Sun Pharma Under IT Radar

The Income Tax department is probing Sun Pharmaceuticals for related-party transactions and suspected misuse of research & development expenditure, according to sources with direct knowledge of the development.

The move follows Andhra Pradesh High Court’s decision to put on hold the firm's $4 billion acquisition of Ranbaxy Laboratories over insider trading charges.

"The IT department suspects that certain related-party transactions on technology transfer between Sun Pharma and the overseas entity Sun BVI were not conducted at arms length, and have consequently attracted transfer pricing scrutiny," a source said.

"The second allegation relates to misuse of R&D expenses at Sun Pharma's Sikkim unit, which is exempted from tax under Section 80 IC of the Income Tax Act. The department believes that R&D expenses pertaining to this unit were also being debited in the books of Sun Pharma Mumbai, thereby, reducing the profits of the Mumbai unit," the source further revealed.

Sun Pharma has a formulations unit in the north-eastern state of Sikkim. The state is eligible for tax exemption as per the North East Industrial & Investment Promotion Policy, 2007.

"The Income Tax department has issued four separate orders against Sun Pharma, demanding Rs 250-270 crore. The latest order was issued in March 2014 for the assessment year 2010-2011, seeking nearly Rs 140 crore," another source said.

Meanwhile, a pharma analyst said, "Sun Pharma is likely to contest these demand orders at various appellate forums and seek relief."
The Andhra Pradesh High Court will hear the case on June 5.

Issuing a statement, Sun Pharma had earlier said, "The matter related to purchase of shares of Ranbaxy Laboratories Ltd does not violate insider trading rules. With regards to the petition filed, the matter is sub-judice and hence, we cannot make specific comments. But we would be taking appropriate action as advised by our legal counsel."
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