Reopening Assessment on a "Change of Opinion": The Finality of Section 35(2AB) Deductions

Reopening Assessment on a “Change of Opinion”: The Finality of Section 35(2AB) Deductions

This ruling for AY 2013-14 reinforces the legal boundary between “reassessment” and “review.” It confirms that once an issue has been thoroughly examined during a regular scrutiny assessment, the tax department cannot use reopening provisions to simply take a “second look” at the same data.

The Legal Issue

Can the Assessing Officer (AO) reopen an assessment under Section 147 to revisit a deduction for Scientific Research Expenditure [u/s 35(2AB)] that was already scrutinized and allowed in the original assessment under Section 143(3)?

Facts of the Case

Original Assessment: For AY 2013-14, the assessee’s return was selected for scrutiny. The AO examined the claim for weighted deduction under Section 35(2AB), reviewed the necessary approvals (Form 3CM/3CL), and passed an order under Section 143(3) accepting the claim.
The Reopening: Later, the AO issued a notice under Section 148 and an order under Section 148A(d) (the new preliminary inquiry stage) to reopen the assessment. The goal was to re-verify the same scientific research expenditure based on the same set of documents already available on record.
The Grounds: The AO argued that income had escaped assessment because the deduction might have been “excessive” or required further verification.

The Decision

The Court ruled in favour of the assessee, quashing both the notice and the reopening order:

No New “Tangible Material”: For a valid reopening, the AO must possess “new” information or tangible material that was not available during the original assessment. Re-reading the same file is not enough.
Mere Change of Opinion: The Court held that since the AO had already formed a conscious opinion on the Section 35(2AB) claim during the 143(3) proceedings, any attempt to revisit it without fresh evidence is a “mere change of opinion.”
Review vs. Reassess: The Income-tax Act gives the AO the power to reassess (based on new facts) but not to review (re-evaluating their own previous legal conclusion).
Jurisdictional Defect: Reopening on a change of opinion is “impermissible and without jurisdiction.” Therefore, the notice was legally void from the start.

Key Takeaways

Scrutiny is Final (Mostly): If you have provided detailed explanations and documents (like DSIR approvals for R&D) during a scrutiny audit, the AO’s acceptance of that claim creates a “settled position.”
The “Kelvinator” Principle: This ruling follows the landmark Supreme Court decision in CIT vs. Kelvinator of India Ltd., which established that the AO cannot reopen a case just because they have changed their mind about a legal deduction.
Section 148A Shield: Under the new regime (post-April 2021), the Section 148A(d) order is the first line of defense. If the AO tries to reopen based on “old news,” it should be challenged at this stage as a “change of opinion.”
Documentation Retention: Always keep the “Query Letter” and your “Response” from the original 143(3) assessment. They are the best proof that the AO already applied their mind to the issue.

HIGH COURT OF GUJARAT

Gujarat Metal Cast Industrial (P.) Ltd.

Assistant Commissioner of Income-tax^*

A.S. Supehia and Pranav Trivedi, JJ.

R/SPECIAL CIVIL APPLICATION NO. 1087 of 2025

FEBRUARY 3, 2026

Ms. Vaibhavi K. Parikh for the Petitioner. Rutvij R. Patel for the Respondent.

JUDGMENT

Pranav Trivedi, J.- Heard learned advocate Ms. Vaibhavi Parikh for the petitioner and learned Senior Standing Counsel Mr. Rutvij Patel for the respondent.

2. Having regard to the controversy arising in this petition which is in narrow compass with the consent of the learned advocates for the respective parties the same is taken up for hearing.

3. Rule returnable forthwith. Learned Senior Standing Counsel Mr. Rutvij Patel waives service of notice of rule on behalf of the respondent.

4. Present petition preferred under Article 226 of the Constitution of India assails the validity of order dated 27.07.2022 passed under Section 148A(d) of the Income Tax Act, 1961 (hereinafter referred to as “the Act” for short) along with notice issued under Section 148 of the Act dated 27.07.2022 for the Assessment Year 2013-14 by the Assistant Commissioner, Circle 1(1) (1), Vadodara (hereinafter referred to as the “respondent” for short).

5. The facts giving rise to the filing of the present writ petition are that the petitioner is a Company incorporated under the provisions of Companies Act, 1956 and is inter alia acting as manufacturer of Alloy Metals. The petitioner has filed its return of income for the Assessment Year 2013-14 on 31.07.2013 after claiming deduction under Section 35 (2AB) of the Act in respect of the expenditure incurred on scientific research.

5.1 It is the case of the petitioner that for the year under consideration, the case of the petitioner was selected for scrutiny assessment. During the course of assessment proceedings, the petitioner had furnished details of research and development expenditure incurred during the year under consideration and in respect of which deduction under Section 35 (2AB) of the Act was claimed along with the relevant certificate. Thereafter, the assessment was eventually framed for the year under consideration by way of order dated 14.03.2016 under Section 143(3) of the Act without disturbing the claim made by the petitioner in respect of the research and development expenditure.

5.2 It is the case of the petitioner that the assessment was originally reopened by the issuance of the notice under Section 148 of the Act dated 06.05.2021. Subsequently, the notice was issued to the petitioner on 23.10.2021 under Section 143(2) read with Section 147 of the Act. However, the petitioner by way of reply dated 27.10.2021 raised objections against reopening. It is the case of the petitioner that instead of disposing of the objections, the respondent issued another show cause notice under Section 142(1) of the Act dated 16.11.2021 calling for certain details of deduction claimed under Section 35(2AB). Thereafter, again on 27.05.2022 the respondent issued another show cause notice under clause (b) of Section 148A of the Act. It is the case of the petitioner that owing to the circumstances beyond its control, the petitioner could not check his E-mail or Income Tax Portal and therefore, could not furnish the reply to the notice issued by the respondent. The respondent passed the impugned order dated 27.07.2022 under clause (d) of Section 148A of the Act concluding that there was escapement of income to the tune of Rs.2,82,88,957/- and therefore, it was a fit case for reopening. Notice under Section 148 of the Act as well as order under Section 148A(d) of the Act are the subject matter of challenge in the writ petition, mainly on the ground of limitation.

5.3 The writ petition preferred by the petitioner was tagged with the allied matters filed by the being Keenara Industries (P.) Ltd. v. Income-tax Officer (Gujarat)/Special Civil Application No. 17321 of 2022. The writ petition preferred by the present petitioner as well as other assessee was disposed of by this Court by way of order dated 07.02.2023 inter alia quashing the notice under Section 148 of the Act as well as order under Section 148A(d) of the Act . The decision of this Court passed in Keenara Industries (P.) Ltd. v. Income-tax Officer ITR 51 (Gujarat)/Special Civil Application No. 17321 of 2022 and other allied matters was challenged by the Revenue before the Hon’ble Apex Court by way of filing Income-tax Officer v. Keenara Industries (P.) Ltd. (SC)/Special Leave Petition (Civil) No. 9712 of 2023. The Hon’ble Apex Court vide judgment dated 03.10.2024 passed in case of Union of India v. Rajeev Bansal (SC)/Civil Appeal No. 8629 of 2024 disposed of the writ petition and upheld the validity of the timeline extended by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) till 30.06.2021.

5.4 It is the case of the petitioner that consequent to the order passed by the Hon’ble Apex Court, the respondent again issued show cause notice dated 27.11.2024 calling upon the petitioner to show cause as to why addition proposed in the impugned order passed under Section 148A(d) of the Act in case of the petitioner for the year under consideration should not be made in the hand of the petitioner. Hence, the impugned notice under Section 148 of the Act as well as the impugned order under clause (d) of Section 148A of the Act are impugned in the present writ petition.

6. Learned advocate Ms. Vaibhavi Parikh for the petitioner submitted that the respondent has acted illegally and without jurisdiction while issuing Notice under Section 148 of the Act. It is further contended that the notice under Section 148 can be issued only if there is escapement of income chargeable to tax. It is further contended that the for forming the belief regarding escapement of income, there must be live link and nexus between the material before the Assessing Officer and such belief must lead to a conclusion that some income chargeable to tax has escaped assessment.

6.1. It was submitted that the case of the petitioner was selected for scrutiny and the issue on hand was threadbare examined at original assessment stage by the then Assessing Officer as is evident from the notice dated 09.10.2025, letter dated 30.10.2015 and the Assessment Order dated 14.03.2016. Learned advocate Ms. Parikh has therefore, submitted that reopening is merely based on change of opinion. Therefore, the impugned order passed under Section 148A(d) of the Act and notice under Section 148 of the Act deserves to be quashed and set aside.

7. Per contra, learned Senior Standing Counsel Mr. Rutvij Patel for the respondent was not in a position to defend the contentions raised by learned advocate Ms. Parikh to the effect that the reasons which were subject matter of challenge were also recorded in the original assessment proceedings.

8. Having heard the learned advocates for the respective parties and having perused the material on record, it would be proper to go through the reply given by the petitioner during framing of the original Assessment Order. The reply which is appended at page 34 of the writ petition and consequential point no. 7 is reproduced hereunder :-

“7.00 As you know that we are into manufacturing of ductile iron, malleable iron and aluminum alloy castings by lost foam manufacturing and precicast process, fabrication and assembly business.

We would like to state that basic objective of scientific research to be conducted by In house Research and Development facility is :

To bring out product which can replace the conventional process with better quality, output and thus cost effective and serving valued customers to their higher satisfaction.

To carry on in house research and development centre, conducting experiments researches, workshops, seminars and training programmes of all kinds of research and study of the scientific and technical inventions and innovations of new technology and formulate in the field of manufacturing of all types of castings and all activities related with it and to analyse the effect of the said study, experiment and research.

With this objective, we have set up in house Research and Development unit and as required, we are registered with Ministry of Science and Technology, Department of Scientific and Industrial Research Technology Bhavan, New Delhi.

Copy of certificate of registration is furnished herewith.”

8.1. It would also be proper to refer to the order dated 27.07.2022 passed under Section 148A(d) of the Act which reads as under :

“Accordingly, the information alongwith the relevant material was provided to the assessee vide this officer letter dated ITBA/COM/F/17/2022-23/1043208205 (1) dated 27.05.2022 (copy enclosed) requesting the assessee to submit its reply within 14 days from the receipt of this letter. The said notice is reproduced hereunder for sake of convenience :

Please refer to the notice u/s. 148 issued on 05.05.2021 in your case for AY 2013-14. After the decision of the Hon’ble Supreme Court referred above, the said notice is now to be treated as show cause notice u/s 148A(b) of the Act.

As per the Hon’ble Supreme Court’s decision referred above, [para-10 (I)], the assesse’s in whose cases notice u/s. 148 were issued between 01.04.2021 to 30.06.2021, should be provided with information and material relied upon by revenue for the issuance of notice u/s. 148, within 130 days from the date of Hon’ble Supreme Court’s order so that these assessee can reply to the show cause notices within 14 days thereafter.

In pursuance of the directions of the Hon’ble Supreme Court, the relevant information and the material is being provided to you in Annexure-A attached with this letter. You are requested to go through the same and upload your reply, if any, within 14 days from the receipt of this letter.

Annexure-A

As per the information received, on perusal of profit and loss account, 3CD report, computation of income and updated submission of assessee in respect of deduction u/.s 35(2AB) revealed that assessee has claimed R & D revenue expenditure of 1,63,90,731/- and R & D Capital expenditure of 59,49,113/- u/s 25 (2AB) on its in house R & D facility. Assessee cited the judgment of Honourable Gujarat High Court in the case of CIT v. Claris lifescience Ltd. (Guj), stating that entire expenditure incurred during the AY 2013-14 was eligible for deduction u/s. 35 (2AB) as facility was recognized and approved on 20.07.2012, eventhough the approval from DSIR was granted on 01.05.2013. The same was accepted and deduction was allowed by the assessing officer.

It was noticed from copy of in-house Research and Development facility u/s. 35 (2AB) approval by the Department of Science and Industrial Research (DSIR) that approval was granted only on 01 May, 2013 (FY 2013-14 relevant to AY 2014-15), though the facility was registered and recognized on 20 July, 2012. As Hon’ble Jurisdictional High Court has laid down ratio that deduction u/s. 35 (2AB) is allowable on expenditure incurred during the whole previous year relevant to the assessment in which approval is granted and nowhere ruled that expenditure incurred in the year of getting registered and recognized should be treated as date of approval, the assessee was eligible for deduction u/s. 35 (2AB) on such R & D expenditure incurred during FY 2013-14 relevant to AY 2014-15. Looking to the factual position mentioned above, it can be seen that the assesse’s was not eligible for deduction u/s. 35 (2AB) of the Act of Rs.2,82,88,957/- for A.Y. 2013-14 as claimed.”

9. On going through the same, it is not in dispute that the reasons recorded in the notice issued under Section 148A(b) of the Act as well as reasons recorded in the impugned order passed under Section 144B of the Act was already considered by the Assessing Officer while framing assessment order under Section 143 of the Act on 14.03.2016

10. This Court is conscious of the fact that there are also other issues raised by the petitioner during the course of hearing, however, when the petitioner has a case on the ground of change of opinion, this Court does not deem it fit to go into other issues when it is specifically brought on record that the material on which the notice was issued under Section 148A(b) of the Act was already considered by the Assessing Officer during framing of Assessment Order dated 14.03.2016.

11. It is settled law that the proceedings under Section 147 of the Act cannot be initiated to review the earlier stand adopted by the Assessing Officer. The Assessing Officer cannot initiate reassessment proceedings to have relook with the documents filed in the original assessment proceedings. The power to reexamine cannot be exercised from time to time. This issue has been categorically settled by the Hon’ble Apex Court in case of Commissioner of Income Tax, Delhi v. Kelvinator of India Limited (SC)/[2010] 320 ITR 561 (SC).

12. In view of the above, the present petition is required to be allowed and the same is hereby allowed. The impugned order dated 27.07.2022 passed under Section 148A(d) of the Act and the notice of same date issued under Section 148 of the Act are hereby quashed and set aside. Rule is made absolute to the aforesaid extent. No order as to cost.