TMI Blog2016 (9) TMI 864X X X X Extracts X X X X X X X X Extracts X X X X ..... ce for such purpose. Such R & D facility was only available with the assessee and its research centre. The Assessing Officer therefore formed a belief that Sun BVI is shell company used only as a device to deviate the taxable profits of Sun Pharma as Sun BVI had also not developed any technology on its own. It was found that Sun BVI and CARACO both were subsidiaries of assessee. The assessee company had capacity to produce such technology and in fact between 199702, Sun Pharma had supplied such technology developed by it to M/s CARACO. In view of such evidence on record, the Assessing Officer concluded that technology in question transferred was actually done by the assessee to CARACO but was routed through other companies only to avoid payment of tax. In our opinion, these reasons do not lack validity. As noted, elaborate reasons have been recorded by the Assessing Officer which demonstrate how prima facie it can be shown that technology developed by Sun Pharma through use of its research and development facilities was routed to CARACO through Unimed and Sun BVI in British Virgin Islands which ensured that the entire amount escaped assessment in the hands of Sun Pharma. At the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 Industries Ltd (Sun India). Matter relates to technology transfer by Sun India to Caraco during FY 199798 to FY 200102 and subsequently it was transferred by Sun BVI to Caraco from the period FY 200203 onwards. Sun BVI is shown to be engaged in sale and distribution of Pharmaceutical products and investment activities. Sun India and its US based subsidiary CARACO had entered into Technology Transfer Agreement during FY 199798 through which profits were earned by Sun India. During FY 200304 CARACO entered into a new Technology Transfer Agreement with Sun BVI and the consideration for the transfer of technology started flowing to Sun BVI. The ADIT (Inv.)I Baroda's enquiry revealed that Sun BVI did not have any Fixed Assets at its disposal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 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 value addition to the technology and in fact, it was a circuitous transfer by Unimed Technologies Ltd. to Caraco through Sun BVI in order to avoid taxation. 5. After raising the objections to the notice of reopening and failing to persuade the Assessing Officer to drop the same, petitioner filed this petition in which interalia, learned counsel for the petitioner raised the following two contentions : 1) That the Assessing Officer has also reopened the assessment of one Sun Pharmaceutical Industries Ltd. in connection with this very transaction of transfer of technology by recording reasons suggesting that its technology is developed by Sun Pharmaceutical Industries Ltd. and Unimed Technologies Ltd. had no infrastructure or wherewithals necessary for dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pularly 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. b) The assessee and its subsidiary in USA viz CARACO had entered into Technology Transfer Agreement during F.Y.199798 through which profits were earned by the assessee. During F.Y.200203, CARACO entered into a new Technology 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x 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 receipt i.e. the income plus the claim of expenditure). In view of the above information in my possession, I have reason to believe that the assessee has adopted dubious device and thereby concealed income to the extent of USD 1,17,19,362/- i. e. ₹ 53,57,62,353/- . I have, therefore, reason to believe that income to the extent of ₹ 53,57,62,353/- has escaped the assessment. Issue notice u/s 148 of the Act. 8. In brief, therefore, according to the Assessing Officer it was Sun Pharmaceutical Industries Ltd., which had developed the technology and got the same transferred to Sun BVI which is a subsidiary company of Sun Pharmaceutical Industries Ltd through which company the technology found its way to Caraco in USA. In a short time, the technology acquired by Sun BVI for US$ 4,00,000 was resold for US$ 1.17 crores. In the reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s..... 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 Pharma with the return of the income for the assessment year 2004-05, it was found that Sun Pharma Global Inc of British Virgin Islands was also subsidiary of Sun Pharma. Sun BVI was engaged in sale and distribution of pharmaceutical products and investment activities. Its address provided was of a P.O.Box. According to the Assessment Officer, research organization of this size cannot operate from a P.O.Box address. Inquiry revealed that large number of companies are registered at the same address. During the financial year 2003-04, CARACO entered into a new technology transfer agreement with Sun BVI. It appears that Sun BVI did not have any fixed assets at its disposal. Its operating expenses especially salary were very low. These facts would show that Sun BVI did not have research facilities. Despite this, Sun BVI has reflected significant income and high profit margin wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corded 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 beyond a period of four years without any violation on the part of the assessee to disclose true and full facts. (b) there is nothing on record to suggest that the technology was developed by Sun Pharma and was lateron transferred to Unimed. (c) There was full disclosure about the payment of 1.17 crores USD made by CARACO to Sun BVI along with the return since Sun BVI happened to be a subsidiary of the Sun Pharma. 6. On the other hand, learned counsel Shri Manish Bhatt for the department opposed the petitions and contended that the Assessing Officer has recorded elaborate reasons which are based on material available to him. The evidence on record would suggest routing the product of the Indian companies through shell companies situated at British Virgin Islands to avoid tax. This Court in the case of Sun Pharma for the subsequent assessment year had upheld the notice of reopening which was based on similar grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Officer had recorded elaborate reasons alleging that effectively it is the technology developed by Sun Pharma which ultimately reached CARACO through British Virgin Islands route, the intermediaries conduits being Unimed and Sun BVI in British Virgin Islands. It is true that these reasons were based on a survey operations carried out by the Income Tax Authorities in the case of assessee and the nature of material at the command of the Assessing Officer therefore is bound to be somewhat different. Nevertheless, the observations made by the Court in this respect may be noted. 11. As mentioned hereinabove, what amounts to primary facts, the disclosure of which truly and fully would discharge the obligation of the assessee would need to be determined on the basis of the facts and circumstances of each case. These facts are crucial and vital and other aspects arise from them. Any facts revealed by the petitioner masquerading the same as primary facts without in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration 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 companies and at that time director of Sun BVI and presently the director of Sun Pharma was recorded under Section 131(1A) of the Act in which he accepted that Sun BVI had no facility of R D and manufacturing. During the inquiry, revenue also found material to suggest that Sun BVI had acquired technology from Unimed. Unimed also did not have elaborate R D facility or necessary work force for such purpose. Such R D facility was only available with the assessee and its research centre. The Assessing Officer therefore formed a belief that Sun BVI is shell company used only as a device to deviate the taxable profits of Sun Pharma as Sun BVI had also not developed any technology on its own. It was found that Sun BVI and CARACO both were subsidiaries of assessee. The assessee company had capacity to produce such technology and in fact between 199702, Sun Pharma had supplied such technology developed by it to M/s CARACO. In view of such evidence on record, the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction. 12. The contention that full and true disclosure have been made cannot be accepted. What was disclosed by Sun Pharma was that its subsidiary received consideration of 1.17 crores USD for transfer of penalty to CARACO. It obviously did not reveal whether Unimed or Sun BVI had any R D development capabilities. 13. In the result, Special Civil Application No.18698 of 2011 filed by Unimed is allowed. The impugned notice dated 30.3.2011 is quashed. Special Civil Application No.17781 of 2011 filed by Sun Pharma is dismissed. Needless to add, our observations are made only for considering whether to uphold the notice of reopening or not and the assessment would be ultimately based on material which may be brought on record unmindful of the observations made above. 10. In the present case, the issues are identical. We therefore, allow t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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