2013 (7) TMI 1147 - HC - Income Tax

Summary

Issues Involved:
1. Legality and jurisdiction of the notice issued u/s 148 of the Income-tax Act, 1961 for reopening the assessment.
2. Validity of grounds for reopening the assessment, specifically diversion of profit by transfer of technology and allocation of R&D expenses.

Summary:

1. Legality and Jurisdiction of Notice Issued u/s 148:
The petition challenges the notice dated 30th March 2012 issued u/s 148 of the Income-tax Act, 1961, for reopening the assessment for the Assessment Year 2007-08. The petitioner argued that the notice is contrary to law and without jurisdiction. The court noted that the reopening was based on materials collected during a survey conducted on 8th November 2011, which revealed incriminating documents indicating that a significant amount of income had escaped assessment.

2. Grounds for Reopening Assessment:

Diversion of Profit by Transfer of Technology:
The petitioner, Sun Pharmaceutical Industries Limited (SPIL), was found to have transferred 25 technologies to Caraco, USA, through Sun BVI, a subsidiary in a tax haven. The cost of acquisition of these technologies by Sun BVI was nominal compared to their transfer value to Caraco, resulting in tax-exempt profits for Sun BVI. The court found that the material collected during the survey, including statements from senior officers, indicated that the petitioner did not fully and truly disclose all material facts, justifying the reopening of the assessment.

Allocation of R&D Expenses:
The second ground for reopening was the allocation of R&D expenses. The court noted that this issue had already been scrutinized during the original assessment and in previous years. The reopening on this ground was deemed an attempt to review the previous decision, which is not permissible. The court concluded that the notice for reopening on this count must fail.

Conclusion:
The court partially allowed the petition. The notice for reopening on the first ground of diversion of profit by transfer of technology is sustained. However, the notice on the second ground of allocation of R&D expenses is not upheld. The interim relief granted in favor of the assessee regarding the second ground stands confirmed. The Assessing Officer is permitted to proceed with the reassessment proceedings on the first ground without being influenced by any observations made in this petition.