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TMI Blog2013 (7) TMI 1147X X X X Extracts X X X X X X X X Extracts X X X X ..... t jurisdiction. 3. The petitioner-company viz., Sun Pharmaceutical Industries Limited { SPIL for short} is engaged in the manufacturing, trading and export of bulk drugs and formulations. The Company has its registered office at Baroda and has six associated enterprises at USA, Bangladesh, Brazil, British Virgin Islands and Mexico. During the year under consideration, it entered into international transactions with its associate enterprises. The details of such transactions have also been furnished by the petitioner in Form 3 CB. The petitioner filed its original return of income under section 139 of the Act declaring total loss at ₹ 70,56,89,010/=, which was revised and the loss was reduced at ₹ 69,75,45,650/=. The Assessing Officer raised certain queries in respect of research and development expenses. These were replied to by the petitioner-company. The Annual Report indicated transfer of technology by Sun Pharmaceutical Industries, INC. to Caraco Pharmaceutical Laboratories Limited, USA. The Annual Report also reflected accounts of Sun Pharmaceutical Industries INC and Caraco Pharmaceutical Laboratories Limited, USA specifying transfer of technology ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pharma Industries [SPI] Sun Pharmaceuticals, Silvassa [SPS] are being developed at the R D facilities of Sun Pharmaceutical Industries Limited [SPIL] and the expenditure related to such R D is debited in the books of account of Sun Pharmaceuticals Industries Limited the petitioner, thereby reducing its profit and correspondingly, inflating the profit of both SPS SPI to that extent. 3.8 It would be necessary to reproduce the gist of reasonings given for reopening, which reads thus - Reasons for reopening : A survey operation u/s. 133A was conducted in the case of Sun Pharmaceutical Industries Limited [hereinafter referred to as SPIL] by the Assistant Director of Income-tax [Inv.] Unit VII (1), Mumbai on 08.11.2011 at the six business premises belonging to the above assessee. Large number of incriminating documents were found and impounded during the course of survey operation and the same were forwarded to this office alongwith the survey report. On analysis of the impounded material and after going through the survey report, it is noticed that huge amount of income has escaped assessment. The reasons for the aforesaid conclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adol Hydrochloride SPIL Mumbai - - 4 Meloxicm Tablets SPIL Mumbai Executive Summary 5 Carvedilot Tablets SPIL Baroda Executive Summary 6 Zolpidem Tartrate Tablets SPIL Mumbai Executive Summary 7 Risperidome Tablets SPIL Baroda Master Formula 8 Cetrizine Immediate Release Tablets SPIL Mumbai Executive Summary 9 Cetirizine Hydrochloride Chewable Tablets SPIL Mumbai Executive Summary 10 Repaglinide Tab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Haloperidol Tablets SPIL Baroda Master Formula 25 Clonidine Hydrochloride Tablets SPIL Mumbai Master Formula Card xx xx In view of the above information and evidences in my possession, I have reason to believe that the assessee has adopted dubious device and thereby income to the extent of ₹ 1,51,90,41,340 [US$ 343,05,360] has escaped assessment. 3.9 The second ground raised is in respect of allocation of Research Development Expenses, which reads thus - ..It is pertinent to note that analysis of profits and financial results of SPIL and SPI for the assessment year under consideration shows similar pattern and hence, it is clear that the assessee is showing huge profit margin in its controlled entity ie., partnership firm, wherein, it is claiming deduction under Chapter VIA and the share of profit/income from partnership firm is exempt in the hands of the main company ie., Messrs. Sun Pharmaceuticals Industries Limited. This gav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocated in the ratio of turnover of formulations manufactured in SPIL, SPI and SPS. xx xx Therefore, an amount of ₹ 33.2 Crores incurred as R D expenditure by SPIL should have been debited in the books of SPI for Assessment Year 2006-07. In view of the above information in my possession, I have reason to believe that income to the extent of ₹ 33.2 Crores has escaped assessment which requires to be taxed under provisions of Income Tax Act, 1961. As per proviso to Section 147 of the Income-tax Act, 1961, where an assessment under sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of Section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ologies and M.J Pharmaceuticals Limited. Therefore, in absence of any new material and in absence of any allegation of the petitioner having not disclosed truly and fully all material facts necessary for the purpose of assessment, the issuance of notice for reopening is bad in law. It is further alleged that though the assessment is sought to be reopened before the expiry of period of four years from the end of relevant assessment year, with no new material having come to the notice of the tax department and with the assessee having made full and complete disclosure of all matters in the books of accounts and clarified everything in great details during the course of assessment, action of the respondent is of reviewing its own order. 4.1 In affidavit-in-reply filed by the Revenue, it is urged that while disposing of the objections, the objections raised by the petitioner are duly dealt with. It is further urged that both the concerns ie., Unimed M.J Pharmaceuticals Private Limited were sister concerns of the petitioner ie., SPIL at a given point of time and these concerns did not have proper and sufficient R D facility to develop such products. The Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thority. It is urged further that not only full and true disclosure is made in general, but, special disclosure is made in the Annual reports, Tax Audit Report and Transfer Pricing Certificate under section 92 furnished by the assessee alongwith the return of income, and therefore, the Assessing Officer has no reasonable belief to reopen the assessment. It is nothing but reviewing his own order. He has sought to reply upon various decisions in support of his case. 5.2 In essence, learned senior counsel Shri Soparkar urged that without disturbing the assessment in case of both Unimed Technologies Limited and M.J Pharmaceuticals Limited, no reopening is permissible in case of the present petition particularly when no new material is found during survey and regular assessment is finalized on scrutiny made under section 143 (3) of the I.T Act where the petitioner has disclosed full and complete disclosure of all the materials. 6. Per contra, learned senior advocate Shri Manish R. Bhatt urged fervently that it is only during the course of survey carried out under section 133A of the I.T Act by the Assistant Director of Income Tax [Inv.] Unit VII (1), Mumb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resh ground. 7. Upon thus hearing both the sides and on giving thoughtful consideration to these submissions as also all the material placed before this Court, this petition is not being entertained partly for the reasons to be followed hereinafter. 8. Before adverting to the facts of the instant case, the law on the subject needs to be briefly recapitulated. 8.1 Section 147 of the Act permits the Assessing Officer to assess or re-assess the income chargeable to tax, which has escaped assessment and which comes to his notice, if he has a reason to so believe it, subsequently in the course of proceedings under this section; subject to provision of Sections 148 to 153 of the I.T Act. 9. Admittedly, in the instant case, notice has been issued before the expiry of period of four years from the end of the relevant assessment year ie., 2007-08, after the survey was conducted on 8th November 2011. It is not on the basis of material or evidence available with the Assessing Officer but the material collected during the survey proceedings that a notice has been issued to the petitioner under section 148 of the Act. A moot questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :- (a) Where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; (b) Where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (c) Where an assessment has been made, but - (i) Income chargeable to tax has been under-assessed; or (ii) Such income has been assessed at too low a rate; or (iii) Such income has been made the subject of excessive relief under this Act; or (iv) Excessive loss or depreciation allowance or any other allowance under this Act has been computed. 9.2 The Assessing Officer can assume jurisdiction to issue notice under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.6 When proviso to Section 147 of the Act does not apply, reassessment proceedings can be declared invalid on the ground of change of opinion. This expression 'change of opinion' contemplates formation of opinion and thereafter, making a change thereof. It surely connotes that at the time of scrutiny assessment, Assessing Officer formed his opinion and by initiation of proceedings of reassessment, he proposes to change the same. 10. From the original order of Assessing Officer, it can be gathered that for the assessment year under question, on scrutiny assessment, the assessment has been finalized. Queries which were raised in respect of the first ground of reopening were in the nature of information called for. It also further appears that a reference was made under section 92CA (1) of the Act to the Transfer Pricing Officer for verification of the Arm s length price in respect of international transactions, as detailed in the audit report in Form 3CEB vide communication dated 6th March 2009. 11. A notice under section 92CA (2) was issued to the petitioner on 13th March 2009 with a questionnaire directing the petitioner to furnish all ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ology transfer agreement with Sun Global an affiliate of Sun Pharmaceutical Industries Limited. Under such agreement, Sun Global agreed to provide the formulations for 25 new generic drugs over a period of five years. Caraco s right to the products are limited to the United States and the territories or possessions, including Puerto Rico. 11.2 The petitioner has claimed that Caraco had an agreement for transfer of product technology from the petitioner in the year 1997, whereby the petitioner invested 7.5 million US Dollars into the common stock of the Caraco and was required to transfer the technology formula for 25 generic pharmaceuticals products over a period of 5 years through August 2002 in exchange for 5,44,000 shares of Caraco common stock to be issued issued for each ANDA product and 1,81,333 shares for each DESI products. However, it was mentioned that as of December 31, 2003 the petitioner had delivered to Caraco the formula for 13 products only under this agreement and became a beneficial owner of approximately 48% of the outstanding common stock of the Caraco. It is therefore evident that the transfer of the technology formula for 25 generic products ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source so as to avoid any possible litigation as to the quality of the product. However, it has been noticed that the products supplied to Caraco by Sun BVI have been claimed to have established reputation in the matter of having proper R D facility for developing such a sophisticated generic pharmaceutical products. Besides as per the 1997-98 agreement, the petitioner was directly supplying such generic products to Caraco apparently without having faced such litigation from other established players. Hence, the above logic does not appear to be justifying the resourcing of such generic products from obscure sister concerns which did not had proper R D facilities. 11.4 It is only pursuant to the survey operation conducted under section 131A in case of Sun Pharmaceutical Industries Limited [SPIL] the present petitioner by the Asstt. Director of Income-tax on 8th November 2011 at six different business premises belonging to the petitioner that a large number of incriminating documents were found impounded, which were analyzed and after going through the survey reports, the Assessing Officer formed a reason to believe that a huge amount of income has escaped the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on formulating and developing these technologies, it would not be possible for this Court to uphold the contention of the petitioner that the Assessing Officer has assumed jurisdiction contrary to the requirements of the provisions of Section 148 of the Act. 12. 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 on receipt of new information and materials, income chargeable to tax has escaped assessment and this belief of under assessment of the income led him to initiate reassessment proceedings and thereby, when he has assumed jurisdiction, such action of his will not entitle the petitioner to invoke writ jurisdiction for quashing such a notice. 13. It is prima facie apparent that the cost of acquisition of these technologies in the hands of Sun BVI is nominal, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit report, petitioner holds 97.5% share of the firm-SPIL. During the survey at petitioner company, it was urged to furnish a list of all products developed at SPIL, Baroda alongwith the locations where they were being manufactured and the list indicating R D formulations which were manufactured at SPI-Jammu and Dadra Units as well as at SBS, Sikkim, being done at SPIL, Baroda. 17.1 Therefore, the Assessing Officer formed a belief that SPI SPS which had manufactured the products developed at R D facility of the petitioner-SPIL, the expenditure of such R D is debited in the books of account of SPIL, which reduces its profit and the profit of SPS SPI is inflated to that extent. It was also urged before us that allocation amongst various units of M/s. Sun Pharmaceutical Industries Limited was the question raised at the time of scrutiny assessment. However, this was not in respect of allocation between M/s. SPIL [the petitioner] and M/s. Sun Pharmaceutical Industries [SPI]. It is further contended by the Department that on analyzing the impounded material and on going through the survey report, huge amount is believed to have escaped assessment. 17.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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