TMI Blog2013 (7) TMI 1034X X X X Extracts X X X X X X X X Extracts X X X X ..... d hereinabove while dealing with the same. And therefore, without going into the larger issue of as to whether a particular angle, if is missed out in a question determined on scrutiny in a regular assessment, whether reopening on such left out angle is permissible or not, as far as this ground is concerned, in wake of the reasonings given in the records of reasoning; particularly emphasizing on SPS which never existed and when all other angles otherwise are examined sufficiently and elaborately, this appears to be an attempt pure and simple to review its own order alongwith other materials found in relation to the first issue. Therefore, the notice for re-opening on this count shall need to fail. - SPECIAL CIVIL APPLICATION No. 2965 of 2013 - - - Dated:- 29-7-2013 - MR. M.R. SHAH and MS. SONIA GOKANI JJ. Appearance: Mr SN SOPARKAR Sr Advocate with Mr B S SOPARKAR, ADVOCATE for the Petitioner Mr MR BHATT Sr Advocate with Mrs MAUNA M BHATT, ADVOCATE for Respondent ORAL JUDGMENT (PER : HONOURABLE Ms. JUSTICE SONIA GOKANI) Rule. Learned advocate Ms. Mauna Bhatt appears and waives service of notice of rule on behalf of the respondent. With the consent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 25,20,66,051/=. 3.2 Such order came to be challenged before the Commissioner of Income-tax [Appeals]-IV, Ahmedabad [hereinafter referred to as, CIT (A) ] which passed an order on 24th February 2009 where detailed discussion had taken place on the Research Development expenses and the Assessing Officer was directed to recalculate the arm s length price with regard to the commission paid to the associate enterprise. Hence, such ground of appeal was partly allowed. 3.3 Thereafter, notice under section 148 of the Act for reopening of the assessment came to be issued on 30th March 2012. 3.4 A letter dated 26th April 2012 was addressed by the petitioner to the respondent requesting to furnish copy of the reasons recorded and it filed revised return of income in pursuance to such notice under section 147 read with section 148, after making certain adjustments. 3.5 A copy of the reasoning was furnished to the assessee on 1st August 2012. The petitioner raised various objections vide its communication dated 20th September 2012 and requested the respondent to drop the re-assessment proceedings. Such objections came to be disposed of by the respondent on 16th January 2013. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pared to the value at which the same are transferred by Sun BVI to Caraco. The huge profits ranging from 95 to 97% earned in Sun BVI are exempt from tax since Sun BVI is incorporated in British Virgin Islands which is a tax haven. During the course of survey dossiers and other technical details pertaining to the above mentioned 25 technologies were found at the R D office of SPIL in Baroda and Mumbai. These dossiers and technical details were examined and relevant extracts of the same were obtained. These dossiers and technical details show that these technologies were developed at SPIL in Mumbai and Baroda and at the time of developing these technologies itself, the fact that these technologies were to be used by Caraco in USA was known and recorded in the dossiers and technical documents. xx xx xx xx In view of the above information and evidences in my possession, I have reason to believe that the assessee has adopted dubious device and thereby income to the extent of ₹ 115,88,76,177 [US$ 257,81,450] has escaped assessment. 3.8 The second ground raised is in respect of allocation of Research Development Expenses, which reads thus - Therefore, it c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to reduce its taxable income by not disclosing the true nature of transactions in its books of account and the return of income. In fact, it would not have been possible for the Assessing Officer to know about the mechanism adopted by the assessee to evade the tax liability but for the evidences gathered during the course of survey operation conducted by the Asstt. Director of Income Tax [Inv] Unit VII (1), Mumbai and the enquiry and investigation conducted by the ADIT [Unit I] Baroda. Hence, this was 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, the assessee has emphasized that both the grounds have already been considered in the scrutiny assessment. Moreover, for the Assessment Year 2003-04, 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 Limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in case of Unimed Technologies Limited and M.J Pharmaceuticals Limited for the A.Y 2005-06, assessment has been accepted. If at all income has escaped assessment and is required to be taxed, it would be in the case of both these companies for whom, the job work has been done by the petitioner and the petitioner s assessment is wrongly re-opened. It is emphasized that nowhere it emerges from the entire set of documents that the petitioner has not disclosed fully and truly all material facts which it was required to reveal and on account of that, any taxable income has escaped the assessment. According to learned counsel, it is only at the time of survey carried out at the premise of the petitioner company, certain material were found which surely does not 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 author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment has been completed and accepted and as the period of six years also was over for the A.Y 2003-04, assessment could not be re-opened. He heavily relied upon some of the statements recorded under section 131 of the Act which came to be recorded during the course of survey proceedings. He urged that senior scientist heading the team of developing twenty five technologies for Caraco, USA had admitted of these technologies being developed by the petitioner for none other than Caraco, USA. He, therefore urged that on the question of jurisdiction, when the Revenue is able to satisfy the Court that there is no true disclosure 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 reassessment 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, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent on account of failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessment, after expiry of four years from the end of relevant assessment year. This being the case of notice under section 148 of the Act having been issued beyond the period of four years from the end of relevant assessment year, conditions required to be fulfilled is that the assessee failed to make a return under section 139 or in response to a notice under sub-section (1) of section 142 or Section 148 or it failed to disclose fully and truly all material facts necessary for his assessment. 9. Admittedly, in the instant case, notice has been issued beyond a period of four year after the survey was conducted on 8th November 2011.It is not on the basis of material or evidence available with the Assessing Officer but the material collected during the survey proceedings that a notice has been issued to the petitioner under section 148 of the Act. A moot question therefore would be whether the Revenue would assume jurisdiction to issue a notice under section 148 of the Act from the material collected during the course of survey to hold a belief that the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ems shown as loan against security of Hundies in assessee s books of account for assessment year under question were in fact fictitious. The Incometax Officer in the challenge to such reopening by way of a writ petition, did not set-out any material on the basis of which he arrived at such a belief. On having found that the assessee had produced all Hundies on the strength of which it had obtained loan as also the entries in the books of account showing payment of interest, the Court held the notice issued under section 147 of the Act as void. The Court also held that the Income-tax Officer had not given any satisfactory reason to uphold its belief that a part of income of the respondent has escaped assessment by reason of its failure to make a true and full disclosure of the material facts. 9.4 In the case of Ganga Saran Sons (P) Limited v. Incometax Officer , in a proceeding under section 147 of the Act of reassessment of the income alleged to have escaped the assessment, the Income-tax Officer had a reason to believe that on nondisclosure of primary facts, the Income-tax Officer s action under section 147 of the Act was justifiable. D, a director of company and brother-i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so that, no such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the ITO could not have reason to belief that any part of the income of the assessee had escaped assessment and such escapement was by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts and the notice issued by him would be liable to be struck down as invalid. 9.5 In the said decision, the Supreme Court noticed that the statement of accounts of the director for the relevant accounting year and also for the previous year were with the ITO at the time of original assessment and such statements of account clearly reflected that out of the amount of remuneration credited to his account, gift was made to Managing Director, who was his brotherin-law. The Income-tax Officer also was aware that this man was the managing director of the assessee company. The assessee, according to the Apex Court, could not be said to be under obligation to disclose to the Income-tax Officer in the course of assessment as to how the director, who was in the sole charge of the management of the assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rferences whether of facts or law - he would draw from the primary facts. If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. How could an assessee be charged with failure to communicate an inference, which he might or might not have drawn ? It may be pointed out that the Explanation to the sub-section has nothing to do with inferences deals only with the question whether primary material facts not disclosed could still be said to be constructively disclosed on the ground that with due diligence the ITO could have discovered them from the facts actually disclosed. The Explanation has not the effect of enlarging the section, by casting a duty on the assessee to disclose inferences - to draw the proper inferences being the duty imposed on the Income-tax Officer. Therefore, it can be concluded that while the duty of the assessee is to disclose fully and truly all primary relevant facts, it does not extend beyond this. 9.7 The Apex Court also held therein that on the primary facts disclosed to the Income-tax Officer, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. This Court in case of Sun Pharmaceutical Industries Limited v. Deputy Commissioner of Income-tax, reported in [2013] 353 ITR 450 was dealing with the income escaping the assessment when the issue of notice under section 147, the assessee sold certain goods to its sister concern, it was found by the Assessing Officer that on delayed payment of such goods, interest @ 24% per annum was paid, which was higher than the prevailing market rate of interest which was between 15% - 18%. According to the Assessing Officer, by adopting such modality, the assessee reduced taxable profit and at the same time, increased the profit of its unit which was eligible for deduction under section 80IH of the Act. Certain essential facts like assessee received interest on overdue payments from A and that A was a sister concern of the assessee company and that such interest charged was 24% per annum were not discernible from record at all. It was therefore held that the Assessing Officer was justified in initiating re-assessment proceedings. This Court, relying upon a decision in case of Phool Chand Bajrang Lal v. Income-tax Officer, reported in 203 ITR 456 , held as under :- Where t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s dismissed. No order as to costs. 10.3 Delhi High Court, in case of Remfry Sagar v. Commissioner of Income-tax, reported in [2013] 351 ITR 75 (Delhi) was examining the question of jurisdiction of issuance of notice under section 147 of the Act. The assessee firm made payment to a company under a licence agreement for use of goodwill and name of the said company. Assessee filed return and claimed that payment made to company under licence agreement was a revenue expenditure and such claim was allowed for the years under consideration. However, in course of assessment proceeding, the Assessing Officer examined licence agreement which was not filed in earlier years and on going through its claim for deduction of licence fee, payment was not found allowable. On reopening of the assessment of the relevant years, the Court held that since the assessee did not furnish licence agreement before the Assessing Officer in course of original assessment proceedings and only an appraisal of various clauses of agreement would not enable the Assessing Officer to arrive at a conclusion regarding allowability of the payment as business expenditure, therefore, such failure on the part of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guage without any substance would certainly not amount to satisfying the jurisdictional conditions but if the language used coupled with the context is sufficiently capable of conveying the fact that there was failure on the part of the assessee to furnish primary facts fully and truly at the time of original assessment, that should be sufficient compliance with the requirements of section 148(2) of the Act. In this view of the matter we are unable to accept the contention of the petitioner that the failure to refer to the omission of the petitioner specifically to file the licence agreement (in the reasons recorded) is fatal to the validity of the reassessment proceedings. 17. We now proceed to a consideration of the question whether the licence agreement dated 05.06.2001 is a primary fact which ought to have been placed by the petitioner before the assessing officer in the course of the original assessment proceedings. In Calcutta Discount Co. Ltd. v. Income-tax Officer (1961) 41 ITR 191 a constitution Bench of the Supreme Court held that it was the duty of the assessee to furnish all the primary and material facts fully and truly before the assessing authority and failure t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the primary fact in the case was the lease agreement and since the same had been placed before the income tax officer at the time of original assessment, there was no failure to furnish primary facts. It was further held that it was not the duty of the assessee to draw the attention of the income tax officer to any particular clause or portion of the agreement and invite him to draw a particular inference from the same. It would thus appear that whenever a claim is made for any deduction or allowance or relief in the computation of the total income, and if the claim is based on the terms and conditions of a document or documents, it is the duty of the assessee to place before the assessing officer the document or documents; the document would constitute the primary fact. The word primary means that which is first in order, rank or importance; anything from which something else arises or is derived (P. Ramanatha Aiyar‟s The Major Lexicon, IVth Edition 2010). In the petitions before us, it is an admitted position that the petitioner did not furnish the licence agreement dated 05.06.2001 before the assessing officer in the course of the original assessment proceedings for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ist in the instant case, and therefore, the second condition shall have to be closely examined as to whether there is anything to indicate that there was any failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment in the year under question. Since the notice under section 148 had been issued on expiry of period of four years from the end of relevant assessment year, mere mechanical reproduction of provisions or expression of having fulfilled its obligation of revealing all primary facts would not satisfy the jurisdictional requirement. At the time of original assessment, if there is a failure to furnish the primary facts; fully and truly, it should not be a sufficient compliance of the requirement of section 148 (2) as held in catena of decisions and what would amount to primary facts would depend on each case from its facts and circumstances. The endeavour hereinafter therefore would be to examine as to on the basis of which material, the assessing authority has drawn factual and legal inference and whether those primary facts were already furnished to the assessing authority by the assessee at the time of original assessment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be noted here that in the brochure of the Company [at Annexure B-2], the details of Caraco Pharmaceutical Laboratories Limited is also provided. Sun BVI account is already provided which had transferred the technology to Caraco Pharmaceutical Laboratories Limited. It also mentions that upto 2002, there was an 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. 10.9 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the technology to be transferred to Caraco will not be developed by SPIL ie., the assessee as any potential litigation would threaten the very survival and existence of SPIL. The entire legal and commercial ownership of the technology was kept in Sun BVI to isolate SPIL from any potential litigation. In view 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 prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of this dossier and of the proceedings before TPO who had determined the arm s length price of international transactions, the fact remains that when from the material other than those which were available at the time of original assessment, the Assessing Officer has a reason to believe that the income has escaped 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. 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 masquerad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for on 2nd August 2007, which reads thus - [11] You have claimed R D revenue expenses of ₹ 1,10,99,69,871/= and R D capital expenses of ₹ 6,26,67,140/= and ₹ 53,53,17,674/=. Please give reasons as to why the same should not be allocated amongst various units in the ratio of their turnover. 12.1 A detailed note on allocation of R D expenditure was prepared and submitted by the petitioner and the same has been submitted as a part of compilation from page nos. 84 to 89, which does not require reproduction in this order so as to avoid unnecessary bulk. Suffice it to hold that this had been examined and the Assessing Officer in its assessment order dated 25th March 2008 vide para 8.3.3, in detail, dealt with the issue as follow :- 8.3.3 The reply of the assessee has been considered. In fact, the R D Expenses are basically pertaining to the head office expenses which are not directly relatable to a particular unit. Hence, in order to scientifically distribute these expenses, they should be apportioned in the ratio of turnovers of various unit. If that is not done, it may lead to excess deduction to the assessee u/s. 80IB or 10A or 10B. This issue of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TOTAL 116109.11 100 Thus, ₹ 8,61,84,003/= should be allocated to Silvassa-II Unit. However, already ₹ 4,34,25,000/= is allocated to Silvassa II Unit. Hence, the extra allocation in Silvassa II unit is ₹ 4,27,59,003/=. 12.2 This was challenged before the CIT [A], which decided the issue thus - 10.1 On perusal of assessment order, it has been noticed that the Assessing Officer allocated R D expenses to Units claiming deduction u/s. 80IB. The assessee has claimed R D Revenue Expenditure of ₹ 1,10,99,69,871/= and R D Capital Expenditure of ₹ 59,79,84,814/-, the total being ₹ 1,70,79,54,685/=. However, from the details submitted by the assessee, it is noticed that the assessee has allocated only ₹ 4,34,25,000/= on account of R D expenses in Silvassa-II Unit. This is not a correct way of treatment as these expenses should be proportionately distributed amongst various units. In fact, the R D Expenses are basically pertaining to the head office expenses which are not directly relatable to a particular unit. Hence, in order to scientifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed. 12.3 It has been much emphasized by the Revenue that since CIT [A] has already decided the appeal, the order of the Assessing Officer merged with that of CIT [A], this is a new ground other than those grounds which are available, and therefore, re-assessment is permissible. As could be noted from the reasons 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. 12.4 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 debitted 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
