Authority: High Court of Sikkim, Single Bench (Hon'ble Mr. Justice Bhaskar Raj Pradhan)

Order Date: 14.10.2026

Case Overview

  • Parties: Zydus Healthcare Limited (formerly Zydus Healthcare Sikkim (Firm)) filed three writ petitions (W.P.(C) No. 39 of 2022, W.P.(C) No. 13 of 2024, W.P.(C) No. 50 of 2025) against the Assistant Commissioner of Income Tax, Circle 3(2), Gangtok. The petitioner was represented by Shri Suman Bag (constituted Power of Attorney, Head of Manufacturing Plant) and counsel Mr. Mukesh M. Patel, Mr. Anup Kumar Bhattacharjee, Mr. Abhishek Singh (and Mr. Deepu Prasad for the later petitions). The respondent was represented by Ms. Sangita Pradhan, Deputy Solicitor General of India, and her team.
  • Background: Zydus Healthcare Sikkim was converted into Zydus Healthcare Limited on 02.02.2016 after amalgamation with German Remedies Limited. The company filed NIL returns for assessment years (AY) 2015‑16, 2017‑18 and 2018‑19, claiming large deductions (e.g., Rs 4,04,22,93,947 deduction under section 80IE for AY 2015‑16). The Assessing Officer accepted the returns under section 143(3) on 26.12.2018 (AY 2015‑16) and on 07.04.2021 (AY 2017‑18) and on 21.04.2021 (AY 2018‑19).
  • Revenue Action: The Income Tax Department issued reassessment proceedings based on audit objections raised by the Director General of Audit (Central), Kolkata. For AY 2015‑16, a notice under section 148A(b) dated 19.03.2022 and an order under section 148A(d) dated 27.04.2022 were issued, followed by a notice under section 148 on 27.04.2022. Similar sequences occurred for the later years:
  • AY 2017‑18 – notice under section 148A(b) on 01.03.2024, order 148A(d) on 27.03.2024, notice 148 on 27.03.2024.
  • AY 2018‑19 – notice under section 148A(b) on 01.08.2024, order 148A(d) on 27.08.2024, notice 148 on 27.08.2024.
  • Audit Objections: The audit objections highlighted alleged under‑charge of tax due to (i) depreciation on goodwill created during amalgamation, (ii) irregular deduction of Other Comprehensive Income, (iii) CSR expenses, (iv) other specific items. For AY 2015‑16 the objection quantified a refund of Rs 22,99,92,702 treated as capital receipt and alleged under‑assessment of the same amount. For AY 2017‑18 the objection listed six issues totalling Rs 1,037,56,80,871, including depreciation on goodwill (Rs 900,12,83,375) and other items. For AY 2018‑19 the objection cited under‑charge of Rs 1.07 crore (OCI), Rs 235.91 crore (goodwill depreciation) and Rs 31.84 crore (goodwill).
  • Petitioner’s Submissions: The petitioner argued that (a) the reassessment proceedings were without jurisdiction because the Assessing Officer did not possess “books of account or other documents or evidence” as mandated by section 149(1)(b); (b) the notices were barred by the three‑year limitation; (c) audit objections are merely opinions and cannot constitute new material; (d) the reassessment amounted to a change of opinion, which is not permissible after the amendment of section 147; (e) the Excise Duty refund should be treated as a capital receipt, exempt from tax, relying on judgments of Shree Balaji Alloys and related case law.
  • Respondent’s Submissions: The respondent contended that the audit objection qualifies as “information” under Explanation 1 to section 148 and, therefore, satisfies the requirement of section 149(1)(b); that the notice was issued within the ten‑year extended period; that the audit objection is a document, not merely an opinion; and that the petitioner had an alternative remedy (appeal) which should preclude the writ.
  • Legal Provisions Examined: Sections 147, 148, 148A, 149 of the Income Tax Act, 1961 (as amended by Finance Acts 2021‑2023); relevant case law including Red Chilli International Sales vs. Income‑tax Officer, Kelvinator of India Ltd. vs. CIT, Songwon Speciality Chemicals India Ltd., Sapphire Foods India Ltd. vs. ACIT, Shree Balaji Alloys, CIT vs. Ponni Sugars, Smifs Securities Ltd. vs. CIT, and several Supreme Court judgments on the scope of audit objections and limitation periods.
  • Court’s Reasoning:
  • The notices were issued after three years from the end of the relevant assessment year but before ten years, invoking section 149(1)(b). However, the Assessing Officer did not have “books of account or other documents or evidence” revealing escapement of income; the audit objection was an opinion, not new documentary evidence.
  • The court emphasized that a notice under section 148 can be issued only if the Assessing Officer possesses material that satisfies the statutory threshold of Rs 50 lakhs and is in the form of books, documents or evidence, not merely an audit memo.
  • The court held that the audit objections, though recognised as “information” for the purpose of section 148, do not automatically satisfy the stricter requirement of section 149(1)(b).
  • The court rejected the respondent’s argument that the limitation period was satisfied, finding that the notices were barred by the three‑year limitation unless the stricter condition of section 149(1)(b) was met, which it was not.
  • The court affirmed that the reassessment proceedings were extraordinary and could not be used to review a completed assessment without fresh material.
  • The court also rejected the respondent’s claim that the initial assessment was a limited CASS scrutiny, noting that the assessment order dated 07.04.2021 expressly stated a “complete scrutiny assessment”.
  • Final Outcome:
  • W.P.(C) No. 39 of 2022 is allowed; the notice dated 27.04.2022 under section 148, the order dated 27.04.2022 under section 148A(d), and all subsequent proceedings are quashed.
  • W.P.(C) No. 13 of 2024 is allowed; the notice dated 27.03.2024 under section 148, the order dated 27.03.2024 under section 148A(d), and all subsequent proceedings are quashed.
  • W.P.(C) No. 50 of 2025 is allowed; the notice dated 27.08.2024 under section 148, the order dated 27.08.2024 under section 148A(d), and all subsequent proceedings are quashed.
  • All writ petitions and pending interlocutory applications are disposed of.

Topics: Tax Reassessment, Judicial Review