Dr Reddy's Slapped Rs 2,395 Cr Income Tax Notice, Pharma Giant Denies Allegations
Hyderabad: The Income Tax Department has issued a show cause notice to Dr Reddy's Laboratories Limited, proposing a tax demand exceeding Rs 2,395 crore in connection with the merger of Dr Reddy's Holdings Limited (DRHL) with the company.
The pharmaceutical giant informed stock exchanges that it has received a notice from the Office of the Assistant Commissioner of Income Tax, Circle 8(1), Hyderabad, under Section 148A(1) of the Income Tax Act, 1961. The notice pertains to the reassessment of income for the Assessment Year 2020–21 (Financial Year 2019–2020) following the company’s merger with Dr. Reddy’s Holdings Limited (DRHL).
The notice, dated April 4, 2025, requires the company to show cause as to why a notice under Section 148 of the Act should not be issued for the reassessment of income allegedly escaping taxation due to the said merger.
According to the filing made under Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the potential tax demand quantified in the notice is Rs 2,395.81 crore (Rs 2,395,81,79,470).
Reassessment Linked to 2022 NCLT-Approved Merger
The issue traces back to the scheme of amalgamation involving DRHL and Dr. Reddy’s Laboratories, which was approved by the National Company Law Tribunal (NCLT), Hyderabad on April 5, 2022, with an appointed date of April 1, 2019.
Dr. Reddy’s emphasized in the disclosure;
“The said scheme of amalgamation was carried with adherence to all the legal requirements including tax laws. Further, this was approved by the Honorable National Company Law Tribunal (NCLT), Hyderabad on 5th April 2022 with effect from the Appointed date i.e. 01st April 2019.”
No Material Financial Impact Expected, Says Company
Despite the substantial quantum involved, Dr. Reddy’s has stated that, based on their internal assessment, the matter is not expected to materially impact the company’s financials, operations, or other activities at this stage.
The company firmly denied any tax evasion in connection with the merger, stating;
“The Company strongly believes that there is no escapement of tax pursuant to the said merger scheme. Nonetheless, the Company is reviewing the information and clarifications required in the Show Cause notice and will respond, as required, appropriately.”
Promoters to Indemnify the Company for Any Liability
Notably, the merger scheme also includes a specific indemnity clause to protect the company;
“The said scheme also provides that the Promoters of the Company will jointly and severally indemnify, defend and hold harmless the Company, its directors, employees, officers, representatives, or any other person authorized by the Company (excluding the Promoters) for any liability, claim, or demand, which may devolve upon the Company on account of this amalgamation.”
The company has assured that it will respond to the notice in due course and is evaluating the matter thoroughly.
