9911796707
TMI Blog2013 (7) TMI 1147X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 3.1 Return of income filed by the petitioner-Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 conclusion / satisfaction are as under :- Diversion of profits on transfer of Technology to Caraco through Sun BVI This is in view of the device adopted by the assessee to evade Tax in India and sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tablets SPIL - Mumbai Executive Summary 13 Modafinil Tablets SPIL - Baroda Master Formula Card 14 Glipizide Immediate Release Tablets SPIL - Mumbai Executive Summary 15 Baclofen Tablets SPIL - Mumbai Executive Summary 16 Amlodipine Besylate Tablets SPIL - Mumbai -- -- 17 Escitalopram Oxalate Tablets SPIL - Mumbai Executive Summary 18 Paoxetine Hydrochloride Tablets Equivalent to Paroxetine SPIL Mumbai 19 Atenolol Tablets SPIL Baroda Master Formula 20 Methimazole Tablets SPIL Baroda Master Formula 21 Allopurinol Tablets SPIL Baroda Master Formula 22 Venlafaxine Hydrochloride Tablets equivalent to Venlafaxine SPIL Mumbai Executive Summary 23 Amitriptyline Hydrochloride Tablets SPIL Mumbai Executive Summary 24 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 sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e R&D expenditure debited in the books of SPIL is allocated to R&D of formulations and 25% to the R&D of bulk drugs. Thereafter, the R&D expenses amongst formulations are distributed by SPIL on the basis of turnover of formulations. This fact is evidentially corroborated by loose paper 21 of Annexure A5 impounded from the premises of SPIL, Mumbai [Mahal Industrial Estate, Mahakali Caves Road, Andheri (E), Mumbai]. So, if the entire R&D activity of SPI and SPS is taking place in SPIL, then the expenses for the same should be re-allocated 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for his assessment for the assessment year under consideration. Issue Notice under section 148 of the Act." 4. While raising the objections on 20th September 2012, the assessee emphasized that both the grounds have already been considered in the scrutiny assessment. Moreover, for the Assessment Years 2005-2006 & 2006-07, these very details have been accepted in toto in case of the present petitioner as also in the case of Unimed Technologies 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 aff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the Revenue within the purview of Section 147 of the Act. He urged that once having disclosed all the details, the assessee is not under obligation to let the Assessing Officer know as to how to conduct his affairs. These transactions not only are reflected in the return of income, but, the T.P.O has also been referred to these transactions and on his report, additions also have been made by the concerned authority. 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 assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire channel of statutory appeals would also be available to the petitioner and therefore, at this stage, this Court may not interfere. 6.2 Learned counsel Shri Bhatt further urged that as far as second question is concerned, whereby the expenses of R&D is required to be bifurcated amongst other units, re-assessment can be made permissible on such fresh 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2 : For the purposes of this section, the following 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 compute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion' may not apply. 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 necessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement 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 as per the 1997 agreement was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessment. A stand taken by the assessee is to the effect that 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 compared to the value at which it has transferred it to Sun BVI at Caraco, USA. The profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 We are of the opinion that the ground on which reopening is sought, is essentially in respect of allocation of R&D expenses and the details furnished in the reasons recorded essentially ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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