Dy.CIT, Circle-16(2), Hyderabad V. M/s Astrix Laboratories Ltd., Secunderabad

ITA 198/HYD/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87467 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 07-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G APARNA RAO
• Assessee Lawyers: S RAGHUNATHAN
• Keywords: Depreciation; Transfer pricing; International transaction
• Section: 92A; 115JB; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.198/HYD/2014 ASSESSMENT YEAR 2009-2010 DCIT, CIRCLE 16(2) HYDERABAD. VS. M/S. ASTRIX LABORATORIES LTD., SECUNDERABAD. PAN AAFCA4120R (APPELLANT) (RESPONDENT) ITA.NO.234/HYD/2014 ASSESSMENT YEAR 2009-2010 M/S. ASTRIX LABORATORIES LTD., SECUNDERABAD. PAN AAFCA4120R VS. DCIT, CIRCLE 16(2) HYDERABAD. (APPELLANT) (RESPONDENT) FOR REVENUE : SMT. G. APARNA RAO FOR ASSESSEE : MR. S. RAGHUNATHAN DATE OF HEARING : 10.02.2015 DATE OF PRONOUNCEMENT : 25.03.2015 ORDER PER B. RAMAKOTAIAH, A.M. THESE TWO ARE CROSS APPEALS BY ASSESSEE AND REVENUE AGAINST THE ORDERS OF A.O. UNDER SECTION 14 3 READ WITH SECTION 144C(V) CONSEQUENT TO THE DIRECTIONS OF DRP , HYDERABAD DATED 29.11.2013. 2. BRIEFLY STATED, ASSESSEE IS A JOINT VENTURE COM PANY BETWEEN ASPEN PHARMACARE LIMITED, SOUTH AFRICA AND MATRIX LABORATORIES LTD., INDIA. ASSESSEE SPECIALIZES IN T HE MANUFACTURE OF ANTIRETROVIRAL ACTIVE PHARMACEUTICAL 2 ITA.NO.198 & 234/HYD/2014 M/S. ASTRIX LABORATORIES LTD., HYDERABAD. INGREDIENTS (API), WHICH ARE USED FOR THE TREATMENT OF INFECTIONS BY RETROVIRUSES. THE MANUFACTURING FACIL ITY OF ASTRIX IS LOCATED AT KAZIPALLY, HYDERABAD AND IS APPROVED BY THE US FDA. FOR A.Y. 2009-2010 IT FILED RETURN OF INCOME D ECLARING TOTAL INCOME OF RS.32,29,95,370 UNDER NORMAL PROVIS IONS OF THE ACT AND RS.40,74,22,609 UNDER SECTION 115JB ON BOOK PROFITS. SINCE THERE ARE TRANSACTIONS WITH ASSOCIAT ED ENTERPRISE AS DEFINED IN SECTION 92A OF THE I.T. ACT, THE MATT ERS WERE REFERRED TO TPO UNDER SECTION 92CA. THE TPO WHILE A CCEPTING THE INTERNATIONAL TRANSACTIONS AS SUCH BEING WITHIN THE ARMS LENGTH PRICE LIMITS, HOWEVER, CONSIDERED DISALLOWAN CE OF MANAGEMENT FEE OF RS.1,12,18,429 PAID BY THE ASSESS EE TO ANOTHER RESIDENT COMPANY. A.O. IN THE ORDER FURTHER DISALLOWED DEPRECIATION OF RS.12,95,97,152 CLAIMED ON TECHNICA L KNOWHOW BASED ON THE ORDERS PERTAINING TO A.Y. 2006-07. ASS ESSEE OBJECTED BEFORE THE DRP THAT THE DISALLOWANCE OF MA NAGEMENT FEE CANNOT BE CONSIDERED UNDER T.P. PROVISIONS AS I T IS A DOMESTIC TRANSACTION AND FURTHER WITH REFERENCE TO DEPRECIATION THE ISSUE WAS PENDING BEFORE THE ITAT AND REQUESTED FOR KEEPING TAX DEMAND IN ABEYANCE. THE D RP WHILE ACCEPTING THE OBJECTIONS OF THE ASSESSEE ON THE MAN AGEMENT FEE HOWEVER, DID NOT INTERFERE WITH THE DISALLOWANC E OF DEPRECIATION AS THE MATTERS ARE PENDING BEFORE THE ITAT IN APPEAL ON THE ORDER UNDER SECTION 263 FOR A.Y. 2006 -07. ASSESSEE IS AGGRIEVED ON THE DISALLOWANCE OF DEPREC IATION WHEREAS, A.O. IS AGGRIEVED ON THE DIRECTION OF THE DRP TO DELETE THE DISALLOWANCE OF MANAGEMENT FEE. 3. AT THE OUTSET BOTH THE COUNSELS AGREED THAT THE ISSUES ARE COVERED. AS FAR AS THE ISSUE OF DEPRECIA TION CONTESTED IN ASSESSEES APPEAL IS CONCERNED, THE IT AT VIDE ITS 3 ITA.NO.198 & 234/HYD/2014 M/S. ASTRIX LABORATORIES LTD., HYDERABAD. ORDER IN ITA.NO.840/HYD/2012 FOR A.Y. 2006-07 DATED 16.01.2015 HAS NOT UPHELD THE PROCEEDINGS UNDER SEC TION 263. CONSEQUENTLY, ASSESSEES CLAIM OF DEPRECATION BECOM ES ELIGIBLE AS IT IS AN INTANGIBLE ASSET ON WHICH ASSESSEE HAS CLAIMED DEPRECIATION ON WDV. IN VIEW OF THIS, WE DIRECT THE A.O. TO ALLOW THE DEPRECIATION AS CLAIMED AS IT IS ONLY A C ONSEQUENTIAL CLAIM TO THE CLAIMS IN EARLIER YEARS. 4. COMING TO THE REVENUES APPEAL, AS SEEN FROM TH E ORDERS OF THE AUTHORITIES, THE TPO VIDE HIS SHOW CA USE NOTICE DATED 22.10.2012 HAS STATED THAT THE TRANSACTIONS E NTERED INTO BY ASTRIX AND MATRIX ARE DEEMED INTERNATIONAL TRANS ACTIONS AND SOUGHT TO EXAMINE WHETHER THE SAME HAVE BEEN EN TERED INTO AT ARMS LENGTH PRICE. SINCE THE TRANSACTIONS B ETWEEN MATRIX AND ASTRIX BOTH BEING RESIDENT COMPANIES IN INDIA DO NOT FALL WITHIN THE DEFINITION OF INTERNATIONAL TRA NSACTIONS SO AS TO NECESSITATE THE COMPUTATION OF ARMS LENGTH PRICE UNDER THE T.P. PROVISIONS OF THE ACT, DRP ACCEPTED THE ASSESS EES OBJECTIONS. DRP ALSO NOTED THAT THE TRANSACTIONS BE TWEEN THE MATRIX AND ASSESSEE DOES NOT IN ANY WAY SHIFT ANY P ROFITS OUT OF INDIA, SINCE BOTH THE ENTITIES ARE TAXABLE ENTIT IES IN INDIA AND THE QUESTION OF APPLYING THE T.P. PROVISIONS DO ES NOT ARISE. THE DRP PLACED RELIANCE IN THE CASE OF IJM (INDIA) INFRASTRUCTURE LTD., VS. ACIT, CIRCLE 2(1), HYDERAB AD ITA.NO.1814/HYD/2012 DATED 22.08.2013 AND IN THE CA SE OF M/S. SWARNANDHRA IJMII INTEGRATED TOWNSHIP DEVELOPM ENT P. LTD., VS. DCIT, CIRCLE 3(3), HYDERABAD IN ITA.NO.2072/HYD/2011. SINCE THE TPO DOES NOT HAVE A NY JURISDICTION TO EXAMINE THE DOMESTIC TRANSACTIONS I N THE IMPUGNED ASSESSMENT YEAR, THE DRP HAS RIGHTLY HELD THAT STAND OF THE TPO FAILS. SINCE THE DECISION OF THE D RP IS IN TUNE 4 ITA.NO.198 & 234/HYD/2014 M/S. ASTRIX LABORATORIES LTD., HYDERABAD. WITH THE PRONOUNCEMENTS OF THE ITAT ON SIMILAR ISSU ES THAT DOMESTIC TRANSACTIONS CANNOT BE EXAMINED UNDER T.P. PROVISIONS FOR THE IMPUGNED ASSESSMENT YEAR, WE HAV E NO HESITATION IN UPHOLDING THE ORDER OF THE DRP. 5. THE REVENUE HAS RAISED A GROUND THAT ASSESSEE DID NOT SUBSTANTIATE THE CLAIM. AS SEEN FROM THE DE TAILS PLACED ON RECORD, ASSESSEE DID SUBSTANTIATE CLAIM BEFORE T HE AUTHORITIES AND THEREFORE, WE ARE OF THE OPINION TH AT THERE IS NO MERIT IN REVENUE APPEAL. 6. IN THE RESULT, ASSESSEE APPEAL IS ALLOWED AND REVENUE APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT O N 25.03.2015. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B. RAMAKOTAIAH ) JUDICIAL MEMBER ACOUNTANT MEMBER HYDERABAD, DATED 25 TH MARCH, 2015 VBP/- COPY TO : 1. THE DCIT, CIRCLE 16(2), ROOM NO.611, 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2. M/S. ASTRIX LABORATORIES LTD., 1-1-151/1, 4 TH FLOOR, SAIRAM TOWERS, ALEXANDER ROAD, SECUNDERABAD. 3. DISPUTES RESOLUTION PANEL (DRP), 2 ND FLOOR, INCOME TAX TOWERS, 10-2-3, A.C. GUARDS, HYDERABAD 500 004. 4. CIT(A)-I/MEMBER, DRP, HYDERABAD. 5. DIRECTOR OF INCOME TAX (T.P.)/MEMBER, DRP, HYDERABA D. 6. DEPUTY COMMISSIONER OF INCOME TAX, TRANSFER PRICING , 6 TH FLOOR, B-BLOCK, INCOME TAX TOWERS, 10-2-3, A.C. GUA RDS, HYDERABAD 500 004. 7. D.R. ITAT A BENCH, HYDERABAD. 8. GUARD FILE