income tax
On July 6, 2022, the Income Tax Department executed search and seizure operations targeting a significant pharmaceutical group in Bengaluru. This group specializes in manufacturing and marketing pharmaceutical products and Active Pharmaceutical Ingredients (API), with operations in over 50 countries. The searches affected approximately 36 premises across 9 different states.
During these operations, substantial incriminating evidence, including documents and digital data, was uncovered. An initial review of this evidence revealed that the group had recorded disallowable expenses in its financial statements. These expenses pertained to the distribution of freebies to medical professionals, categorized under "Sales and Promotion." The freebies included travel expenses, perks, and gifts provided to doctors and other medical professionals to endorse the group’s products. Such expenses were classified under various headings, including "Promotion and Propaganda," "Seminars and Symposiums," and "Medical Advisories." The estimated total value of these freebies is around Rs. 1,000 crore.
Additionally, the group was found to have claimed artificially inflated deductions under specific provisions related to certain incomes. This was achieved through the suppression of expenses and the overstatement of revenue allocated to units eligible for such deductions. Other methods of tax evasion were also identified, including insufficient allocation of research and development expenses to qualifying units and inflated claims for weighted deductions under Section 35 (2AB) of the Income-tax Act, 1961. The estimated tax evasion from these activities exceeds Rs. 300 crore.
The investigations also revealed instances of violations related to tax deduction at source under Section 194C of the Income-tax Act, 1961, concerning contracts with third-party bulk drug manufacturers.
During the search, unaccounted cash totaling Rs. 1.20 crore was seized, along with unaccounted gold and diamond jewelry valued at over Rs. 1.40 crore.
Further investigations are currently underway to assess the full extent of the findings and implications for the Bengaluru pharmaceutical group.