IT Department Raids on Pharmaceutical Group in Bengaluru

The Income Tax Department conducted search and seizure operations at a significant pharmaceutical company with headquarters in Bengaluru that produces and markets pharmaceuticals as well as active pharmaceutical ingredients (API) on 06.07.2022. The organisation is present in more than 50 nations. The search operation involved 36 locations spread over 9 States.

Significant amounts of damning evidence have been discovered and confiscated during the search operations in the form of documents and digital data. Initial examination of the data has shown that the organisation has been debiting in its books of account improper expenses related to the distribution of freebies to medical professionals under the heading “Sales and Promotion.” In exchange for pushing the group’s products through “Promotion and Propaganda,” “Seminars and Symposiums,” “Medical Advisories,” etc., doctors and other medical professionals received travel expenses, perquisites, gifts, and other freebies. According to the evidence, the group has used unethical tactics to advertise its brands and products. An estimated Rs. 1000 crore worth of such freebies have been discovered.

Additionally, it was discovered that the group had suppressed expenses and improperly allocated revenue to the unit that qualified for the special provisions deduction in order to claim an artificially inflated deduction in respect of certain revenues. There have also been discovered a number of other ways to evade taxes, such as the improper allocation of R&D costs to qualified units and the exaggerated use of the weighted deduction allowed under section 35 (2AB). It is anticipated that over Rs. 300 crore in tax is being attempted to be dodged using these methods.

Infractions of the tax deduction at source rules under section 194C of the Income-tax Act of 1961 have also been found in relation to transactions made under agreements made with independent bulk medicine producers.

Unaccounted cash worth Rs. 1.20 crore and unaccounted gold and diamond jewellery worth more than Rs. 1.40 crore were also found during the search operation.

Further investigations are in progress.