ORAL ORDER (PER: HONOURABLE MR. JUSTICE AKIL KURESHI)
1. Heard learned counsel for the parties for final disposal of the petition.
2. Petitioner has challenged a notice dated 21.3.2012 annexed at Annexure-J to the petition issued by respondent No. 1 under Section 148 of the Income Tax Act, 1961 (“the Act” for short).
3. Briefly stated the facts are as follows:-
3.1 The petitioner is a company registered under the Companies Act and is regularly assessed to tax. For the Assessment Year 2007-08, the petitioner filed a return of income. Such return was taken in scrutiny by the Assessing Officer. After detailed examination of various claims, he framed assessment under Section 143(3) of the Act on 23.12.2009 In the return the petitioner's principal claim of deduction was under Section 80IB(8A) of the Act for having carried out scientific research. Such claim was substantially allowed after scrutiny. To the limited extent the Assessing Officer was not convinced, the claim was disallowed.
4. It is this scrutiny assessment, which respondent No. 1 desires to reopen for which the impugned notice has been issued.
5. At the request of the petitioner the Assessing Officer supplied reasons recorded by him for issuing the impugned notice. Such reasons read as under:-
“The income of the assessee for A.Y 2007-08 was assessed at Rs. 38,89,053/- vide assessment order dated 23.12.2009 u/s 143(3) of the IT Act 1961. Initial assessment year from when deduction claimed under Section 80IB(8A) of the Act is A.Y.2007-08.
On examination of the assessment record, it has been found that the assessee is engaged in providing services in the field of analysis of clinical samples for bioequivalence, bioavailability and clinical trial studies for the pharmaceutical industry. The company carried out research work on behalf of its clients which were pharmaceuticals formulation manufactures, on the formulations provided by them. Date of commencement of operation/activity by the company is 4.12.2004 at Ahmedabad and 14.3.2007 at Baroda. The assessee carried out the aforesaid studies mainly for the following clients (sponsors):-
M/s Cadila Healthcare Ltd., Lupin Ltd., Apotex Research Pvt. Ltd. IPCA Laboratories Ltd. and Dr. Reddy's Laboratories LTD.
It is seen that they are doing research work on behalf of their clients who were pharmaceuticals formulation manufacturers and the research work is carried out on the formulations provided by them. During the P.Y relevant to A.Y.2007-08, the total turnover of the assessee is Rs. 27,48,54,000/- out of which Rs. 2734.15 lakh is from Bio Equivalence Study and the balance Rs. 14.39 lakh is from ‘Other income’.
Thus whatever research done by the assessee company is on behalf of leading pharmaceutical formulations manufactures. In fact, the manufacturers are contributing towards industrial development since they are developing the formulations investing entire funds and also making huge payments to the assessee company for bio equivalence study in connection with formulations under development. The risk of investing funds for development of formulation is taken by the manufacturers of formulation (Pharmaceutical Companies). The role of the assessee company is merely providing professional services (analysis of clinical samples) to the manufactures for which they are being paid. Therefore, the condition of eligibility of deduction under Section 80IB(8A) that the assessee's main object should be scientific and industrial research and development, has not been fulfilled by the assessee Company. The irregular deduction resulted in under-assessment of Rs. 11,64,52,937/-.
In view of above, I am satisfied that this is a fit case for ‘income escaping assessment under Sec.147 of the IT. Act.
Therefore, the undersigned has reason to believe that the income chargeable to tax for the year under consideration has escaped assessment as per the provisions of section 147 of the I.T Act.”
3. On examination of the assessment record, it is found that you are engaged in providing services in the field of analysis of clinical samples for bioequivalence, bioavailability and clinical trial studies for the pharmaceutical industry. You are carried out research work on behalf of its clients which were pharmaceuticals formulation manufactures, on the formulations provided by them. Date of commencement of operation/activity is 4.12.2004 at Ahmedabad and 14.3.2007 at Baroda. You are carried out the aforesaid studies mainly for the following clients (sponsors):-
1. M/s Cadila Healthcare Ltd.,
2. M/s Lupin Ltd.,
3. M/s Apotex Research Pvt. Ltd.,
4. M/s IPCA Laboratories Ltd. And
5. M/s Dr. Reddy's Laboratories Ltd.
It is seen that they are doing research work on behalf of their clients who were pharmaceuticals formulation manufacturers and the research work is carried out on the formulations provided by them. During the P.Y relevant to A.Y 2007-08, the total torunover is Rs. 27,48,54,000/- out of which Rs. 2734.15 lakh is from Bio Equivalence Study and the balance Rs. 14.39 lakh is from ‘Other Income’.
Thus, whatever research done by you is on behalf of leading pharmaceutical formulations manufactures. In fact, the manufacturers are contributing towards industrial development since they are developing the formulations investing entire funds and also making huge payments to you for bio equivalence study in connection with formulations under development. The risk of investing funds for development of formulation is taken by the manufacturers of formulation (Pharmaceutical Companies). Your role is merely providing professional services (analysis of clinical samples) to the manufactures for which they are being paid. Therefore, the condition for eligibility of deduction under Section 80IB(8A) that your main object should be scientific and industrial research and development, has not been fulfilled by you.
In view of the above, you are given one more opportunity to justify your claim and explain as to why the disallowance of Rs. 11,64,52,937/- under section 80IB(8A) of the Act should not be made as the condition laid down in Rule 18DA of the I.T Rules, 1962 not fulfill by you.
In view of the above, you are requested to furnish you submissions/comments and attend the office of the undersigned on 24/12/2012 at 3.00 p.m Failure to comply with the requirement of this notice may result in invoking the penal and other legal provisions of the IT. Act, 1961. Authorized Representative without proper authorization of the assessee will not be allowed to represent the case. Adjournment will not be given in normal circumstances.”
6. The petitioner thereupon raised the objections to the notice for reopening under a communication dated 4.1.2013 It was contended that the entire claim was examined at length in the original assessment. Reopening, therefore, was not permissible since the same would only be on the basis of change of opinion. The petitioner relied on the decision of the Apex Court in the case of Commissioner Of Income Tax, Delhi v. Kelvinator Of India Limited reported in [2010] 320 ITR 561 (SC) besides other authorities of this Court in the case of Gujarat Tea Processors & Packers Ltd. v. Deputy Commissioner of Income-Tax reported in [2012] (28) Taxmann.com (187) (GUJ) and in the case of Parixit Industries (P.) Ltd. v. Assistant Commissioner of Income-Tax (OSD), Circle-5 reported in [2012] 20 Taxmann.com 750 (Gujarat): [2012] 207 Taxman 140 (Gujarat).
7. Such objections were, however, dismissed by an order dated 5.2.2013 Hence, the petition.
8. Taking us through the documents on record, counsel for the petitioner vehemently contended that the entire claim of deduction under Section 80IB(8A) was examined by the Assessing Officer during the original assessment. Detailed queries were raised. Replies were given by the petitioner. After considering such reply, the claim was accepted barring a small portion where the Assessing Officer was not convinced. He, therefore, submitted that any attempt on the part of the Assessing Officer to reopen such assessment would be based merely on change of opinion.
9. On the other hand, learned counsel Ms. Bhatt appearing for the Department opposed the petition contending that in the original assessment, the question whether the petitioner's claim for deduction under Section 80IB(8A) of the Act was valid, in view of the fact that the petitioner was carrying on research for and on behalf of other companies, was never gone into. She submitted that if such scientific research is carried out by the petitioner without its own involvement and investment only for and on behalf of other companies, such income would not be eligible for deduction under section 80IB(8A) of the Act.
10. Though the reasons recorded by the Assessing Officer for issuing the impugned notice are quite elaborate, his central contention is that the assessee which carried on scientific research for and on behalf of other companies, cannot claim deduction under Section 80IB(8A) of the Act. In context of this reason recorded by the Assessing Officer, we need to examine the petitioner's challenge to the impugned notice.
11. During the original assessment the Assessing Officer under his notice dated 21.10.2009 raised several queries in connection with the petitioner's return of income. Following questions are relevant for our purpose:-
“1. Pl. furnish details of transaction with following entities.
a. Cadila Healthcare Ltd.
b. Lupin Ltd.
c. Apotex Research Pvt. Ltd.
d. Ipca Laboratories Ltd.
e. Dr. Reddy's Laboratories Ltd.
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4. Pl. furnish note on claim of deduction under Section 80IB of the IT. Act and produce necessary evidence in support of such claim. Also furnish a note on how all the conditions laid down under Rule 18DA have been adhered to.
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18. Pl. furnish details of simple storage income and state how the same is considered eligible for deduction under section 80IB(8A) of the IT Act.
19. Pl. furnish details of misc. income of Rs. 1.83 lacs and state how the same is considered eligible for deduction under Section 80IB(8A) of the IT Act.”
12. In response to such queries and further queries which were raised by the Assessing Officer during the assessment proceedings, the petitioner filed several replies on 2.11.2009 The petitioner conveyed to the Assessing Officer as under:-
“1. The details of transactions with the following parties are furnished herewith for your perusal:
a. Cadila Healthcare Ltd-Annexure-1A.
b. Lupin Ltd.- Annexure-1B.
c. Apotex Research Pvt. Ltd.-Annexure-1C.
d. Ipca Laboratories Ltd.-Annexure-1D.
e. Dr. Reddy's Laboratories Ltd.-Annexure-1E.
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4. The assessee company is engaged in the business of carrying out of scientific research and is approved by Secretary, Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of India vide its letter of approval No. TU/IV-R&D. Com/BAR/98/06 dtd.1st February, 2007. Copy of the said letter is attached herewith in Annexure-3
It may be noted that the assessee company fulfills all the conditions laid down under Rule 18DA as are reproduced hereunder that:
(a) is registered in India;
(b) it has its main object the scientific and industrial research and development;
(c) has adequate infrastructure such as laboratory facilities, qualified manpower, scale-up facilities and prototype development facilities for undertaking scientific research and development of its own;
(d) has a well formulated research and development programme comprising of time bound research and development projects with proper mechanism for selection and review of the projects or programme;
(e) is engaged exclusively in scientific research and development activities leading to technology development, improvement of technology and transfer of technology developed by themselves;
(f) submits the annual return alongwith statement of accounts and annual report within eight months after the close of each accounting year to the prescribed authority.
It may also be noted that the DSIR has carried out its inspection and verification process and has renewed the approval for a further period of three years till A.Y.2012-2013 vide its letter of approval NO. TU/IV-R&D. Com/BAR/98/06 dtd.19th February, 2009. The main object of the Company is as hereunder:
“To engage in the business activities of carrying out scientific and industrial research and development by undertaking and providing clinical research, pharmacokinetic evaluation, bio analytical services and bio equivalence studies in the pharmaceutical products and to set up facilities for undertaking the activities of clinical and scientific research and development for the Company in India and elsewhere.
To carry on the business of development of methods for testing analysis such as Drugs and Pharmaceuticals, Bio-availability studies, Clinical research leading to Scientific and Industrial research, Technology development and transfer of technology developed.
To develop adequate infrastructure such as laboratory facilities, for carrying out diagnostic test, scale-up/expansion of facilities for undertaking scientific and collaborative research.”
The in-patient clinical operations are performed in its first clinical facility that accommodates up to 120 volunteers with state-of-the-art techniques provide methods, which allow for processing of large number of samples utilizing LC/MS/MS, HPLC and other analytical techniques. Analytical method development for the quantitation of drugs and metabolities in biological fluids is the backbone of BA Research India. The research chemists develop and validate analytical methods for pharmaceutical compounds and their metabolities using LC/MS/MS and HPLC with an emphasis on quality, accuracy and speed. BA Research India also develops and validates methods in various biological matrices.
It has started its second Centre at Baroda in March, 2007 in rental premises. This state of art centre at Baroda includes a 200-bedded facility spread across a single floor of approx 21000 square feet. There are four clinical wards. The clinic I and IV will have 30 bunk beds to accommodate 60 subjects while clinic II and III have 20 bunk beds to accommodate 40 subjects. There is an ICU next to the sleeping area of the subjects. The ICU is well equipped to handle any medical emergency. It has an ICU bed(s) with defibrillator, suction machine, emergency crash cart with oxygen cylinder, ambubag with laryngoscope & endotracheal tube, ECG machine, emergency tray with medicines, IV fluids, cardiac monitor, modules for medicines, BP instruments, stethoscope, CNS tray, medicines, etc. Emergency contact nos. are displayed in the ICU. The wards are designed in such a way that they can operate as independent clinics and if need arises for e.g total number of subjects will be more than 40 then two clinics can be made to one.
It has an integrated uninterruptible power supply system and power generation in to the system ensuring continuation of services through uncontrollable situations at our both the branches at Baroda as well as new branch at Ahmedabad mentioned hereinabove. All instruments and computers are having backup capability to handle contingency concerns.
All clinical procedures, data management and reporting are conducted in accordance with current GCP guidelines. Every project initiated at our company is subject to inspections and audits by the internal Quality Assurance Unit.
The Assessee regularly files the annual return alongwith the statement of accounts and annual report within eight months after the close of each accounting year to the prescribed authority.”
13. Under yet another communication dated 11.11.2009 the petitioner, in the context of its claim of deduction under section 80IB(8A) of the Act, stated as under:-
“12. The assessee is engaged in providing services in the field of analysis of clinical samples for bioequivalence, bioavailability and clinical trial studies for the pharmaceutical industry. The assessee carries research work on behal of its clients which are pharmaceuticals formulation manufacturers so as to carry out detailed for bioequivalence, bioavailability and clinical trial and analytical studies for them on the formulations provided by them.
Such studies are governed by “Guidelines for Bioavailability and Bioequivalence Studies” issued by the Central Drug Standard Control Organisation, Ditectorate General of Health Services under Ministry of Health and Family Welfare.
Moreover, the manufacturer of a new drug is required to get approval from the licensing authority under provisions of The Drugs and Cosmetics Act, 1945.
Sec.122A(2) of The Drugs and Cosmetics Act, 1945 provides as hereunder:
“S.122-B. Application for approval of manufacture new drug other than the drugs classifiable under Schedules C and C(1).-
(1)……………………
(2) The manufacturer of a new drug under sub-rule (1) when applying for approval to the Licensing Authority mentioned in the same sub-rule, shall submit data as given in Appendix 1 to Schedule Y including the results of clinical trials carried out in the country in accordance with the guidelines specified in Schedule Y and submit the report of such clinical trials in the same format given in Appendix II to the said Schedule.
(3) The Licensing Authority after being satisfied with the clinical trials, shall grant permission in Form 45 or Form 45-A or Form 46-A, as the case may be, subject to the conditions stated therein. Provided that the Licensing Authority shall, where the data provided on the clinical trials is inadequate, intimate the applicant in writing, within six months from the date of such intimation or such extended period, not exceeding a further period of six months, as the Licensing Authority may, for reasons to be recorded in writing, permit, intimating the conditions which shall be satisfied before permission could be considered.”
Thus the pharmaceutical manufacturer is required to have data and results of clinical trials to the satisfaction of the approving authority as is mentioned above.
At times, the assessee is requested by the customers to hold/store the clinical samples collected in respect of volunteers/subjects for carrying out of research work till approval is granted by the approving authorities and required permission for manufacture of the respective drug is granted by the regulatory authority. If the clinical data submitted based on the first analysis are found inadequate, further study may also be required to be carried out and the clinical data are required to be re-submitted.
Since, these are biological samples, they are required to be stored in a peculiar storage conditions.
In such cases, the assessee charges the respective customers for holding and storage of such clinical samples which is nothing but income derived from research activities. Hence, such income is eligible for deduction under Section 80IB of the Income Tax, 1961. Details of Sample storage income already furnished as Annexure-12 vide our submission dated 2nd November, 2009.”
14. Under communication dated 27.11.2009, the petitioner wrote to the Assessing Officer and further clarified its claim as under:-
“1. Regarding sample storage income of Rs. 13,45,928, the assessee company is requested by the customers to hold/sotre the clinical samples collected in respect of volunteers/subjects for carrying out research work till approval is granted by the approving authorities and required permission for manufacture of the respective drug is granted by the regulatory authority. For the same, customers given “sample storage notification form” authorizing the assessee company to retain the samples. Illustrative copy of the same is attached herewith as Annexure 38.
In such cases, the assessee charges the respective customers for holding and storage of such clinical samples which is nothing but income from the business of research and development activities. As per sub-section 8A of Section 80-IB of the Income Tax Act, 1961, deduction is hundred per cent of the profits and gains of business of the company carrying on scientific research and development. Section 80IB(8A) of the Income Tax Act, 1961 is reproduced below for your honour's ready reference:
“(8A) The amount of deduction in the case of any company carrying on scientific research and development shall be hundred per cent of the profits and gains of such business for a period of ten consecutive assessment years, beginning from the initial assessment year, if such company-
(i) is registered in India;
(ii) has its main object the scientific and industrial research and development.
(iii) is for the time being approved by the prescribed authority at any time after the 31 day of March, 2000 but before the 1 day of April, 2007;
(iv) fulfills such other conditions as may be prescribed.”
From the above mentioned facts and law, it become amply clear that sample storage income is part of the income earned by the assessee company carrying on the scientific research and development business and profit and gains of such business is eligible for deduction under Section 80IB(8A) of the Income Tax Act, 1961.
2. Regarding approval Baroda Unit, Assessee Company has made an application to Department of Scientific & Industrial Research, New Delhi on 23rd February, 2007 for approval under Section 80-IB(8A) of the Income Tax Act, 1961 along with required information and enclosures. Copy of such application and approval is attached herewith as Annexure 39A and Annexure 39B for your honour's ready reference.
Further, as per Section 80-IB(8A) of the Income Tax Act, 1961, deduction under the said sub-section is to the company carrying on scientific research and development subject to fulfillment of conditions mentioned therein. In other words, it is company specific. Extract of the aforesaid section is attached herein-in-below for your honour's ready reference.
“(8A) The amount of deduction in the case of any company carrying on scientific research and development shall be hundred per cent of the profits and gains of such business for a period of ten consecutive assessment years, beginning from the initial assessment year, if such company-
(i) is registered in India;
(ii) has its main object the scientific and industrial research and development;
(iii) is for the time being approved by the prescribed authority at any time after the 31 day of March, 2000 but before the 1 day of April, 2007;
(iv) fulfils such other conditions as may be prescribed.”
On the basis of application dated 23 February, 2007 by the assessee company, prescribed authority has given approval vide letter dated TU/IV-R&D. Com/BAR/98/06 dated 13 March, 2007 as extension of Ahmedabad unit. Copy of such letter of approval already submitted to your honour vide Annexure 3 of letter dated 2 November, 2009.”
15. Under yet another communication dated 22.12.2009 the petitioner wrote to the Assessing Officer and conveyed as under:-
“1.6 Considering the facts in each of the cases observed and found by your goodself to invoke the provisions of sec.80IB(13) r.w.s.80IA(10) of the Income Tax Act, 1961, we humbly represent that such disallowance is not warranted in the case of the assessee as the above facts make it amply clear that the course of business between Assessee Company and Cadila Healthcare Ltd. is at market rate and is not so arranged that the business transacted between them produced the Assessee Company more than the ordinary profit which might be expected to arise for the purposes of claiming deduction under Section 80IB(8A).”
16. It was after such detailed examination of the petitioner's claim for deduction that the Assessing Officer framed scrutiny assessment in which he disallowed part of the petitioner's claim of such deduction. The Assessing Officer was of the opinion that sample storage income of Rs. 13.45 lakhs generated by the petitioner would not be eligible for deduction under section 80IB (8A) of the Act. He gave detailed reasons for coming to such a conclusion. It is not necessary to reproduce the entire portion of his order in this respect. We may, however, briefly quote his conclusions in this regard:
“The above submissions of the assessee have been perused and the claim of the assessee regarding eligibility of sample storage income for the purpose of deduction under Section 80IB(8A) of the IT. Act is not found acceptable. It is seen that sample storage income is of the nature of miscellaneous income arising to the assessee. The claim of the assessee that the storage of biological sample is necessary till the approval from the licensing authority is obtained. This submission of the assessee is however not material for the issue at hand.
In the case of the assessee, a client enters into an agreement with the assessee for undertaking clinical trial in respect of a certain molecule. Once the clinical trials are over, it is the obligation of such client to receive the samples prepared by the assessee and store such samples till the period the licensing authority grant approval. It is important to note here that it is the client which was to seek approval of licensing authority and is therefore under obligation to maintain the sample.
In the case of the assessee, not all clients request the assessee to store their samples. Only such clients who do not have the necessary facilities for storage of samples, by way of furnishing a sample storage notification form, authorized the assessee to retain their samples. It is therefore clear that, in storing the sample, the assessee is merely allowing the client to utilize its facilities for storage.
It is also seen that despite specifically being asked for, no such research agreement was furnished which could evidence that the sample storage was part of the overall research process. In view of the above, sample storage income of Rs. 13,45,928/- is liable to be excluded in computation of deduction under Section 80IB(8A) of the IT. Act.”
17. From the above it can be seen that the petitioner's claim for deduction under Section 80IB(8A) of the Act came for detailed scrutiny by the Assessing Officer in the original scrutiny assessment. Series of queries were raised by the Assessing Officer. All such questions were answered at length by the assessee. He filed several replies before the Assessing Officer. Only after considering such replies and documents accompanying such replies, Assessing Officer framed the assessment in such assessment order. He disallowed only a small portion of the petitioner's claim for deduction. To the extent the petitioner had claimed deduction for sample storage income, the same was disallowed, rest of the claim was accepted. By no stretch of imagination, can it be stated that the claim under Section 80IB(8A) of the Act was not examined by the Assessing Officer in the original assessment. Entire claim was thoroughly and painstakingly scrutinized. His queries were not restricted to sample storage income alone. For example, in his communication dated 21.10.2009 he called upon the petitioner to furnish details of transactions with various companies, such as M/s Cadila Healthcare Ltd., Lupin Ltd. Etc. These are the companies with whom the petitioner had entered into detailed agreements for carrying out scientific research. In paragraph 4 of such notice, he called upon the petitioner to furnish note on claim of deduction under Section 80IB(8A) of the Act to produce necessary evidence in support of such claim. He also directed the petitioner to furnish note on how all the conditions laid down under Rule 18DA were fulfilled.
18. In addition to such queries with respect to the entire claim, he also raised pointed queries with respect to sample storage income and miscellaneous income for which the petitioner had claimed deduction.
19. In response to such queries, the petitioners had given detailed replies and produced voluminous material to support the claim of deduction. It cannot be stated by any stretch of imagination that such claim of deduction under Section 80IB(8A) of the Act was not examined by the Assessing Officer in the original assessment. It may be that he did not raise specific query to allowability of the claim on the premise that the petitioner was doing scientific research for and on behalf of the companies. However, merely for the failure of the Assessing Officer to raise such a question, in our opinion, would not authorize him to reopen the assessment even within the period of 4 years from the end of the relevant assessment year. Any such attempt on his part would be based on mere change of opinion. To reiterate when a claim was processed at length and after calling for detailed explanation from the assessee, the same was accepted, merely because a certain element or angle was not in the mind of the Assessing Officer while accepting such a claim, cannot be a ground for issuing notice for reassessment.
20. This Court in case of Gujarat Power Corporation v. Assistant Commissioner of Income-Tax reported in [2013] 350 ITR 266 (Guj) observed as under:-
41. The powers under section 147 of the Act are special powers and peculiar in nature where a quasi-judicial order previously passed after full hearing and which has otherwise become final is subject to reopening on certain grounds. Ordinarily, a judicial or quasi-judicial order is subject to appeal, revision or even review if statute so permits but not liable to be re-opened by the same authority. Such powers are vested by the Legislature presumably in view of the highly complex nature of assessment proceedings involving large number of assessees concerning multiple questions of claims, deductions and exemptions, which assessments have to be completed in a time frame. To protect the interest of the revenue, therefore, such special provisions are made under section 147 of the Act. However, it must be appreciated that an assessment previously framed after scrutiny when reopened, results into considerable hardship to the assessee. The assessment gets reopened not only qua those grounds which are recorded in the reasons, but also with respect to entire original assessment, of course at the hands of the revenue. This obviously would lead to considerable hardship and uncertainty. It is precisely for this reason that even while recognizing such powers, in special requirements of the statute, certain safeguards are provided by the statute which are zealously guarded by the courts. Interpreting such statutory provisions courts upon courts have held that an assessment previously framed cannot be reopened on a mere change of opinion. It is stated that power to reopening cannot be equated with review.
42. Bearing in mind these conflicting interests, if we revert back to central issue in debate, it can hardly be disputed that once the Assessing Officer notices a certain claim made by the assessee in the return filed, has some doubt about eligibility of such a claim and therefore, raises queries, extracts response from the assessee, thereafter in what manner such claim should be treated in the final order of assessment, is an issue on which the assessee would have no control whatsoever. Whether the Assessing Officer allows such a claim, rejects such a claim or partially allows and partially rejects the claim, are all options available with the Assessing Officer, over which the assessee beyond trying to persuade the Assessing Officer, would have no control whatsoever. Therefore, while framing the assessment, allowing the claim fully or partially, in what manner the assessment order should be framed, is totally beyond the control of the assessee. If the Assessing Officer, therefore, after scrutinizing the claim minutely during the assessment proceedings, does not reject such a claim, but chooses not to give any reasons for such a course of action that he adopts, it can hardly be stated that he did not form an opinion on such a claim. It is not unknown that assessments of larger corporations in the modern day, involve large number of complex claims, voluminous material, numerous exemptions and deductions. If the Assessing Officer is burdened with the responsibility of giving reasons for several claims so made and accepted by him, it would even otherwise cast an unreasonable expectation which within the short frame of time available under law would be too much to expect him to carry. Irrespective of this, in a given case, if the Assessing Officer on his own for reasons best known to him, chooses not to assign reasons for not rejecting the claim of an assessee after thorough scrutiny, it can hardly be stated by the revenue that the Assessing Officer can not be seen to have formed any opinion on such a claim. Such a contention, in our opinion, would be devoid of merits. If a claim made by the assessee in the return is not rejected, it stands allowed. If such a claim is scrutinized by the Assessing Officer during assessment, it means he was convinced about the validity of the claim. His formation of opinion is thus complete. Merely because he chooses not to assign his reasons in the assessment order would not alter this position. It may be a non-reasoned order but not of acceptance of a claim without formation of opinion. Any other view would give arbitrary powers to the Assessing Officer.
43. We are, (therefore, of the opinion that in a situation where the Assessing Officer during scrutiny assessment, notices a claim of exemption, deduction or such like made by the assessee, having some prima facie doubt raises queries, asking the assessee to satisfy him with respect to such a claim and thereafter, does not make any addition in the final order of assessment, he can be stated to have formed an opinion whether or not in the final order he gives his reasons for not making the addition.
21. In case of Gujarat Tea Processors & Packers Ltd. v. Deputy Commissioner of Income-Tax (supra), it was observed as under:
“18. We are conscious of the fact that this is not a case of reopening beyond four years where the only requirement would be that either the return of income is not filed, or that there is no true and full disclosure by the assessee in the original assessment, resulting into escapement of the income in the year under consideration. It is demonstrated by the petitioner assessee that at the time of original assessment, in reply to the specific query raised, specific reply had been furnished with regard to the amount of discount paid by way of trade incentive slab scheme and the query also was whether on the amount paid, tax was deducted at source or not. Having furnished all the requisite details, if the Assessing Officer chose not to deem it fit to reflect its consideration in the assessment order originally passed after scrutiny, on the very same grounds and materials when it seeks to reopen the assessment on the ground of escapement of income it is required of the respondent to point out as to how this is not a mere change of opinion and what are the cogent and relevant materials available with it to form an opinion that the said expenditure was required to be disallowed under Section 40(a)(ia) of the Act, for not having deducted TDS. With the satisfactory details furnished by the petitioner and with the discussion of provisions hereinabove, it is neither possible to uphold that the income is under-assessed or in-allowable reliefs were permitted.”
22. In a full bench decision, the Delhi High Court in the case of Commissioner of Income-Tax v. Usha International Ltd. reported in [2012] 348 ITR 485 (Delhi) observed as under:-
“13. It is, therefore, clear from the aforesaid position that:
(1) Reassessment proceedings can be validly initiated in case return of income is processed under section 143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion.
(2) Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assessee. Reassessment proceedings in the said cases will be hit by the principle of “change of opinion”.
(3) Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons.”
23. In the result, the petition is allowed. Impugned notice dated 21.3.2012 is quashed. Disposed of accordingly.
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