TaxTMI 
TaxTMI 
2016 (9) TMI 864
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....ion 143(1) of the Act. To reopen such assessment, the Assessing Officer issued the impugned notice. He had recorded the following reasons for issuing the notice : " M/s. Unimed Technologies Ltd (PAN AAACE4022B), which was formerly known as M/s. Milmet Pharma Ltd. is an associate concern of M/s. Sun Pharmaceutical Industries Limited, a well known pharmaceutical company of India. M/s. Milmet Pharma Ltd. filed its return of income for the assessment year 2004-2005 on 29.10.2004 declaring negative income of Rs. 13210. No scrutiny assessment which was made in the case of M/s. Milmet Pharma Ltd. for the assessment year 2004-05. Certain enquiries were conducted by the ADIT(Inv.)I, Baroda and the report thereof was communicated to the undersigned vide letter No.BRD/ADIT/InvI/ TEP/SPILX Cat/2010 dated 28.03.2011. The crux of the said report in brief details the following facts:- Among others, Sun Pharma Global Inc. (Sub BVI) International Trust Building PO Box No.659, Road Town Tortola, British Virgin Islands and Caraco Pharmaceutical Laboratories Limited (Caraco), 1150 Elijah McCoy Drive, Detroit, MI48202, USA are the subsidiaries of M/s. Sun Pharmaceutical Indus....
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....7,19,362 actually belonged to and developed by M/s. Unimed Technologies Ltd. The assessee company had made arrangements in a manner so that the actual profit earned from transfer of technology could not be taxed in India. Therefore, it is concluded that the entire sale proceeds of US$ 1,17,19,362 which has come to Sun BVI is income of M/s. Unimed Technologies Ltd. Hence in the case of M/s. Unimed Technologies Ltd an amount equaling US$ 1,13,19,362 is found to have escaped assessment within the meaning of sec.147 of the Income Tax Act, 1961 for the assessment year 04-05. Therefore, I have reason to believe that this case is a fit case for reopening." 4. In the nutshell case of the Assessing Officer was that Unimed Technologies Ltd. had during the previous year to the relevant assessment year 2004-2005 transferred technology to Sun Pharma Global Inc. (Sun BVI), a company based in British Virgin Islands for a sum of US$ 4,00,000. This technology was shortly thereafter, sold by Sun BVI to a US based company Caraco for US$ 1.17 crores (rounded off). According to the Assessing Officer's inquiry, Sun BVI did not have necessary establishment and wherewithals to make any significant ....
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....th the assessee in 1997. In 2002, a new Technology Transfer Agreement was entered into between Caraco and Sun Pharma Global Inc.BVI (Sub BVI) with an intention to transfer profit from the assessee, to Sun BVI, assessee's subsidiary based in `tax heaven' to evade tax in India. The facts are as under: On perusal of the financial settlements filed with the Return of Income For A.Y.2004-05 it is found that Sun Pharma Global Inc.BVI (SunBVI) and Caraco Pharmaceutical Laboratories Ltd (Caraco) are amongst the subsidiaries of the assessee. a) Sun BVI is shown to be engaged in sale and 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. ....
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....9;tax heaven' as income is not changeable to tax) is a shell entity and used as a device for diverting taxable profits of the assessee to Sun BVI. It is seen from the record that during this year Sun BVI has received $1,17,19,262/- from Caraco on account of so called transfer of technology. It has been explained earlier that Sun BVI has not developed any technology on its own nor could it prove that technology have been purchased from any other concerns having capacity to develop such technology. Sun BVI and Caraco, both are subsidiaries of the assessee. The assessee company has capacity and produces such technology. From 1997 to 2002 the assessee 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 rec....
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....y 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 had claimed very low operating expenses especially concerning salary. These facts would show that Sun BVI had no research facilities. Sun BVI had incurred very low expenses and shown high profit margin which was not taxable in British Virgin Islands. According to the Assessing Officer, Sun BVI could not have developed the technology and generate such huge profits by transferring it to CARACO. According to the Assessing Officer, the facts therefore, prove that technology which was shown to have been sold for USD 4 lacs by Unimed to Sun BVI was in reality indirectly sold to M/s CARACO for USD 1,17,19,362 in order to avoid payment of taxes..... 4. In comparison, the reasons recorded by the Assessing Officer in case of Sun Pharma though concerning the same transfer of technology, gave a slightly different version. These reasons can be summarized as under: 4.1 CARACO is a US based subsidy of Sun Pharma. From financial statements filed by Sun ....
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.... 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 of relevant assessment year, the original assessment was framed after scrutiny and there was no omission on the part of the assessee to disclose true and full material facts. Notice for reopening is therefore bad in law. (b) There is no material available with the Assessing Officer to come to the conclusion that the assessee received any consideration higher than 4 lacs USD for transfer of technology. Merely because, such technology was thereafter transferred by Unimed to CARACO at higher price would not establish that the assessee had received any higher sum and that therefore income had escaped assessment. In any case, the reasons recorded by the Assessing Officer in case of Sun Pharma would substantially destroy the ground on which the notice for reopening is issued against Unimed. (B) In case of Sun Pharma, counsel raised the following contentions: (a) The impugned notice is issued beyo....
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....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 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. 9. Coming back to the notice for reopening in the case of Sun Pharma, we may notice that in case of this very company in Special Civil Application No.2965 of 2013, the issue had arisen of reopening of assessment where allegedly according to the revenue, technology was transferred by Sun Pharma to CARACO taking exactly the same route as in the present case. In this context, the Assessing Office....
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....ailable 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 under sections 147 & 148 of the Act. 11.1 We note at this juncture that we have restricted our scrutiny to initiation of reassessment proceedings under section 147 as also to jurisdictional powers exercised by the Assessing Officer which culminated into the issuance of notice under section 148 of the Act, touching the merits of the matter, only for such restricted purpose, without delving into the merits of the matter." 10. In the present case, as per the reasons recorded, previously Sun Pharma and Sun BVI had a Technology Transfer agreement. However, in the present case, technology was transferred by Unimed to Sun BVI for a declared consideration of 4 lac USD which, Sun BVI a subsidiary of Sun Pharma based in British Virgin Islands sold the same technology to M/s CARACO for 1.17 crores USD. The statement of Sudhir Valia key person in the group of compa....
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.... 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 evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co.Ltd. V.ITO[1991]191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is reason to believe, but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern....