Cipla gets ₹773 crore demand notice from income tax department. Here’s why

Leading pharmaceutical manufacturer Cipla Ltd received an additional tax demand of ₹773.44 crore from the income tax department for assessment years 2015-16 to 2022-23, the drug maker said in a stock exchange filing on July 16.

The tax authority has asked for additional taxes, citing rule violations, including short deductions, weighted deductions, and disallowances of various expenses under the Income Tax Act Section 37(1).

A short deduction is a default that occurs when the tax actually deducted is less than the rate mentioned in the provisions. A weighted deduction is allowed for companies to invest in the development of knowledge and research capabilities in the country. Section 37(1) of the IT Act includes expenses incurred only for the company's business operations.

The ₹773.44 crore tax demand excludes any refund for the mentioned assessment years.

The pharma major stated in the stock filing that the demands by the income tax authority are not applicable under the law and the income tax notice will not impact the finances or the operations of the company. The company will appeal against the IT order under the applicable laws.

CIPLA is scheduled to announce its quarterly results for Q1 FY25 on July 26. In the previous quarter, the company posted a consolidated net profit of ₹939.04 crore, up by 78.64 per cent year-on-year due to higher demand in key markets, according to a Mint report on May 10.

The company's consolidated revenue in Q4 FY24 rose by 7.4 per cent on a year-on-year basis to ₹6,163.24 crore.

The report cited Umang Vohra, MD and Global CEO of Cipla Ltd, as saying at a conference call that the drug maker is getting ready to launch new products, including obesity drugs, which have a huge market in India. Currently, the company  is  set to replace its entire range of products containing chlorofluorocarbons (CFC) to adhere to Montreal Protocol, two years ahead of the deadline.