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2013 (7) TMI 1147
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....ction. 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 Rs. 70,56,89,010/=, which was revised and the loss was reduced at Rs. 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 file....
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.... 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 conclusion / satisfaction are as under :- Diversion of profits on transfer of Technology to Caraco through Sun BVI This is in view of the devic....
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....ummary 11 Glipizide & Metformin Hydrochloride Tablets SPIL - Mumbai Executive Summary 12 Lamotrigine 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 poss....
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....th the formulations and bulk drugs are manufactured by nits under SPIL. The ratio in which the R&D expenditure is allocated between formulations and bulk drugs within the units of SPIL is 3:1 or in other words 75% of the 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 Rs. 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 Rs. 33.2 Crores has escaped assessment which requires to be taxed under p....
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....as a new fact and information for this office and in view of the same, I am satisfied that the above income has escaped assessment by reasons of the failure on the part of the assessee to disclose fully and truly all material facts necessary 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 departmen....
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....s required to reveal and on account of that, any taxable income has escaped the assessment. According to learned counsel, at the time of survey carried out at the premise of the petitioner company, no new material were found which would bring the case 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 tha....
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....sclosure and that too true and full on the part of the petitioner, no interference at the stage of the notice be done as the assessee is likely to get the fullest opportunities to raise its defence in the re-assessment proceedings. He further urged that 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, subseque....
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....volving matters which are the subject-matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1 : Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence 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, bu....
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....rial facts come to the knowledge of the Assessing Officer, which was not available at the time of original assessment, Assessing Officer would be within his right to initiate reassessment proceedings, if in his opinion, income chargeable to tax escaped assessment in the relevant assessment year and here the principle of 'change of opinion' 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 Transfe....
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....agreement with the petitioner for transferring the technology formulations for 25 generic pharmaceutical products for a period of five years in exchange of 5,44,000 shares of Caraco common stock. The agreement expired on November 21, 2002 and the Caraco Pharmaceutical Laboratories Limited entered into a new technology 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 ....
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....of the above, it could be believed that in such regulated market, the company was taking extreme care in avoiding any potential litigation. Hence, it is also logical that the product purchased by Caraco which is a subsidiary of the assessee company would be resourced from best possible 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 bu....
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....d assessment and when such belief is formed not simply on the basis of doubt or suspicion, but from the material unearthed during the survey operation and is further substantiated by the statements of senior officers executing the very work forming part of the team working 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 assume....
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....easons recorded that under the flagship of the petitioner-company viz., Sun Pharmaceutical Industries Limited, units are operating at Jammu and at Dadra units and as per the audit 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 De....