Astrix Laboratories Ltd., Hyderabad V. ACIT, Circle-16(2), Hyderabad

ITA 840/HYD/2012

• Counselvise Citation: 84022514 RSA 2012
• Duration Of Justice: 2 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 28-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: D SUDHAKAR RAO
• Keywords: Capital asset; Business income; Revision of order; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Valuation report; Assessment record
• Section: 143(3); 92B; 92E; 234B; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 840/HYD/2012 ASSESSMENT YEAR: 2006-07 ASTRIX LABORATORIES LTD., HYDERABAD PAN AAFCA4120R ASST. COMMISSIONER OF INCOME- TAX, CIRCLE 16(2), HYDERABAD. (APPELLANT) (RESPONDENT) REVENUE BY SHRI RAGHUNATHAN SAMPATH ASSESSEE BY SHRI D. SUDHAKAR RAO DATE OF HEARING 20-11-2014 DATE OF PRONOUNCEMENT 16-01-2015 O R D E R PER SAKTIJIT DEY, J.M.: THIS APPEAL OF ASSESSEE IS DIRECTED AGAINST ORDER D ATED 26/03/12 PASSED BY LD. CIT-IV, HYDERABAD U/S 263 OF THE ACT PERTAINING TO AY 2006-07. 2. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX-IV, HYDERABAD (CIT) UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 (ACT) DATED 26.03.2012 IS BAD IN LAW AND FACTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT ERRED IN SETTING ASIDE THE ASSESSMENT ORDER DATED 29.12.2009 PASSED UNDER SECTION 143(3) OF THE ACT AND DIRECTING THE RE-COMPUTATION OF TOTAL INCOME. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT WITHOUT APPRECIATING THE FACTS OF THE CASE, ERRED IN HOLDIN G THAT THE PURCHASE OF TECHNICAL KNOW-HOW AND DMF FROM MATRIX LABORATORIES LTD (HEREAFTER 2 ITA NO. 840/HYD/2012 ASTRIX LABORATORIES LTD. REFERRED TO AS MATRIX) FOR RS. 105.32 CRORES FAILED TO SATISFY THE BENEFIT TEST AND DISALLOWING DEPRECIATION OF RS.13,16,54,21 0/- CLAIMED IN RESPECT OF THESE ASSETS. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT ERRED IN NOT APPRECIATING THAT THE APPELLANT HAS NOT ONLY ACQUIR ED TECHNICAL KNOW-HOW AND DMF FROM MATRIX BUT ALSO OTHER FIXED ASSETS INC LUDING LAND, BUILDINGS AND EQUIPMENT FOR THE SOLE PURPOSE OF SETTING UP AN D CARRYING ON THE BUSINESS OF MANUFACTURE AND SALE OF ANTI RETROVIRA L (ARV) DRUGS IN JOINT VENTURE WITH ASPEN PHARMA CARE HOLDINGS LTD, SOUTH AFRICA. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT ERRED IN HOLDING THAT THE VALUE OF TECHNICAL KNOWHOW AND DMF ACQUIRE D FROM MATRIX HAS BEEN ENHANCED FOR THE PURPOSES OF CLAIMING DEPRECIA TION AND THEREFORE, THE SAME IS COVERED BY SECTION 43(1) R. W. EXPLANAT ION 3 OF THE ACT. 3. BRIEFLY THE FACTS ARE, ASSESSEE AN INDIAN COMPAN Y IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF ACTIVE PHAR MACEUTICAL INGREDIENTS AND ITS INTERMEDIATES. FOR THE AY UNDER CONSIDERATION, ASSESSEE FILED ITS RETURN OF INCOME ON 29/11/2006 D ECLARING LOSS OF RS. 5,56,02,362 UNDER NORMAL PROVISIONS AND BOOK PR OFIT OF RS. 4,09,82,718 U/S 115JB. IN COURSE OF ASSESSMENT PROC EEDING, ASSESSEE FILED A REVISED COMPUTATION BY REVISING TH E BOOK PROFIT TO RS. 6,18,63,863. DURING THE SCRUTINY ASSESSMENT PRO CEEDING, AO NOTICING THAT ASSESSEE HAS ENTERED INTO INTERNATION AL TRANSACTION, MADE A REFERENCE TO THE ADDITIONAL CIT(TP), HYDERAB AD FOR DETERMINING THE ARMS LENGTH PRICE (ALP) OF INTERNA TIONAL TRANSACTION. IN TERMS WITH THE ORDER PASSED U/S 92CA(3) OF THE A CT, BY THE TPO, AO COMPLETED THE ASSESSMENT IN CASE OF ASSESSEE FOR THE IMPUGNED AY U/S 143(3) READ WITH SECTION 92CA VIDE ASSESSMEN T ORDER DATED 29/12/2009 BY DETERMINING THE LOSS AT RS. 5,56,02,3 62 AND BOOK PROFIT AT RS. 6,18,63,863 AS SHOWN BY ASSESSEE. THE ASSESS MENT ORDER SO PASSED WAS ALSO CHALLENGED BY ASSESSEE BEFORE LD. C IT(A) ON THE ISSUE OF INTEREST CHARGED U/S 234B OF THE ACT AND T HE APPEAL OF ASSESSEE WAS ALSO DISPOSED BY LD. CIT(A) ON 03/11/2 012. LD. CIT WHILE EXAMINING ASSESSEES ASSESSMENT RECORDS FOR T HE IMPUGNED AY IN EXERCISE OF POWER U/S 263 OF THE ACT WAS OF THE VIEW THAT THE 3 ITA NO. 840/HYD/2012 ASTRIX LABORATORIES LTD. ASSESSMENT ORDER PASSED IS ERRONEOUS AND PREJUDICIA L TO THE INTERESTS OF REVENUE AS AO HAS FAILED TO EXAMINE THE FOLLOWIN G ISSUES: 1. AS PER ASSESSEES LETTER DATED 28/10/05 ALL THE PURCHASES WERE CLAIMED TO HAVE BEEN MADE FROM M/S MATRIX LABO RATORIES LTD. AND THERE WAS NO OPENING STOCK. AS PER SCHEDUL E 2.02 TO BALANCE SHEET ASSESSEE HAD SHOWN PURCHASES OF CURRE NT ASSETS, MATERIAL/INVENTORY OF RS. 33,76,09,894. HOW EVER, WHILE QUANTIFYING THE MATERIAL CONSUMPTION UNDER SCHEDULE 2.02, A SOME OF RS. 44,11,79,306 WAS ADOPTED WHICH RESULTED INTO EXCESS DEBIT TO THE TUNE OF RS. 11,35,69,412 TOWARD S RAW MATERIAL CONSUMPTION. FURTHER, IN THE MATERIAL CONS UMED COLUMN IN 12(C) TO PARA 2.02 TO AUDIT REPORT, IT IS REPORTED THAT THE ENTIRE RAW MATERIAL VALUED AT A SUM OF RS. 39.5 2 CRORES IS CONSUMED LEAVING NO STOCK. WHEREAS IN THE BALANCE S HEET ASSESSEE HAS REFLECTED A SUM OF RS. 17.85 CRORE AS CLOSING STOCK OF RAW MATERIAL, WHICH HAS RESULTED IN OVERST ATEMENT OF LOSSES BY A SUM OF RS. 17.85 CRORES. 2. ASSESSEE CLAIMED TO HAVE PURCHASED INTANGIBLE AS SETS FOR A CONSIDERATION OF RS. 101,02,74,500 IN THE FORM OF TECHNICAL KNOW-HOW AND DMF FROM MATRIX LABORATORIES LTD. HOWE VER, ASSESSEE HAD SHOWN THE WDV/ACTUAL COST OF THESE ASS ETS AT RS. 105,32,34,000 WHICH RESULTED IN EXCESS CLAIM OF DEPRECIATION TO THE EXTENT OF RS. 53,69,938. 3. DURING TP PROCEEDINGS FOR AY 2007-08, THE TPO DETERMINED THE ALP IN RESPECT OF PURCHASE OF TECHNI CAL KNOW- HOW AND DMF FROM MATRIX LABORATORIES LTD. AT NIL BY APPLYING CUP METHOD AS IT FAILED THE BENEFIT TEST. THE TRANS ACTION INVOLVING PURCHASE OF KNOW-HOW AND DMF HAVING BEEN HELD TO BE NOT GENUINE FOR AY 2007-08 CANNOT BE GENUINE FOR AY 2006- 07. 4 ITA NO. 840/HYD/2012 ASTRIX LABORATORIES LTD. 4. AO HAS NOT VERIFIED THE GENUINENESS OF THE EXPEN DITURE INCURRED TOWARDS PAYMENTS MADE TO MATRIX LABORATORI ES LTD. FURTHER IN THE BOOKS OF MATRIX LABORATORIES LTD. TH E CONSIDERATION IS SHOWN AT RS. 101.02 CRORES WHEREAS ASSESSEE HAS ADOPTED THE FIGURE OF RS. 102.32 CRORES. THE CO NSIDERATION OF RS. 105.32 CRORES PAID TO MATRIX LABORATORIES LT D. SHOULD NOT HAVE BEEN ALLOWED AS THE EXPENDITURE IS NOT GENUINE . 4. ON THE BASIS OF THE AFORESAID REASONS, LD. CIT I SSUED A NOTICE TO ASSESSEE ON 18/10/11 DIRECTING IT TO SHOW CAUSE AS TO WHY THE ASSESSMENT ORDER SHOULD NOT BE REVISED AS IT IS ERR ONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. IN RESPONS E TO THE SHOW CAUSE NOTICE, ASSESSEE SUBMITTED A DETAILED REPLY, AND AL SO MADE SUBMISSIONS BEFORE LD. CIT. AFTER CONSIDERING THE S UBMISSIONS OF ASSESSEE, LD. CIT DROPPED THE PROCEEDING WITH REGAR D TO THE FIRST ISSUE RELATING TO EXCESS DEBIT OF RAW MATERIAL CONS UMPTION TO THE P&L A/C. HENCE, IT IS NOT NECESSARY TO DEAL WITH THAT I SSUE ANY FURTHER. 5. AS FAR AS THE OTHER TWO ISSUES ARE CONCERNED, IT WAS SUBMITTED ON BEHALF OF ASSESSEE THAT COMPLETE DETAILS OF TECH NICAL KNOW-HOW, DMF AND PATENT LICENCING WERE SUBMITTED TO AO DURIN G THE COURSE OF SCRUTINY ASSESSMENT PROCEEDING INITIATED BOTH IN CA SE OF ASSESSEE AS WELL AS MATRIX LABORATORIES LTD., WHO WERE ASSESSED BY SAME AO. IT WAS SUBMITTED THAT WHILE MATRIX LABORATORIES TREATE D THE CONSIDERATION RECEIVED ON TRANSFER OF KNOW-HOW AND DMF AS CAPITAL GAIN, ASSESSEE ON THE OTHER HAND ACCOUNTED THE AMOU NTS PAID TOWARDS KNOW-HOW, DMF AND PATENT LICENCING AS INTAN GIBLE ASSETS. ASSESSEE ALSO RECONCILED THE ALLEGED DIFFERENCE BET WEEN THE AMOUNTS SHOWN IN THE BOOKS OF MATRIX AND ASSESSEE. THUS, IT WAS SUBMITTED THAT QUESTION OF CLAIMING EXCESS DEPRECIATION DOES NOT ARISE. AS FAR AS THE ISSUE OF GENUINENESS OF THE TRANSACTION INVO LVING PURCHASE OF KNOW-HOW AND DMF, IT WAS SUBMITTED BY ASSESSEE THAT THE TRANSACTIONS IN ISSUE BEING BETWEEN TWO RESIDENTS A RE NOT COVERED BY 5 ITA NO. 840/HYD/2012 ASTRIX LABORATORIES LTD. THE DEFINITION OF INTERNATIONAL TRANSACTION, HENCE, OUTSIDE THE PURVIEW OF PROCEEDINGS U/S 92CA. THEREFORE, THE TPO WHO DOE S NOT HAVE ANY JURISDICTION TO EXAMINE THE TRANSACTIONS BETWEEN TW O RESIDENT COMPANIES COULD NOT HAVE DETERMINED THE ALP AT NIL. ASSESSEE FURTHER SUBMITTED THAT IN COURSE OF ASSESSMENT PROC EEDING FOR THE IMPUGNED AY ALSO, THE ISSUE WAS NOT ONLY EXAMINED B Y AO BUT WAS ALSO EXAMINED BY TPO, WHO DID NOT FIND ANY REASON T O TREAT THE TRANSACTION AS NOT GENUINE. THEREFORE, ON IDENTICAL FACTS AND CIRCUMSTANCES, THE TRANSACTION COULD NOT HAVE BEEN HELD TO BE NOT GENUINE IN THE SUBSEQUENT AY. ASSESSEE ALSO SUBMITT ED THAT THE ENTIRE ISSUE HAVING BEEN EXAMINED BY AO AND ASSESSM ENT HAVING BEEN COMPLETED AFTER PROPER APPLICATION OF MIND, IN ITIATION OF PROCEEDING U/S 263 IS NOT VALID. 6. LD. CIT AFTER CONSIDERING THE SUBMISSIONS OF ASS ESSEE, OBSERVED THAT THE TPO DID NOT GO INTO THE GENUINENE SS OF THE TRANSACTION IN AY 2006-07 AS ASSESSEE DID NOT TREAT THE PURCHASE OF TECHNICAL KNOW-HOW AS INTERNATIONAL TRANSACTION IN THE AUDIT REPORT U/S 92E OF THE ACT. HOWEVER, THE TPO EXAMINED THE ISSUE IN AY 2007-08 AND FOUND IT TO BE NOT GENUINE. LD. CIT REFERRING T O THE FINDING OF THE TPO IN THE TP ORDER PASSED IN AY 2007-08, WHEREIN I T IS HELD THAT THE PURCHASE OF INTANGIBLE ASSETS BY ASSESSEE FAILED TO SATISFY THE BENEFIT TEST, HENCE, THE ALP WAS DETERMINED AT NIL AND DEPR ECIATION CLAIMED WAS DISALLOWED, ULTIMATELY CONCLUDED AS UNDER: 16. I AGREE WITH THE FINDINGS OF THE TRANSFER PRICING O FFICER IN THE ORDER DATED 29.10.2010 FOR AY 2007-08. THE ASSE SSING OFFICER IN THE ASSESSMENT ORDER FOR THE ASST.YEAR 2 006-07 DID NOT EXAMINE THE GENUINENESS OF THE TRANSACTION OF P URCHASE OF TECHNICAL KNOW HOW AND DMF BECAUSE THE ASSESSEE DID NOT REPORT THE TRANSACTION WITH M/S. MATRIX LABORATORIE S LTD., AS AN INTERNATIONAL TRANSACTION. NON EXAMINATION OF THE G ENUINENESS OF THE TRANSACTION RE SUITED IN UNDER ASSESSMENT OF THE TOTAL INCOME. FURTHER, THE ASSESSING OFFICER ,WHILE PASSI NG THE ASSESSMENT ORDER ON 29.12.2009 WAS NOT HAVING THE T PO'S ORDER FOR THE ASST.YEAR 2007-08, AS THE TPO PASSED THE ORDER ON 29.10.2010.THUS, THERE WAS NO OCCASION FOR THE ASSESSING OFFICER TO EXAMINE THE GENUINENESS OF THE PURCHASE OF 6 ITA NO. 840/HYD/2012 ASTRIX LABORATORIES LTD. INTANGIBLE ASSETS BY THE ASSESSEE FROM MATRIX LABOR ATORIES LTD IN AY 2006-07. THE ASSESSING OFFICER WITHOUT EXAMIN ATION OF PURCHASE OF INTANGIBLES FROM MATRIX LABORATORIES HA D ACCEPTED THE PURCHASE CONSIDERATION IN A MECHANICAL MANNER A ND THE TPO IN ASST.YEAR 2007-08 GAVE A CLEAR CUT FINDING T HAT THE ASSESSEE FAILED TO SUBSTANTIATE THE PURCHASE OF INT ANGIBLE ASSETS FROM MATRIX LABORATORIES. THUS, THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER AY 2006-07 IS ERRON EOUS AND IT IS PREJUDICIAL TO THE INTERESTS OF REVENUE. 17. AS OBSERVED EARLIER, THE ASSESSING OFFICER DID NOT EXAMINE AS TO HOW THE VALUE OF INTANGIBLE ASSETS WAS DETERM INED AT A SUM OF RS. 105.32 CRORES. AS A MATTER OF FACT, THE PURC HASE OF TECHNICAL KNOW HOW AND DMF WAS A TRANSACTION BY THE ASSESSEE WITH A SHAREHOLDER. FOR THE FIRST TIME DURING THE P ROCEEDINGS U/S .263, THE ASSESSEE HAS FILED A VALUATION REPORT FRO M ANMOL SEKHRI & ASSOCIATES STATING THAT THE VALUE WAS DETERMINED BY AN INDEPENDENT VALUER. THE VALUATION REPORT DOES NOT E XIST ON THE ASSESSMENT RECORD AND IT IS FILED FOR THE FIRST TIM E. 18. TO SUM UP, MY FINDINGS ARE AS UNDER; I) I AGREE WITH THE FINDINGS OF THE TPO AND DRP THAT T HE PURCHASE OF INTANGIBLE ASSETS FOR A SUM OF RS. 105. 32 CRORES FAILS TO SATISFY THE BENEFIT TEST. THE DEPRECIATION CLAIMED BY THE ASSESSEE FOR A SUM OF RS. 13,16,54,210/- REQUIRES T O BE DISALLOWED. II) THE ASSESSING OFFICER DID NOT EXAMINE THIS ISS UE OF PURCHASE OF INTANGIBLE ASSETS FROM MATRIX LABORATORIES AT TH E TIME OF ORIGINAL ASSESSMENT AS HE WAS NOT HAVING THE BENEFI T OF TPO'S ORDER IN RELATION TO THE ASST.YEAR 2007-08. THE ASS ESSEE DID NOT PLACE ANY MATERIAL BEFORE THE ASSESSING OFFICER EIT HER IN THE FORM OF VALUER'S REPORT OR ANY OTHER MATERIAL TO SU BSTANTIATE THAT THE MARKET PRICE OF THE INTANGIBLE ASSETS WAS A SUM OF RS. 105.32 CRORES. WITHOUT ANY BASIS, THE CLAIM WAS MAD E AND THE ASSESSING OFFICER WITHOUT APPLICATION OF MIND AND WITHOUT EXAMINATION OF THE GENUINENESS OF THE EXPENDITURE A LLOWED THE DEPRECIATION CLAIM. III) THE ASSESSEE CLAIMS THAT IT HAS ACQUIRED THE INTANGIBLE ASSETS FROM M/ S. MATRIX LABORATORIES LT D. AND M/ S. MATRIX LABORATORIES LTD., CONTINUES TO HOLD T HE SAME TECHNICAL KNOW-HOW AND PRODUCED THE GOODS FOR THE ASSESSEE COMPANY. I AM AT LOSS TO UNDERSTAND AS TO WHY THE ASSESSEE HAS PAID RS. 105.32 CRORES TO M/S. MATRIX LABORATORIES LTD. WHEN THE SAME PERSON IS 7 ITA NO. 840/HYD/2012 ASTRIX LABORATORIES LTD. MANUFACTURING THE SAME PRODUCTS BY USING THE SAME TECHNICAL KNOW-HOW FOR THE BENEFIT OF THE ASSESSEE. CERTAINLY, THE TRANSACTIONS SEEMS TO BE NOT AT ARM' S LENGTH. IT APPEARS TO ME THAT THE SOLE PURPOSE OF ENHANCING THE VALUE OF INTANGIBLE ASSETS TO RS. 105 .32 CRORES FOR CLAIMING HIGHER DEPRECIATION BY THE ASSESSEE. THE TECHNICAL KNOW-HOW ACQUIRED BY THE ASSESSEE WAS NOT HAVING ANY VALUE IN THE BOOKS OF ACCOUNT OF M/ S. MATRIX LABORATORIES LTD. IN MY VIE W, THE ASSESSING OFFICER HAS FAILED IN APPLICATION OF THE PROVISIONS OF SECTION 43(1) R.W.EXPLANATION 3 OF TH E IT. ACT. 19. FOR THE ABOVE REASONS, THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/ S 143(3) ON 29.12.2009 IS HERE BY SET ASIDE WITH A DIRECTION TO RECOMPUTED THE TOTAL INCOME AFT ER GIVING AN OPPORTUNITY OF BEING HEARD AND PASS A FRESH ASSESSM ENT ORDER. 7. BEING AGGRIEVED OF THE AFORESAID ORDER OF LD. CI T, ASSESSEE IS BEFORE US. 8. THE LD. AR MORE OR LESS REITERATING THE SUBMISSI ONS BEFORE LD. CIT IN COURSE OF THE REVISION PROCEEDING, SUBMITTED THAT THE TPO HAS NO JURISDICTION TO EITHER DETERMINE THE ALP OF THE TRANSACTION INVOLVING PURCHASE OF KNOW-HOW AND DMF NOR CAN DISALLOW THE D EPRECIATION BY APPLYING THE BENEFIT TEST AS THE TRANSACTION BETWEE N TWO RESIDENT COMPANIES CANNOT BE TERMED AS INTERNATIONAL TRANSAC TION UNDER SECTION 92B. IN SUPPORT OF SUCH CONTENTION, HE RELI ED UPON A DECISION OF THE ITAT, HYDERABAD BENCH IN CASE OF DCIT VS. M/ S SWARNADHARA IJMII INTEGRATED TOWNSHIP DEVELOPMENT CO. PVT. LTD. , 2014 (6 TMI). LD. AR SUBMITTED THAT LD. CIT RELYING UPON THE OBSE RVATIONS OF THE TPO IN THE ORDER PASSED FOR AY 2007-08 HAS HELD THE ASSESSMENT ORDER FOR IMPUGNED AY TO BE ERRONEOUS AND PREJUDICI AL TO THE INTERESTS OF REVENUE, WHICH IS NOT PROPER. IT WAS SUBMITTED, AO WHO IS SAME BOTH FOR ASSESSEE AS WELL AS MATRIX LABORATORIES LT D. HAS GONE INTO THE ENTIRE FACTUAL ASPECT RELATING TO THE TRANSFER OF KNOW-HOW AND DMF BY EXAMINING THE RELEVANT AGREEMENTS AND OTHER DOCU MENTARY EVIDENCES PRODUCED NOT ONLY IN COURSE OF ASSESSMENT PROCEEDING OF 8 ITA NO. 840/HYD/2012 ASTRIX LABORATORIES LTD. MATRIX BUT ALSO IN CASE OF ASSESSEE. THEREFORE, THE ISSUE HAVING BEEN EXAMINED IN DETAIL BY AO, LD. CIT WAS NOT CORRECT I N OBSERVING THAT AO HAS NOT EXAMINED THE ISSUE. IT WAS SUBMITTED, WH EN THE CONSIDERATION PAID BY ASSESSEE TO MATRIX TOWARDS TE CHNICAL KNOW-HOW AND DMF WAS ACCEPTED IN CASE OF MATRIX AND ASSESSED AS BUSINESS INCOME IN THEIR HAND, THE TRANSACTION CANNOT BE HEL D TO BE NOT GENUINE IN CASE OF ASSESSEE. LD. AR SUBMITTED THAT ONLY BECAUSE THE TPO IN THE ASSESSMENT YEAR 2007-08 HAS WRONGLY TREA TED THE TRANSACTION TO BE NOT GENUINE ON SOME IRRELEVANT CO NSIDERATION, ON THAT BASIS ASSESSMENT ORDER CANNOT BE TERMED AS ERR ONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. LD. AR, TH EREFORE, SUBMITTED THAT THE ORDER PASSED U/S 263 SHOULD BE DECLARED AS INVALID. 9. THE LD. DR, ON THE OTHER HAND, SUPPORTED THE ORD ER OF LD. CIT. 10. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE ORDERS OF REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON RECORD. A PERUSAL OF THE IMPUGNED ORDER OF LD. CIT, CERTAIN LY GIVES AN IMPRESSION THAT HE WAS TOTALLY SWAYED AWAY BY THE F INDING IN THE TPOS ORDER FOR AY 2007-08. AS CAN BE SEEN, LD. CIT HAS HELD THE ASSESSMENT ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE AS ACCORDING TO HIM, IN VIEW OF THE FINDING S OF TPO AND DRP FOR AY 2007-08 THAT THE PURCHASE OF INTANGIBLE ASSE TS FOR A SUM OF RS. 105.32 CRORES FAILS TO SATISFY THE BENEFIT TEST, TH E DEPRECIATION CLAIMED BY ASSESSEE OF RS. 13,16,54,210 REQUIRES TO BE DISA LLOWED. LD. CIT HAS ALSO OBSERVED THAT THERE IS NO BASIS FOR PAYMEN T OF THE AMOUNT OF RS. 105.32 CRORES AS IT IS NOT SUBSTANTIATED BY ASS ESSEE THAT THE VALUE OF INTANGIBLE ASSETS WOULD BE THAT MUCH. HE H AS FURTHER OBSERVED THAT THE AMOUNT WAS ENHANCED TO THAT EXTEN T ONLY FOR THE PURPOSE OF CLAIMING DEPRECIATION. HOWEVER, AS CAN BE SEEN FROM THE MATERIALS PLACED ON RECORD, ASSESSEE WAS FORMED AS A JOINT VENTURE BETWEEN MATRIX AND A SOUTH AFRICAN COMPANY, NAMELY, ASPENSA. AS PER THE TERMS OF AGREEMENT BETWEEN THE PARTIES MATR IX TRANSFERRED 9 ITA NO. 840/HYD/2012 ASTRIX LABORATORIES LTD. CERTAIN CAPITAL ASSETS IN THE FORM OF LAND, BUILDIN G, ETC. TO ASSESSEE COMPANY FOR MANUFACTURE OF CERTAIN ACTIVE PHARMACEU TICAL INGREDIENTS, WHICH WERE BEING MANUFACTURED BY MATRI X. FOR ENABLING ASSESSEE TO MANUFACTURE THOSE APIS, MATRIX ALSO PAS SED OVER THE TECHNICAL KNOW-HOW AND DMF RELATING TO THOSE APIS T O ASTRIX FOR A CONSIDERATION OF RS. 105,32,34,000. THE CONSIDERATI ON RECEIVED TOWARDS TRANSFER OF THE CAPITAL ASSETS AS WELL AS O N ACCOUNT OF KNOW- HOW AND DMF HAVE BEEN ASSESSED AT THE HANDS OF MATR IX WHICH IS VERY MUCH EVIDENT FROM THE ASSESSMENT ORDER OF MATR IX FOR THE IMPUGNED AY. THEREFORE, WHEN THE TRANSACTION IS ACC EPTED AS GENUINE IN CASE OF MATRIX, IT CANNOT BE OTHERWISE I N CASE OF ASSESSEE AS THEY ARE TWO SIDES OF SAME COIN. MOREOVER, IT I S A FACT ON RECORD THAT AO WHO COMPLETED THE ASSESSMENT IN CASE OF ASS ESSEE AS WELL AS MATRIX IS SAME. HENCE, IT CANNOT BE SAID THAT AO HAS NOT EXAMINED THE EVIDENCES OR APPLIED HIS MIND TO THE ISSUE. ON THE CONTRARY, THE ASSESSMENT ORDER PASSED IN CASE OF MATRIX FOR THE I MPUGNED AY WOULD CLEARLY REVEAL THAT AO HAS GONE INTO THE DEPT H OF THE ISSUE WHILE EXAMINING THE TRANSACTION RELATING TO ACQUISI TION OF KNOW-HOW AND DMF BY ASSESSEE FROM MATRIX. THEREFORE, ONLY BE CAUSE THE TPO IN THE ASSESSMENT YEAR 2007-08, COMES TO A CONCLUSI ON THAT THE TRANSACTION IS NOT GENUINE AS IT FAILS THE BENEFIT TEST, BY RELYING UPON SUCH FINDING OF TPO, THE ASSESSMENT ORDER CANNOT BE HELD TO BE EITHER ERRONEOUS OR PREJUDICIAL TO THE INTERESTS OF REVENUE. MOREOVER, THOUGH, LD. CIT HAS OBSERVED THAT THE TPO IN COURSE OF PROCEEDING FOR AY 2006-07 COULD NOT HAVE EXAMINED THE ISSUE AS ASS ESSEE HAS NOT REPORTED SUCH TRANSACTION IN THE AUDIT REPORT, BUT, ON EXAMINING THE FACTS AND MATERIALS ON RECORD AND MORE PARTICULARLY THE ORDER OF THE TPO FOR AY 2006-07, IT IS VERY MUCH EVIDENT THAT AS SESSEE HAS PRODUCED NOT ONLY ITS BOOKS OF ACCOUNT BUT ITS ENTI RE FINANCIAL STATEMENTS RELATING TO FY 2005-06 WAS AVAILABLE BEF ORE THE TPO. THEREFORE, IT CANNOT BE SAID THAT THE TRANSACTION R ELATING TO PURCHASE OF KNOW-HOW/DMF COULD NOT HAVE BEEN CONSIDERED BY T PO. IT IS ALSO A FACT, THE AO HAS COMPLETED THE ASSESSMENT AFTER E XAMINING THE 10 ITA NO. 840/HYD/2012 ASTRIX LABORATORIES LTD. ISSUE AND ALSO IN TERMS WITH TPOS ORDER FOR AY 200 6-07. ONLY BECAUSE THE TPO IN AY 2007-08 TAKES A DIFFERENT VIE W, BY THAT REASON ALONE, ASSESSMENT ORDER CANNOT BE CONSIDERED TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. MOREOVER, WHEN THE CONSIDERATION PAID BY ASSESSEE TO MATRIX HAS BEEN A CCEPTED TO BE GENUINE IN THE ASSESSMENT CONDUCTED IN CASE OF MATR IX WHICH HAS BEEN CONFIRMED BY DRP, THE SAME TRANSACTION CANNOT BE DOUBTED IN CASE OF ASSESSEE. 11. THE ENTIRE ISSUE CAN ALSO BE CONSIDERED FROM A NOTHER ANGLE. THERE IS NO DOUBT THAT THE BASIS FOR INVOKING THE J URISDICTION U/S 263 IS THE ORDER PASSED BY TPO FOR 2007-08. THOUGH THE ASS ESSEE HAS CONTENDED BEFORE LD. CIT, THAT THE TRANSACTION BETW EEN ASSESSEE AND MATRIX CANNOT BE A INTERNATIONAL TRANSACTION AS PER SECTION 92B OF THE ACT, BUT, LD. CIT HAS BRUSHED ASIDE SUCH CONTENTION OF ASSESSEE. HOWEVER, ON A PROPER ANALYSIS OF SECTION 92B OF THE ACT, IT IS VERY MUCH CLEAR THAT FOR COMING WITHIN THE EXPRESSION I NTERNATIONAL TRANSACTION AT LEAST ONE OF THE PARTIES SHOULD BE A NON-RESIDENT. THIS VIEW GETS SUPPORT FROM THE DECISION OF COORDINATE B ENCH IN CASE OF DCIT VS. SWARANDHARA IJMII (SUPRA) IN THE PRESENT C ASE, THERE IS NO DOUBT THAT NEITHER ASSESSEE NOR MATRIX IS A NON-RES IDENT. THEREFORE, WHETHER THE TRANSACTION RELATING TO ACQUISITION OF KNOW-HOW AND DMF CAN AT ALL BE WITHIN THE PURVIEW OF INTERNATIONAL T RANSACTION SO AS TO EMPOWER THE TPO TO DETERMINE ALP OF SUCH TRANSACTIO N IS A DEBATABLE ISSUE. IN THESE CIRCUMSTANCES, ASSESSMENT ORDER CANNOT BE CONSIDERED TO BE ERRONEOUS AND PREJUDICIAL TO THE I NTERESTS OF REVENUE BY RELYING UPON AN ORDER OF TPO VALIDITY OF WHICH I S NOT FREE FROM DOUBT. MOREOVER, AN ASSESSMENT ORDER CAN BE CONSID ERED TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE ON THE BASIS OF FACTS AND MATERIALS AVAILABLE ON RECORD AS ON THE D ATE OF COMPLETION OF ASSESSMENT. IN THE PRESENT CASE, ACCORDING TO LD . CIT HIMSELF AT THE TIME OF COMPLETION OF ASSESSMENT, AO DID NOT HA VE THE BENEFIT OF THE TPOS AND DRPS ORDER FOR AY 2007-08, WHICH WER E PASSED 11 ITA NO. 840/HYD/2012 ASTRIX LABORATORIES LTD. SUBSEQUENTLY. THAT BEING THE CASE, AO HAVING PASSED THE ASSESSMENT ORDER ON THE BASIS OF FACTS AND MATERIAL S AVAILABLE BEFORE HIM, ONLY BECAUSE SUBSEQUENTLY TPO IN AY 2007-08 HE LD THE TRANSACTION TO BE NOT GENUINE ON THAT BASIS ALONE A SSESSMENT ORDER CANNOT BE HELD TO BE ERRONEOUS AND PREJUDICIAL TO T HE INTERESTS OF REVENUE. MORE SO, WHEN THE TPO IN HIS ORDER FOR AY 2006-07 HAS NOT QUESTIONED THE GENUINENESS OF SUCH TRANSACTION. THE REFORE, ON CONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES , WE ARE OF THE VIEW THAT AS AO HAS PASSED THE ASSESSMENT ORDER AFTER EX AMINING ALL THE FACTS AND EVIDENCES AND AFTER PROPER APPLICATION OF MIND RELATING TO THE TRANSACTION OF KNOW-HOW AND DMF, THE ASSESSMENT ORDER CANNOT BE REVISED U/S 263 OF THE ACT BY TREATING IT AS ERR ONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. IN THIS CO NTEXT, WE RELY UPON THE DECISION OF HONBLE AP HIGH COURT IN CASE OF SP ECTRA SCRIPS AND SHARES PVT. LTD. VS. CIT, 354 ITR 35 (AP). IN THE A FORESAID VIEW OF THE MATTER, THE ASSUMPTION OF JURISDICTION U/S 263 OF T HE ACT IN THE PRESENT CASE IS NEITHER PROPER NOR JUSTIFIED. ACCORDINGLY, WE SET ASIDE THE IMPUGNED ORDER OF LD. CIT AND RESTORE THE ORDER PAS SED BY AO. 12. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 16/01/2015. SD/- SD/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JU DICIAL MEMBER HYDERABAD, DATED: 16 TH JANUARY, 2015 KV 12 ITA NO. 840/HYD/2012 ASTRIX LABORATORIES LTD. COPY TO:- 1) ASTRIX LABORATORIES LTD., PLOT NO. 564/A/22, ROA D NO. 92, JUBILEE HILLS, HYDERABAD 2) ACIT, CIRCLE 16(2), AAYAKAR BHAVAN, HYDERABAD. 3) CIT-IV, HYDERABAD 4) ADDL. CIT, RANGE 16, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S. 2. DRAFT PLACED BEFORE AUTHOR SR.P.S 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER VP 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S. 6. KEPT FOR PRONOUNCEMENT ON SR.P S. 7. FILE SENT TO THE BENCH CLERK SR.P.S. 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER