2015 (3) TMI 1271 - AT - Income Tax

Depreciation om technical knowhow - Held that - Claim of deprecation becomes eligible as it is an intangible asset on which assessee has claimed depreciation on WDV. Deemed international transactions - ALP determination - nature of transaction - Held that - 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. 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. Domestic transactions cannot be examined under T.P. provisions for the impugned assessment year - Decided against revenue

Summary

Issues:
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.

Analysis:
1. The assessee, a joint venture company specializing in the manufacture of Antiretroviral Active Pharmaceutical Ingredients (API), filed returns for A.Y. 2009-2010. The TPO accepted international transactions within arms length price limits but disallowed a management fee and depreciation claimed on technical knowhow. The DRP accepted objections on the management fee but not on depreciation, citing pending issues before the ITAT for A.Y. 2006-07.

2. Regarding the depreciation issue, both counsels agreed that the ITAT's order for A.Y. 2006-07 dated 16.01.2015 did not uphold proceedings under section 263, making the depreciation claim eligible. The ITAT directed the A.O. to allow the depreciation as claimed, being a consequential claim to previous years.

3. In the revenue's appeal, the TPO deemed transactions between resident companies as international, but DRP recognized them as domestic transactions, citing no profit shifting out of India. Relying on past ITAT decisions, the DRP held that T.P. provisions do not apply to domestic transactions, upholding the assessee's objections. The Revenue's claim of unsubstantiated expenses was dismissed as the assessee had provided evidence.

4. The ITAT allowed the assessee's appeal and dismissed the revenue's appeal, emphasizing the acceptance of objections on domestic transactions and the substantiation of claims. The order was pronounced on 25.03.2015.