TaxTMI 
TaxTMI 
2016 (9) TMI 861
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....ome 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 Officer. He passed order of assessment under Section 143(3) of the Act on 3.10.2006 assessing `nil' income of the assessee. The Assessing Officer thereafter issued the impugned notice which, as can be seen was done, after a period of four years from end of the relevant assessment year. In order to issue the notice, the Assessing Officer recorded the following reasons: "M/s. Unimed Technologies (PAN AACU2965P) is an associate concern of M/s. Sun Pharmaceutical Industries Ltd., a well known pharmaceutical company of India. The assessee has filed its return of income for A.Y.2004-05 on 30/10/2004 declaring total income of Rs.Nil. This is in the view of the device adopted by a company to evade tax in India and show profit in the hands of M/s. Sun BVI, another associate concern of M/s Sun Pharma India Ltd., which is based in British Virgin Islan....
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....on 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 has adopted dubious device and the income atleast to the extent of US $1,13,19,362/- (1,17,19,362 - 4,00,000) is found to have escaped assessment within the meaning of sec-147 of IT Act, 1961 for the AY 2004-05." 2.3 Upon being supplied with the reasons, the petitioner raised objections to the notice of reopening under a letter dated 7.11.2011. Such objections were, however, rejected by the Assessing Officer by an order dated 19.12.2011. In this background, Unimed has challenged the said notice of reopening. 2.4. Special Civil Application No.17781 of 2011 has been filed by one Sun Pharmaceutical Industries Limited, a company registered under the Companies Act (hereinafter referred to `as Sun Pharma'). In such petition, the petitioner has challenged the notice dated 30.3.2011 issued by the respondent-Assessing Of....
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.... 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 research facilities and resources at the disposal of Sun BVI. An organization which does not have any plant or machinery or research personnel, can not develop technology and then transfer such technology to CARACO and generate huge profits. c) Sun BVI has reflected significant income/turnover with a very low cost base. Auditor's reports of Such BVI for the different years suggest the same. On very low expenditure both direct and indirect, the Sun BVI has shown very high profit margin which is not liable for taxation in British Virgin Islands. Further, a statement u/s 131 (1A) of the Act was recorded by ADIT (Inv), Unit-I, Baroda from Shri Sudhir Valia the key person of the group and who was a director of Sun BVI and at present director of the assessee company who accepted that....
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....362/- i.e. Rs. 53,57,62,353/-. I have, therefore, reason to believe that income to the extent of Rs. 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, challenged the said notice of reopening. 3. Before recording and appreciating rival contentions, we may notice the gist of the reasons recorded by the Assessing Officer in both the cases. In case of Unimed, the stand of the Assessing Officer as emerging from the reasons recorded can be briefly stated as under: 3.1 Unimed had entered into a Technology Transfer Agreement with M/s Sun BVI an associate concern of Sun Pharma under which Unimed received a sum of Rs.USD 4 lacs for the transfer of technology. This technology was further transferred by Sun BVI to M/s CARACO, a sister concern of M/s Sun Phharma for consideration of 1.17 lac USD (rounded off). According to the Assessing Officer, Sun BVI did not have fix any assets during the financial year 2003-04 to 2006- 07 and....
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....s 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 of Sun Pharma to Sun BVI. During the year under consideration, Sun BVI had received 1.17 crores USD from CARACO on account of transfer of technology. Evidence would point to the fact that the technology was transferred by Sun Pharma to CARACO but routed through its subsidiary Sun BVI so that no tax is required to be paid. Sun Pharma has booked all expenses to develop the technology which was transferred. In the opinion of the Assessing Officer, therefore, Sun Pharma had concealed the income to the extent of USD 1.17 crores. 5. In the background of such facts, counsel for the petitioner raised the following contentions: (A) With respect to the petition of Unimed counsel submitted that: (a) the impugned notice has been issued beyond a period of four years from the end ....
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.... 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 development which would ensure so much of value addition. In his opinion, therefore, Unimed had actually transferred technology 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. 8. In any case, therefore if the....
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.... 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 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 earned by Sun BVI since would be exempt, the transfer of technologies through M.J Pharmaceuticals Limited and Unimed Technologies Limited by the petitioner, instead of directly transferring the same to Sun BVI is being questioned by the Revenue in wake of the material which is available with it, and therefore, if these are termed as dubious device to save the income, and if this, according to the Revenue, has resulted into escapement of tax in the hands of the petitioner as a result of arrangement made by the petitioner, the Assessing Officer has committed no wrong in exercising his jurisdiction....
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....re 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 case of Assistant Commissioner of Income-Tax V/s Rajesh Jhaveri Stock Brokers P.Ltd., reported in [2007]291 ITR 500(SC), in this context had held and observed as under in paragraph 16. "Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evid....