Astrix Laboraties Limited, Hyderabad vs Assessee

DCIT, Circle 16(2) M/s. Astrix Laboratories Hyderabad. vs. Ltd., Secunderabad. PAN AAFCA4120R (Appellant) (Respondent)

ITA.No.234/Hyd/2014 Assessment Year 2009-2010

M/s. Astrix Laboratories Ltd., DCIT, Circle 16(2) Secunderabad. vs. Hyderabad. PAN AAFCA4120R (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 143 read with section 144C(v) consequent to the directions of DRP, Hyderabad dated 29.11.2013.

2. Briefly stated, assessee is a joint venture company between Aspen Pharmacare Limited, South Africa and Matrix Laboratories Ltd., India. Assessee specializes in the 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 facility of Astrix is located at Kazipally, Hyderabad and is approved by the US FDA. For A.Y. 2009-2010 it filed return of income declaring total income of Rs.32,29,95,370 under normal provisions of the Act and Rs.40,74,22,609 under section 115JB on book profits. Since there are transactions with associated enterprise as defined in section 92A of the I.T. Act, the matters were referred to TPO under section 92CA. The TPO while accepting the international transactions as such being within the arms length price limits, however, considered disallowance of management fee of Rs.1,12,18,429 paid by the assessee to another resident company. A.O. in the order further disallowed depreciation of Rs.12,95,97,152 claimed on technical knowhow based on the orders pertaining to A.Y. 2006-07. Assessee objected before the DRP that the disallowance of management fee cannot be considered under T.P. provisions as it 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 DRP while accepting the objections of the assessee on the management fee however, did not interfere with the disallowance 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 depreciation 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 depreciation contested in assessee's appeal is concerned, the ITAT 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 section 263. Consequently, assessee's 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 allow the depreciation as claimed as it is only a consequential claim to the claims in earlier years.

4. Coming to the Revenue's appeal, as seen from the 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 definition of international transactions so as to necessitate the computation of arms length price under the T.P. provisions of the Act, DRP accepted the assessee's 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 in the impugned assessment year, the DRP has rightly held that stand of the TPO fails. Since the decision of the DRP is in tune 4 ITA.No.198 & 234/Hyd/2014 M/s. Astrix Laboratories Ltd., Hyderabad.

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. The Revenue has raised a ground that assessee did not substantiate the claim. As seen from the details placed on record, assessee did substantiate claim before the authorities and therefore, we are of the opinion that 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 on 25.03.2015.

Sd/- Sd/- (ASHA VIJAYARAGHAVAN) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACOUNTANT MEMBER

Hyderabad, Dated 25th March, 2015

VBP/- Copy to :

1. The DCIT, Circle 16(2), Room No.611, 6th Floor, Aayakar Bhavan, Basheerbagh, Hyderabad.

2. M/s. Astrix Laboratories Ltd., 1-1-151/1, 4th Floor, Sairam Towers, Alexander Road, Secunderabad.

3. Disputes Resolution Panel (DRP), 2nd 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, Hyderabad.

6. Deputy Commissioner of Income Tax, Transfer Pricing, 6th Floor, B-Block, Income Tax Towers, 10-2-3, A.C. Guards, Hyderabad - 500 004.

7. D.R. ITAT 'A' Bench, Hyderabad.

8. Guard File