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TMI Blog2016 (9) TMI 861X X X X Extracts X X X X X X X X Extracts X X X X ..... hnology to CARACO for a total sale consideration of 1.17 crores USD. On the other hand, in case of Sun Pharma, the Assessing Officer canvases that even Unimed did not have any such capability. It did not have full-fledged R & D facilities or sufficient man power for such research. It was primarily engaged in manufacturing of injections and eye drops. It was Sun Pharma who had developed the technology which transferred it to Unimed who in turn had transferred it to Sun BVI who sold it to CARACO. Sun BVI being a subsidiary of Sun Pharma and being based in British Virgin Islands, Sun Pharma evaded payment of tax through such process. In any case, therefore if the revenue contends that it is Sun Pharma from where the technology had originated and Unimed did not have the capability to do so in its own, the grounds mentioned in the reasons for reopening assessment of Unimed must immediately fail. Even before us, counsel for the revenue showed preference for the reopening in the case of Sun Pharma on legal contentions. The sum total of this discussion, without any further consideration, notice for reopening in case of Unimed must fail. Coming back to the notice for reopening in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . AKIL KURESHI AND MR. A.J. SHASTRI, JJ. FOR THE PETITIONER : MR SN SOPARKAR, SENIOR ADVOCATE WITH MR BS SOPARKAR, ADVOCATE FOR THE RESPONDENT : MR MANISH BHATT WITH MRS MAUNA M BHATT, ADVOCATE COMMON ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. These petitions are closely connected. They have been heard together and would be disposed off by this common judgment. 2. Brief facts are as under: 2.1 Special Civil Application No.18698 of 2011 is filed by one Unimed Investment Ltd., a company registered under the Companies Act (hereinafter to be referred to as `Unimed'). The petitioner has challenged the notice dated 31.3.2011 issued by the respondent-Assessment Officer for reopening the petitioner's assessment for the assessment year 2003-04. For the said assessment year, the petitioner had filed a return of income on 30.10.2004 declaring `nil' income. During the period relevant to the said assessment year, the petitioner had transferred a technology to one Sunpharma Global, a company based at British Virgin Islands (`Sun BVI' for short) for USD 4 lacs. 2.2 The return of the income was taken in scrutiny by the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e technology which is shown to have been sold for US $4,00,000 by the assessee company to M/s. Sun BVI, was in reality indirectly sold to M/s. CARACO for US $1,17,19,362/- in order to avoid payment of taxes on amount of US $1,13,13,362 (1,17,19,362-4,00,000), because whatever technology was transferred by M/s. Sun BVI to M/s. CARACO actually belonged to assessee company i.e. M/s. Unimed Technologies Ltd. The assessee company had made arrangements in a manner that the actual profit earned from transfer of technologies could not be taxed in India. Hence, it is concluded that the entire sale proceeds of US $1,17,19,362/- is income of the assessee company. Further more, it is found from the perusal of the records that the assessee has claimed depreciation on goodwill as per company's Act. However, while claiming depreciation as per IT Act, the assessee has clubbed various fixed assets in plant and machinery as other assets. Therefore, it could not be verified due to non availability of details that whether the assessee has claimed depreciation on goodwill as per I.T. Act. In view of the above information in any possession, I have reason to believe that the assessee company ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d distribution of Pharmaceutical products and investment activities. The address provided for this entity is -International Trust Building, P.O.Box 659, Road Town Tortola, British Virgin Island popularly known as tax heaven as income is tax free. The very first thing that is noticeable in the aforementioned address is that the address is P.O.Box address. A subsidiary company of such a big concern like the assessee can not operate from a P.O.Box address. A research into the public domain has revealed that a large number of companies are registered at the same address. b) The assessee and its subsidiary in USA viz CARACO had entered into Technology Transfer Agreement during F.Y.1997-98 through which profits were earned by the assessee. During F.Y.2002-03, CARACO entered into a new Technology Transfer Agreement with Sun BVI and the consideration for the transfer of technology started flowing to Sun BVI. A perusal of the Auditors' report of Sun BVI for the financial year 2003-04 to 2006-07 shows that Sun BVI did not have any Fixed Assets at its disposal. Further, the operating expenses, especially salary, was very low during the said period. These facts prove the lack of res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has supplied such technology developed by its from its own R D to M/s. Caracao. All the evidences point to the fact that this technology was transferred by the assessee to Caraco, but, to avoid tax on the income, the transaction have been routed through its subsidiary Sun BVI which was not required to pay any tax. The assessee company has booked all the expenses required to develop the technologies which have been transferred. Thus, the assessee has concealed income to the extent of USD 1,17,19,262/- for A.Y.2004-05 (being total receipt i.e. the income plus the claim of expenditure). In view of the above information in my possession, I have reason to believe that the assessee has adopted dubious device and thereby concealed income to the extent of USD 1,17,19,362/- i.e. ₹ 53,57,62,353/-. I have, therefore, reason to believe that income to the extent of ₹ 53,57,62,353/- has escaped the assessment. Issue notice u/s 148 of the Act. 2.7 Upon being supplied such reasons, the petitioner raised the objections under communication dated 17.6.2011. Such objections were, however, rejected by the Assessing Officer by an order dated 14.11.2011. Sun Pharma has, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets at its disposal. Its operating expenses especially salary were very low. These facts would show that Sun BVI did not have research facilities. Despite this, Sun BVI has reflected significant income and high profit margin which were not taxable in British Virgin Islands. 4.2. The statement under Section 131(1A) of the Act of Shri Sudhir Valia, a key person of group of companies and present director of Sun Pharma was recorded by the investigating wing of the Income Tax Department. In such statement, he accepted that Sun BVI has no facility of R D and manufacturing. Further inquiries revealed that Sun BVI had acquired technology from Unimed. It was found that Unimed does not have dedicated R D facility or work force of scientists required for such research. It has only a small lab and is engaged mainly in production of injections and eye drops. Thus, Unimed is not capable of transferring technology which can fetch high premium subsequently. 4.3. On the basis of such materials, Assessing Officer was of the belief that Sun BVI which is a subsidiary of the assessee based in British Virgin Islands is a shell company and is used as a device for diverting taxable profits o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian companies through shell companies situated at British Virgin Islands to avoid tax. This Court in the case of Sun Pharma for the subsequent assessment year had upheld the notice of reopening which was based on similar grounds by judgment dated 29.7.2013 passed in Special Civil Application No.2965 of 2013. 7. Having thus heard the learned counsel for the parties and having perused the documents on record, at the outset, we may notice that both the notices for reopening cannot coexist. The reasons recorded in the case of Unimed and Sun Pharma pertain to the same transaction. The same income obviously cannot be taxed twice. Apart from this, the reasons recorded in the case of Sun Pharma substantially destroy the reasons recorded in the case of Unimed. We say so for the simple reason that as noted earlier in case of Unimed, the case of revenue was that Unimed had transferred technology to Sun BVI for disclosed consideration of 4 lac USD. Shortly thereafter, the same technology was transferred by Sun BVI to CARACO for 1.17 crores USD. According to the information of the Assessing Officer, Sun BVI did not have sufficient wherewithal to carry out research and technology developme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be determined on the basis of the facts and circumstances of each case. These facts are crucial and vital and other aspects arise from them. Any facts revealed by the petitioner masquerading the same as primary facts without in fact disclosing facts truly and fully as warranted for the purpose of assessment can certainly not amount to assessee discharging onus under the law of truly and fully disclosing all the material facts. In the instant case as is evident from the material recovered during the survey conducted under section 133A of the Act that the petitioner continued to maintain a stand of its having done the job work for M/s. MJ Pharmaceuticals Limited and Unimed Technologies Limited. However, prima facie, the material that emerged from the record indicated completely contrary facts, and therefore, the Assessing Officer if has a reason to believe that there is a failure on the part of the petitioner to disclose fully and truly the facts which led to underassessment of the income, and thereby when he has assumed the jurisdiction, such action of his will not entitle the petitioner to invoke the writ jurisdiction for quashing such a notice. It is prima facie apparent that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iaries of assessee. The assessee company had capacity to produce such technology and in fact between 1997-02, Sun Pharma had supplied such technology developed by it to M/s CARACO. In view of such evidence on record, the Assessing Officer concluded that technology in question transferred was actually done by the assessee to CARACO but was routed through other companies only to avoid payment of tax. 11. In our opinion, these reasons do not lack validity. As noted, elaborate reasons have been recorded by the Assessing Officer which demonstrate how prima facie it can be shown that technology developed by Sun Pharma through use of its research and development facilities was routed to CARACO through Unimed and Sun BVI in British Virgin Islands which ensured that the entire amount escaped assessment in the hands of Sun Pharma. At the stage of considering notice for reopening, one has to see only prima facie whether on the basis of tangible material on record, the Assessing Officer could form a valid belief that income chargeable to tax has escaped assessment. At that stage, it is not necessary to verify whether invariably such income would be brought to tax. The Supreme Court in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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