Astrix Laboratories Limited, ... vs Assessee

These two appeals, one filed by the Assessee being ITA.No.43/Hyd/2015 and the other filed by the Revenue being ITA.No.71/Hyd/2015, are corss-appeals which are directed against the order of learned ACIT, Circle 16(2), Hyderabad ("A.O.") read with section 92CA(3) and 144C(5) of the I.T. Act, 1961.

2. In its appeal, the Revenue has challenge the action of the Disputes Resolution Panel ("DRP") in deleting 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. Mylan Laboratories Ltd., involving the payment of management fees.

3. The assessee in the present case is a company which is engaged in the business of manufacturing of Active Pharmaceutical Ingredients ("API") and their intermediaries. The return of income for the year under consideration 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 profit of Rs.90,33,23,759 under the provisions of section 115JB of the Act. During the course of assessment proceedings, it was noticed by the A.O. that the assessee has entered into various international transactions with its AEs. He therefore referred the matter to the TPO for the purpose of determining the Arms Length Price ("ALP") of the said international transactions. As noticed by the TPO, the assessee company had paid an amount of Rs.1,10,30,000 as management fees to M/s. Mylan Laboratories Ltd., during the year under consideration. For the reasons given in his order passed under section 92CA(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 nature of deemed international transaction. He therefore proceeded to determine the arms length price of the said transaction. In this regard, he found that there was a failure on the part of the assessee company to substantiate and justify the payment 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 regard was on 3 ITA.No.43 & 71/Hyd/2015 Astrix Laboratories Ltd., Hyderabad.

the assessee company to prove on evidence the services actually rendered by M/s. Mylan Laboratories and the 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 and accordingly taking the ALP of the relevant international transactions at NIL, he worked out the T.P. adjustment required to be made in respect of these transactions 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 total income of the assessee in the draft assessment order, the assessee company filed its objection before the Disputes Resolution 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. Swarnandhra IJMII Integrated Town Ship P. Ltd., vs. DCIT (ITA.No.2072/H/2011), the DRP directed the A.O. not to make any T.P. adjustment as worked out by the TPO holding that M/s. Mylan Laboratories Ltd., not being an Associated Enterprise of the assessee company, the relevant transactions between them involving the payment of management fees cannot be recorded as deemed international transactions.

5. We have heard the arguments of both the sides and also perused the relevant material on record. Although the learned D.R. has strongly relied on the order of the TPO in support of the Revenue's case that the relevant transactions between the assessee company and M/s. Mylan Laboratories Ltd., involving payment of management fees are in the nature of deemed international transactions, it is observed that a 4 ITA.No.43 & 71/Hyd/2015 Astrix Laboratories Ltd., Hyderabad.

similar issue in assessee's own case for A.Y. 2009-2010 has been decided by the Tribunal in favour of the assessee vide its order dated 25.03.2015 passed in ITA.No.198/Hyd/2014 vide paragraph No.4 which reads as under :

"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 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 relevant thereto are similar to that of A.Y. 2009-2010, we respectfully follow the 5 ITA.No.43 & 71/Hyd/2015 Astrix Laboratories Ltd., Hyderabad.

decision of the Coordinate Bench of this Tribunal for 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. adjustment in respect of the transactions of the assessee company with M/s. Mylan Laboratories Ltd., involving payment of management fees. The appeal of the Revenue is accordingly dismissed.

6. Now, we take up the appeal of the assessee being 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 assessee's claim for depreciation in respect of technical knowhow purchased from M/s. Mylan Laboratories Ltd., for financial year 2005-2006 and development charges paid to the said company.

7. During the previous year relevant to A.Y. 2006- 2007, the assessee company had acquired technical knowhow from M/s. Mylan Laboratories Ltd., and had also paid development charges separately to the said company. These assets acquired by the assessee company were claimed to be intangible assets and accordingly, depreciation @ 25% 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. Thereafter, as per the directions of the Ld. CIT, a fresh assessment 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 rights purchased by it at NIL keeping in view the provisions of 6 ITA.No.43 & 71/Hyd/2015 Astrix Laboratories Ltd., Hyderabad.

Explanation-3 of section 43(1) of the Act. Following this stand taken in the order passed under section 143(3) read with section 263 for A.Y. 2006-2007, the claim of the assessee for depreciation on intangible assets was disallowed by the A.O. even in the subsequent years including the year under consideration i.e., A.Y. 2010-2011 which was approved by the DRP.

8. We have heard the arguments on both the sides and also perused the relevant material on record. As agreed by learned Representatives of both the sides, the issue involved in this appeal of the assessee is squarely covered in favour of the assessee by the decision of the Tribunal in assessee's 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 order is placed on record before us and perusal of the same shows that the order passed by the learned CIT under section 263 for A.Y. 2006-2007 on this issue was set aside by the Tribunal vide order dated 16.01.2015 passed in ITA.No.840/Hyd/2012 and consequential order passed by the A.O. under section 143(3) read with section 263 was also treated by the Tribunal as non- est in the eye of Law vide its order dated 20.01.2015 passed in ITA.No.1306/Hyd/2014. Taking note of these developments, the Tribunal vide order dated 25.03.2015 (supra) in ITA.No.234/Hyd/2014, deleted the similar disallowance made by the A.O. on account of assessee's claim for depreciation on intangible assets vide paragraph No.3 which reads as under :

"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 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, 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."

8.1. The issue involved in the appeal of the assessee for the A.Y. 2010-2011 thus is squarely covered in favour of the assessee by the decision of the Coordinate Bench of this Tribunal rendered vide order dated 25.03.2015 (supra) for A.Y. 2009-2010 and respectfully following the same, we direct the A.O. to delete the disallowance made on account of assessee's claim for depreciation of Rs.9,71,97,865 on intangible assets. Assessee's 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 08th May, 2015. VBP/- Copy to

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

2. M/s. Metrochem API P. Ltd., Flat No.302, Bhanu Enclave, Sunder Nagar, Erragadda, Hyderabad - 500 038.

3. CIT(A)-V, Hyderabad

4. CIT-IV, Hyderabad.

5. D.R. I.T.A.T. "A" Bench, Hyderabad.

6. Guard File