Cipla shares hit 52-week low as I-T dept investigates firm for alleged tax violations


Shares of Cipla touched a 52-week low of 853.5, down 2.47 per cent on BSE in Tuesday’s trading session on reports of the income tax (I-T) department investigating the drugmaker over potential tax violations and tax avoidance.

Market cap of the drugmaker fell to 70,532 crore as the shares succumbed to selling pressure. The stock was trading 0.22 per cent lower at 873.20 at 12:09 pm against the previous close of 875.15. Cipla shares hit an all-time high of 1185.2 on 1 November, 2022.

Cipla said that no tax demand has been raised so far, according to a CNBC TV18 report.

The I-T department had carried out a survey action against the company on 31 January.

The report added that the tax department is investigating whether Cipla made wrongful claims under Section 80-IA. Preliminary investigation has alleged wrong claims worth 400 crore made under that section.

Section 80-IA of the I-T Act provides for deduction of 100 per cent of profit and gains derived from specific businesses for 10 consecutive assessment years in a block of 15 years, only up to a certain period.

The I-T department has also alleged wrongful deductions worth 1,300 crore claimed for Research and Development, the report said.

Section 35 of the I-T Act provides for deduction on expenditure incurred for scientific Research & Development and ranges from 100-150 per cent on a case specific basis.

The report further said that tax avoidance on funds was given as benefits to doctors and medical practitioners, the I-T department has alleged.

“There is no claim or demand made on us. Cipla in an exchange notification on February 6 had shared that the company has fully cooperated with the IT Department in providing details and documents requested. Cipla continues to do so, on all items indicated by the I-T Dept,” a Cipla spokesperson was quoted as saying by CNBC TV18.

Meanwhile, brokerages Jefferies, Credit Suisse, JPMorgan and Nomura trimmed their targets on the drugmaker by 159-250.

Jefferies recently cut the target price on Cipla stock to 900 from 1,100 while retaining a ‘hold’ rating.

The brokerage has flagged a possible bear case scenario due to no big launches in the US for the next two years, sharp erosion in the value of top-selling US drug Albuterol, and higher R&D spends.

“While the stock is down 15% over the last month, it is still away from our bear-case valuation,” Jefferies said in its 7 March investor note.

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