ACIT, Circle -16(2), Hyderabad, Hyderabad V. M/s Astrix Laboratories Limited, Secunderabad

ITA 71/HYD/2015

• Counselvise Citation: 7122514 RSA 2015
• Duration Of Justice: 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 14-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G APARNA RAO
• Assessee Lawyers: S RAGHUNATHAN
• Keywords: Depreciation; Transfer pricing; International transaction
• Section: 92C; 143(3); 6; 263; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI P. M. JAGTAP, ACCOUNTANT MEMBER AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA.NO.43/HYD/2015 ASSESSMENT YEAR 2010-2011 ASTRIX LABORATORIES LTD., HYDERABAD. PAN AAFCA4120R VS. ACIT, CIRCLE 16(2) HYDERABAD. (APPELLANT) (RESPONDENT) ITA.NO.71/HYD/2015 ASSESSMENT YEAR 2010-2011 ACIT, CIRCLE 16(2) HYDERABAD. VS. ASTRIX LABORATORIES LTD., HYDERABAD. PAN AAFCA4120R (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. S. RAGHUNATHAN FOR REVENUE : SMT. G. APARNA RAO DATE OF HEARING : 06.05.2015 DATE OF PRONOUNCEMENT : 08.05.2015 ORDER PER P.M. JAGTAP, A.M. THESE TWO APPEALS, ONE FILED BY THE ASSESSEE BEIN G ITA.NO.43/HYD/2015 AND THE OTHER FILED BY THE REVEN UE BEING ITA.NO.71/HYD/2015, ARE CORSS-APPEALS WHICH ARE DIR ECTED AGAINST THE ORDER OF LEARNED ACIT, CIRCLE 16(2), HY DERABAD (A.O.) READ WITH SECTION 92CA(3) AND 144C(5) OF T HE I.T. ACT, 1961. 2. IN ITS APPEAL, THE REVENUE HAS CHALLENGE THE AC TION OF THE DISPUTES RESOLUTION PANEL (DRP) IN DELETIN G THE 2 ITA.NO.43 & 71/HYD/2015 ASTRIX LABORATORIES LTD., HYDERABAD. ADDITION OF RS.1,10,30,000 PROPOSED BY THE A.O./TPO ON ACCOUNT OF TRANSFER PRICING (T.P.) ADJUSTMENT IN RESPECT OF THE RELEVANT TRANSACTIONS OF THE ASSESSEE WITH M/S. MYL AN LABORATORIES LTD., INVOLVING THE PAYMENT OF MANAGEM ENT FEES. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING O F ACTIVE PHARMACEUTICAL INGREDIENTS (API) AND THEIR INTERM EDIARIES. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATI ON WAS FILED BY IT ON 30.09.2010 DECLARING TOTAL INCOME OF RS.86 ,99,95,728 UNDER THE NORMAL PROVISIONS OF THE ACT AND BOOK PRO FIT OF RS.90,33,23,759 UNDER THE PROVISIONS OF SECTION 115 JB OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, I T WAS NOTICED BY THE A.O. THAT THE ASSESSEE HAS ENTERED I NTO VARIOUS INTERNATIONAL TRANSACTIONS WITH ITS AES. HE THEREFO RE REFERRED THE MATTER TO THE TPO FOR THE PURPOSE OF DETERMININ G THE ARMS LENGTH PRICE (ALP) OF THE SAID INTERNATIONAL TRA NSACTIONS. AS NOTICED BY THE TPO, THE ASSESSEE COMPANY HAD PAID A N AMOUNT OF RS.1,10,30,000 AS MANAGEMENT FEES TO M/S. MYLAN LABORATORIES LTD., DURING THE YEAR UNDER CONSIDERAT ION. FOR THE REASONS GIVEN IN HIS ORDER PASSED UNDER SECTION 92C A(3) OF THE ACT, THE TPO HELD THAT THE TRANSACTION BETWEEN THE ASSESSEE COMPANY AND M/S. MYLAN LABORATORIES LTD., INVOLVING PAYMENT OF MANAGEMENT FEES OF RS.1,10,30,000 WAS IN THE NAT URE OF DEEMED INTERNATIONAL TRANSACTION. HE THEREFORE PROC EEDED TO DETERMINE THE ARMS LENGTH PRICE OF THE SAID TRANSAC TION. IN THIS REGARD, HE FOUND THAT THERE WAS A FAILURE ON THE PA RT OF THE ASSESSEE COMPANY TO SUBSTANTIATE AND JUSTIFY THE PA YMENT MADE ON ACCOUNT OF MANAGEMENT FEES TO M/S. MYLAN LABORATORIES LTD., IN TERMS OF BENEFITS DERIVED IN AN ARMS LENGTH SITUATION. HE HELD THAT THE ONUS IN THIS REG ARD WAS ON 3 ITA.NO.43 & 71/HYD/2015 ASTRIX LABORATORIES LTD., HYDERABAD. THE ASSESSEE COMPANY TO PROVE ON EVIDENCE THE SERVI CES ACTUALLY RENDERED BY M/S. MYLAN LABORATORIES AND TH E BENEFITS DERIVED FROM SUCH SERVICES IN ARMS LENGTH SITUATION . ACCORDING TO THE TPO, THIS ONUS HOWEVER WAS NOT SUCCESSFULLY AND SATISFACTORILY DISCHARGED BY THE ASSESSEE COMPANY A ND ACCORDINGLY TAKING THE ALP OF THE RELEVANT INTERNAT IONAL TRANSACTIONS AT NIL, HE WORKED OUT THE T.P. ADJUSTM ENT REQUIRED TO BE MADE IN RESPECT OF THESE TRANSACTION S AT RS.1,10,30,000. 4. WHEN THE T.P. ADJUSTMENT AS WORKED OUT BY THE TPO WAS PROPOSED TO BE ADDED BY THE A.O. TO THE TOT AL INCOME OF THE ASSESSEE IN THE DRAFT ASSESSMENT ORDER, THE ASSESSEE COMPANY FILED ITS OBJECTION BEFORE THE DISPUTES RES OLUTION PANEL AND FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF IJM (INDIA) INFRASTRUCTURE LTD., VS. ACIT (ITA.NO. 1814/H/2012 DATED 12.08.2013) AND IN THE CASE OF M/S. SWARNANDH RA IJMII INTEGRATED TOWN SHIP P. LTD., VS. DCIT (ITA.NO.207 2/H/2011), THE DRP DIRECTED THE A.O. NOT TO MAKE ANY T.P. ADJU STMENT AS WORKED OUT BY THE TPO HOLDING THAT M/S. MYLAN LABOR ATORIES LTD., NOT BEING AN ASSOCIATED ENTERPRISE OF THE ASS ESSEE COMPANY, THE RELEVANT TRANSACTIONS BETWEEN THEM INV OLVING THE PAYMENT OF MANAGEMENT FEES CANNOT BE RECORDED AS DE EMED INTERNATIONAL TRANSACTIONS. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. A LTHOUGH THE LEARNED D.R. HAS STRONGLY RELIED ON THE ORDER OF TH E TPO IN SUPPORT OF THE REVENUES CASE THAT THE RELEVANT TRA NSACTIONS BETWEEN THE ASSESSEE COMPANY AND M/S. MYLAN LABORAT ORIES LTD., INVOLVING PAYMENT OF MANAGEMENT FEES ARE IN T HE NATURE OF DEEMED INTERNATIONAL TRANSACTIONS, IT IS OBSERVE D THAT A 4 ITA.NO.43 & 71/HYD/2015 ASTRIX LABORATORIES LTD., HYDERABAD. SIMILAR ISSUE IN ASSESSEES OWN CASE FOR A.Y. 2009- 2010 HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSES SEE VIDE ITS ORDER DATED 25.03.2015 PASSED IN ITA.NO.198/HYD/201 4 VIDE PARAGRAPH NO.4 WHICH READS AS UNDER : 4. COMING TO THE REVENUES APPEAL, AS SEEN FROM TH E ORDERS OF THE AUTHORITIES, THE TPO VIDE HIS SHOW CAUSE NOTICE DATED 22.10.2012 HAS STATED THAT THE TRANSACTIONS ENTERED INTO BY ASTRIX AND MATRIX ARE DEEMED INTERNATIONAL TRANSACTIONS AND SOUGHT TO EXAMINE WHETHER THE SAME HAVE BEEN ENTERED INTO AT ARMS LENGTH PRICE. SINCE THE TRANSACTIONS BETWEEN MATRIX AND ASTRIX BOTH BEING RESIDENT COMPANIES IN INDIA DO NOT FALL WITHIN THE DEFINITIO N OF INTERNATIONAL TRANSACTIONS SO AS TO NECESSITATE THE COMPUTATION OF ARMS LENGTH PRICE UNDER THE T.P. PROVISIONS OF THE ACT, DRP ACCEPTED THE ASSESSEES OBJECTIONS. DRP ALSO NOTED THAT THE TRANSACTIONS BETWEEN THE MATRIX AND ASSESSEE DOES NOT IN ANY WAY SHIFT ANY PROFITS OUT OF INDIA, SINCE BOTH THE ENTITIES ARE TAXABLE ENTITIES IN INDIA AND THE QUESTION OF APPLYING THE T.P. PROVISIONS DOES NOT ARISE. THE DRP PLACED RELIANCE IN THE CASE OF IJM (INDIA) INFRASTRUCTURE LTD., VS. ACIT, CIRCLE 2(1), HYDERABAD ITA.NO.1814/HYD/2012 DATED 22.08.2013 AND IN THE CASE OF M/S. SWARNANDHRA IJMII INTEGRATED TOWNSHIP DEVELOPMENT P. LTD., VS. DCIT, CIRCLE 3(3), HYDERABAD IN ITA.NO.2072/ HYD/2011. SINCE THE TPO DOES NOT HAVE ANY 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 DECISIO N OF THE DRP IS IN TUNE WITH THE PRONOUNCEMENTS OF THE ITAT ON SIMILAR ISSUES THAT DOMESTIC TRANSACTIONS CANNOT BE EXAMINED UNDER T.P. PROVISIONS FOR THE IMPUGNED ASSESSMENT YEAR, WE HAVE NO HESITATION IN UPHOLDING THE ORDER OF THE DRP. 5.1. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDERATION AS WELL AS ALL THE MATERIAL FACTS REL EVANT THERETO ARE SIMILAR TO THAT OF A.Y. 2009-2010, WE RESPECTFU LLY FOLLOW THE 5 ITA.NO.43 & 71/HYD/2015 ASTRIX LABORATORIES LTD., HYDERABAD. DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL F OR A.Y. 2009-2010 AND UPHOLD THE ORDER OF THE DRP DIRECTING THE A.O. NOT TO MAKE ANY ADDITION ON ACCOUNT OF T.P. ADJUSTM ENT IN RESPECT OF THE TRANSACTIONS OF THE ASSESSEE COMPANY WITH M/S. MYLAN LABORATORIES LTD., INVOLVING PAYMENT OF MANAG EMENT FEES. THE APPEAL OF THE REVENUE IS ACCORDINGLY DISM ISSED. 6. NOW, WE TAKE UP THE APPEAL OF THE ASSESSEE BEIN G ITA.NO.43/HYD/2015 WHICH INVOLVES A SOLITARY ISSUE RELATING TO DISALLOWANCE OF RS.9,71,97,865 MADE BY THE A.O. ON ACCOUNT OF ASSESSEES CLAIM FOR DEPRECIATION IN RESPECT OF TEC HNICAL KNOWHOW PURCHASED FROM M/S. MYLAN LABORATORIES LTD. , FOR FINANCIAL YEAR 2005-2006 AND DEVELOPMENT CHARGES PA ID TO THE SAID COMPANY. 7. DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2006- 2007, THE ASSESSEE COMPANY HAD ACQUIRED TECHNICAL K NOWHOW FROM M/S. MYLAN LABORATORIES LTD., AND HAD ALSO PAI D DEVELOPMENT CHARGES SEPARATELY TO THE SAID COMPANY. THESE ASSETS ACQUIRED BY THE ASSESSEE COMPANY WERE CLAIME D TO BE INTANGIBLE ASSETS AND ACCORDINGLY, DEPRECIATION @ 2 5% WAS CLAIMED RIGHT FROM A.Y. 2006-2007. ALTHOUGH THE A.O . ALLOWED THE DEPRECIATION SO CLAIMED BY THE ASSESSEE IN THE ASSESSMENT ORIGINALLY COMPLETED UNDER SECTION 143(3) FOR A.Y. 2006-2007, THE LD. CIT SET ASIDE THE SAID ORDER ON THIS ISSUE BY EXERCISING POWERS CONFERRED UPON HIM UNDER SECTION 263. THEREA FTER, AS PER THE DIRECTIONS OF THE LD. CIT, A FRESH ASSESSME NT ORDER WAS PASSED BY THE A.O. ON 31.01.2013 UNDER SECTION 143( 3) READ WITH SECTION 263 WHEREIN THE CLAIM OF THE ASSESSEE FOR DEPRECIATION ON INTANGIBLE ASSETS WAS DISALLOWED BY THE A.O. BY ADOPTING THE VALUE OF TECHNICAL KNOWHOW AND OTHER R IGHTS PURCHASED BY IT AT NIL KEEPING IN VIEW THE PROVISIO NS OF 6 ITA.NO.43 & 71/HYD/2015 ASTRIX LABORATORIES LTD., HYDERABAD. EXPLANATION-3 OF SECTION 43(1) OF THE ACT. FOLLOWIN G THIS STAND TAKEN IN THE ORDER PASSED UNDER SECTION 143(3) READ WITH SECTION 263 FOR A.Y. 2006-2007, THE CLAIM OF THE AS SESSEE FOR DEPRECIATION ON INTANGIBLE ASSETS WAS DISALLOWED BY THE A.O. EVEN IN THE SUBSEQUENT YEARS INCLUDING THE YEAR UND ER CONSIDERATION I.E., A.Y. 2010-2011 WHICH WAS APPROV ED BY THE DRP. 8. WE HAVE HEARD THE ARGUMENTS ON BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. A S AGREED BY LEARNED REPRESENTATIVES OF BOTH THE SIDES, THE ISSU E INVOLVED IN THIS APPEAL OF THE ASSESSEE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSE ES OWN CASE FOR A.Y. 2009-2010 RENDERED VIDE ITS ORDER DATED 25 .03.2015 PASSED IN ITA.NO.234/HYD/2014. A COPY OF THE SAID O RDER IS PLACED ON RECORD BEFORE US AND PERUSAL OF THE SAME SHOWS THAT THE ORDER PASSED BY THE LEARNED CIT UNDER SECTION 2 63 FOR A.Y. 2006-2007 ON THIS ISSUE WAS SET ASIDE BY THE TRIBUN AL VIDE ORDER DATED 16.01.2015 PASSED IN ITA.NO.840/HYD/201 2 AND CONSEQUENTIAL ORDER PASSED BY THE A.O. UNDER SECTIO N 143(3) READ WITH SECTION 263 WAS ALSO TREATED BY THE TRIBU NAL AS NON- EST IN THE EYE OF LAW VIDE ITS ORDER DATED 20.01.20 15 PASSED IN ITA.NO.1306/HYD/2014. TAKING NOTE OF THESE DEVELOPM ENTS, THE TRIBUNAL VIDE ORDER DATED 25.03.2015 (SUPRA) IN ITA.NO.234/HYD/2014, DELETED THE SIMILAR DISALLOWAN CE MADE BY THE A.O. ON ACCOUNT OF ASSESSEES CLAIM FOR DEPR ECIATION ON INTANGIBLE ASSETS VIDE PARAGRAPH NO.3 WHICH READS A S UNDER : 3. AT THE OUTSET BOTH THE COUNSELS AGREED THAT THE ISSUES ARE COVERED. AS FAR AS THE ISSUE OF DEPRECIATION CONTESTED IN ASSESSEES APPEAL IS CONCERNED, THE ITAT VIDE ITS ORDER IN ITA.NO.840/HYD/2012 FOR A.Y. 2006-07 DATED 7 ITA.NO.43 & 71/HYD/2015 ASTRIX LABORATORIES LTD., HYDERABAD. 16.01.2015 HAS NOT UPHELD THE PROCEEDINGS UNDER SECTION 263. CONSEQUENTLY, ASSESSEES CLAIM OF DEPRECATION BECOMES 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 ALLO W THE DEPRECIATION AS CLAIMED AS IT IS ONLY A CONSEQUENTIAL CLAIM TO THE CLAIMS IN EARLIER YEARS. 8.1. THE ISSUE INVOLVED IN THE APPEAL OF THE ASSES SEE FOR THE A.Y. 2010-2011 THUS IS SQUARELY COVERED IN FAVO UR OF THE ASSESSEE BY THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL RENDERED VIDE ORDER DATED 25.03.2015 (SUPR A) FOR A.Y. 2009-2010 AND RESPECTFULLY FOLLOWING THE SAME, WE D IRECT THE A.O. TO DELETE THE DISALLOWANCE MADE ON ACCOUNT OF ASSESSEES CLAIM FOR DEPRECIATION OF RS.9,71,97,865 ON INTANGI BLE ASSETS. ASSESSEES APPEAL IS ACCORDINGLY ALLOWED. 9. TO SUM-UP, ITA.NO.43/HYD/2015 OF THE ASSESSEE IS ALLOWED AND ITA.NO.71/HYD/2015 OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 08.05.2015. SD/- SD/- (SMT. P. MADHAVI DEVI) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 08 TH MAY, 2015. VBP/- COPY TO 1. ASTRIX LABORATORIES LTD., PLOT NO.564/A/22, ROAD NO .92, JUBILEE HILLS, HYDERABAD. 2. ACIT, CIRCLE 16(2), AAYAKAR BHAVAN, HYDERABAD. 3. DISPUTES RESOLUTION PANEL, 2 ND FLOR, I.T. TOWERS, 10-2-3, A.C. GUARDS, HYDERABAD. 4. DIRECTOR OF INCOME TAX (I.T. & T.P.), HYDERABAD 5. ADDL. COMMISSIONER OF INCOME TAX (TRANSFER PRICING) HYDERABAD. 6. D.R. I.T.A.T. A BENCH, HYDERABAD. 7. GUARD FILE.