TaxTMI 
TaxTMI 
2015 (1) TMI 1008
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....rred to as Matrix) for Rs. 105.32 crores failed to satisfy the benefit test and disallowing depreciation of Rs. 13,16,54,210/- 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 acquired technical know-how and DMF from Matrix but also other fixed assets including land, buildings and equipment for the sole purpose of setting up and carrying on the business of manufacture and sale of Anti retroviral (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 acquired from Matrix has been enhanced for the purposes of claiming depreciation and therefore, the same is covered by section 43(1) r. w. Explanation 3 of the Act." 3. Briefly the facts are, assessee an Indian company is engaged in the business of manufacture and sale of active pharmaceutical ingredients and its intermediates. For the AY under consideration, assessee filed its return of income on 29/11/2006 declaring loss of Rs. 5,56,02,362 under normal provisions and book profit of Rs. 4,0....
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....eedings for AY 2007-08, the TPO determined the ALP in respect of purchase of technical knowhow and DMF from Matrix Laboratories Ltd. at NIL by applying CUP method as it failed the benefit test. The transaction 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. AO has not verified the genuineness of the expenditure incurred towards payments made to Matrix Laboratories Ltd. Further in the books of Matrix Laboratories Ltd. the consideration is shown at Rs. 101.02 crores whereas assessee has adopted the figure of Rs. 102.32 crores. The consideration of Rs. 105.32 crores paid to Matrix Laboratories Ltd. should not have been allowed as the expenditure is not genuine. 4. On the basis of the aforesaid reasons, ld. CIT issued 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 erroneous and prejudicial to the interests of revenue. In response to the show cause notice, assessee submitted a detailed reply, and also made submissions before ld. CIT. After considering the submissions of assessee, ld. CIT dropped the proceeding with regard to the ....
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....e purchase of intangible assets by assessee failed to satisfy the benefit test, hence, the ALP was determined at Nil and depreciation claimed was disallowed, ultimately concluded as under: "16. I agree with the findings of the Transfer Pricing Officer in the order dated 29.10.2010 for AY 2007-08. The Assessing Officer in the assessment order for the asst.year 2006-07 did not examine the genuineness of the transaction of purchase of technical know how and DMF because the assessee did not report the transaction with M/s. Matrix Laboratories Ltd., as an international transaction. Non examination of the genuineness of the transaction re suited in under assessment of the total income. Further, the Assessing Officer ,while passing the assessment order on 29.12.2009 was not having the TPO'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 intangible assets by the assessee from Matrix Laboratories Ltd in AY 2006-07. The Assessing Officer without examination of purchase of intangibles from Matrix Laboratories had accepted the purchase consideration in a mechan....
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....ncing 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 view, the Assessing Of ficer has failed in application of the provisions of section 43(1) r.w.explanation 3 of the IT. Act. 19. For the above reasons, the assessment order passed by the Assessing Officer u/ s 143(3) on 29.12.2009 is hereby set aside with a direction to recomputed the total Income after giving an opportunity of being heard and pass a fresh assessment order." 7. Being aggrieved of the aforesaid order of ld. CIT, assessee is before us. 8. The ld. AR more or less reiterating the submissions 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 depreciation by applying the benefit test as the transaction between two resident companies cannot be termed as international transaction under section 92B. In support of such contention, he relied upon a decision of the ITAT, Hyderab....
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....enhanced to that extent 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 Matrix transferred certain capital assets in the form of land, building, etc. to assessee company for manufacture of certain active pharmaceutical ingredients, which were being manufactured by Matrix. For enabling assessee to manufacture those APIs, Matrix also passed over the technical know-how and DMF relating to those APIs to Astrix for a consideration of Rs. 105,32,34,000. The consideration received towards transfer of the capital assets as well as on account of knowhow and DMF have been assessed at the hands of Matrix which is very much evident from the assessment order of Matrix for the impugned AY. Therefore, when the transaction is accepted as genuine in case of Matrix, it cannot be otherwise in case of assessee as they are two sides of same coin. Moreover, it is a fact on record that AO who completed the assessment in case of assessee as well as Matrix is same. Hence, it cannot be said that AO ha....