non-possession of Form No. 3CM during the original assessment. 4. Compliance with Statutory Requirements: The court emphasized the importance of compliance with statutory requirements for claiming deductions under Section 35(2AB). The petitioner argued that the approval from the Department of Scientific and Industrial Research (DSIR) was continuously renewed, and Form 3CM was a matter of form, not substance. The court deferred this argument to the assessing officer to determine during reassessment. The court noted that the petitioner did not fully and truly disclose the non-possession of Form No. 3CM, which was essential for claiming deductions. Conclusion: The court dismissed the writ petitions, declining to exercise its writ jurisdiction. The court made it clear that it did not deal with the merits of the contentions regarding the requirement of Form No. 3CM for claiming deductions under Section 35(2AB). The assessing officer would decide the issue on its merits during reassessment, considering the petitioner’s contentions. The court emphasized that the petitioner failed to fully and truly disclose the non-possession of Form No. 3CM, justifying the reopening of the assessment.
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