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2016 (9) TMI 864 - GUJARAT HIGH COURT

2016 (9) TMI 864 - GUJARAT HIGH COURT - TMI - Reopening of assessment - technology transfer - whether Sun Pharmaceutical alone had developed the technology and transferred through circuitous route to avoid taxation and Unimed Technologies Ltd. did not have any infrastructure facilities for such purpose? - Held that:- 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 .....

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d 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 s .....

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n 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 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 coul .....

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APPLICATION NO. 14082 of 2011 - Dated:- 14-9-2016 - MR. AKIL KURESHI AND MR. A.J. SHASTRI, JJ. FOR THE PETITIONER : MRS SWATI SOPARKAR, ADVOCATE FOR THE RESPONDENT : MR KM PARIKH, ADVOCATE ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The petitioner has challenged a notice dated 29.3.2011 issued by the respondent Assessing Officer to reopen the petitioner's assessment for the assessment year 2004-2005. 2. Brief facts are as under. The petitioner is a company registered under t .....

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n 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 ₹ 13210. No scruti .....

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armaceutical 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 CA .....

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ng expenses claimed by Sun BVI, especially salary, were very low during the said period. All these facts led to the fact that there was no research facilities and resources at the disposal of Sun BVI, a company based at British Virgin Islands which had reflected significant income/turnover with a very low cost base for the financial years 2003-04 to 2006-07. On very low expenditure both direct and indirect, the Sun BVI had shown very high profit of margin which was not liable for taxation in the .....

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ired technology from M/s. Unimed Technologies, as sister concern of Sun India Ltd. It was also submitted by the Sun India Ltd that Sun BVI does not have any R&D facility. This fact proves that the technology which is shown to have been sold for US$ 4,00,000 by M/s. Unimed Technologies Ltd (PANAAACE4022B) to Sun BVI was in reality indirectly sold to CARACO for US$ 1,17,19,362 in order to avoid payment of taxes on amount of US$ 1,13,19,362 because whatever technology was transferred by SUN BVI .....

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sessment 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, .....

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itioner 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 developing such techno .....

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adopted the name of Unimed Technologies Ltd. cannot face notice of reopening of assessment pertaining to the assessment year 2004-2005. 6. Learned counsel for the Revenue however, submitted that the original return of the assessee company was accepted without scrutiny which would permit a greater latitude to the Assessing Officer. He has recorded valid reasons demonstrating materials on record prima facie, suggesting that Unimed Technologies Ltd. had transferred technology to Caraco at an unders .....

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e assessee had entered into a Technology Transfer Agreement with 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 .....

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ddress. 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 considerat .....

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echnology 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), UnitI, Baroda from Shri Sudhir Val .....

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ot have a dedicated workforce of scientists that are required for R&D work. It has only a small lab and does mainly a job work for the assessee and produces injection and eye drops. These facts prove that Unimed Technologies Ltd., is not capable of transferring technology which can fetch such high premium subsequently. Proper facility of R&D is available with the assessee only under its research centre named SPARC. In view of the above, it can be conclusively said that the Sun BVI, which .....

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logy 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 t .....

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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 .....

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alone had developed the technology and transferred through circuitous route to avoid taxation and Unimed Technologies Ltd. did not have any infrastructure facilities for such purpose, the question would be how would the Revenue in case of Unimed Technologies Ltd. contend that the technology was developed by Unimed Technologies Ltd and transferred at an understated price. 9. By a common judgement dated 12.9.2016 in Special Civil Application No.17781/2011 and connected matter, we had allowed the p .....

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ssociate 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 had claimed very low operating expenses especially concerning salary. These facts would show that Sun BVI had no r .....

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rder 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 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 .....

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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 which were not taxable in British Virgin Islands. 4.2. The statement under Section 131(1A) of the Act of Shri Sudhir Valia, a key person of group of companies and present director of Sun Pharma was recorded by the investigating wing of the Income Tax Department. In such statemen .....

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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 requ .....

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he 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 a .....

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ng 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 .....

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y notice that both the notices for reopening cannot coexist. The reasons recorded in the case of Unimed and Sun Pharma pertain to the same transaction. The same income obviously cannot be taxed twice. Apart from this, the reasons recorded in the case of Sun Pharma substantially destroy the reasons recorded in the case of Unimed. We say so for the 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 consider .....

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fficer canvases that even Unimed did not have any such capability. It did not have fullfledged 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 throug .....

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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 Officer had recorded elaborate reasons alleging that effectively it is the technolo .....

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. 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 fact disclosing facts truly and fully as warranted for the purpose of assessment can certainly not amount to ass .....

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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 .....

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titioner 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 rest .....

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ompanies 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 ce .....

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er 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. 11. 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 Vi .....

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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 incom .....

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