Mumbai: In a major relief to pharmaceutical giant Lupin Limited, the Bombay High Court has quashed an income tax reassessment notice for the assessment year 2016-2017.

A bench of Justices MS Sonak and Jitendra Jain ruled in favor of Lupin, rejecting the Income Tax Department's attempt to reopen the company's previously scrutinised assessment.

The core of the dispute revolved around a notice issued under Section 148 of the Income Tax Act, which sought to reassess Lupin's 2016-2017 income, wherein it had declared an income of Rs 2636 crore. Lupin had initially filed its return, declaring substantial income, and underwent a thorough scrutiny process by the Income Tax Department, with specific focus on deductions claimed under Section 35AC and 80G relating to CSR expenses.

Following this scrutiny, an assessment order under Section 143(3) was issued in 2018, accepting Lupin's claimed deductions. However, in 2021, the department sought to reopen the case, arguing that the company had improperly claimed CSR expenses, amounting to Rs 14.89 crore, under both Sections 35AC and 80G, leading to underassessment.

The High Court, however, found the department's reasons for reopening the assessment to be insufficient. The court emphasised the lack of “fresh tangible material” to justify the reassessment, noting that the original assessment had already involved detailed scrutiny and consideration of the same deductions.

The court highlighted that the Income Tax Department's attempt to reopen the case appeared to be based on a “change of opinion” rather than new evidence. The department argued that amendments in the Finance Act No.2 (2014) prohibited the dual claiming of CSR expenses. However, the court pointed out that Lupin had not claimed benefits under Section 37 and that existing provisions did not clearly preclude the claimed deductions under Section 35AC.

Furthermore, the court referenced the legislative intent behind the 2014 amendments and a CBDT circular, which supported the allowance of CSR expenditures under relevant sections. Ultimately, the court concluded that the reassessment notice was unwarranted, as it was based on a re-evaluation of previously examined material rather than new evidence.

Allowing the petition, the HC noted: “This Petition must be allowed because there was no tangible fresh material based upon which the assessing officer could have reason to believe that any income had escaped assessment.” It also took into account that Lupin had answered all the queries raised, based on which the earlier assessment order was made.