APOLLO TYRES LTD.,COCHIN V. DCIT CORPORATE CIR 1(1), KOCHI

ITA 679/COCH/2024

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Apollo Tyres Ltd. appealed against the final assessment order for the Assessment Year 2020-21, which included significant additions to their declared loss due to transfer pricing adjustments and disallowances related to research and development expenditures. The company contested these additions, arguing that the transfer pricing documentation was compliant with Indian laws and that the economic analysis supporting their transactions should be accepted. The Dispute Resolution Panel (DRP) had partly allowed their objections, leading to the current appeal. The Tribunal's decision involved remitting several issues back to the AO, referencing previous cases and the need for a detailed examination of the transfer pricing adjustments and the application of section 35(2AB).

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 773967 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2020-2021
• Appeal Filed On: 07-08-2024
• Other Referred Cases: ITA No. 609/Coch/2027 for AY 2013-14
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJIT KUMAR DAS
• Assessee Lawyers: ABRAHAM JOSEPH MARKOS
• Keywords: Revenue expenditure; Transfer pricing; International transaction; Capital expenditure
• Section: 143(3); 154; 115JB; 244A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH BEFORE SHRI INTURI RAMA RAO, AM AND SHRI RAHUL CHAUDHARY, JM ITA No. 679/Coch/2024 Assessment Year: 2020-21 Apollo Tyres Ltd. .......... Appellant 3rd Floor, Areekal Mansion, Panampilly Nagar, Kochi 682036 [PAN: AAACA6990Q] vs. ACIT, Corporate Circle-1(1), Kochi ......... Respondent Assessee by: Shri Abraham Joseph Markos, Adv. Revenue by: Shri Sanjit Kumar Das, CIT-DR Date of Hearing: 20.08.2025 Date of Pronouncement: 10.09.2025 O R D E R Per: Inturi Rama Rao, AM This appeal filed by the assessee is directed against the final assessment order dated 20.06.2024passed u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B of Income Tax Act, 1961 (hereinafter \"the Act\") for Assessment Year (AY) 2020-21. 2. Brief facts of the case are that the appellant is a company incorporated under the provisions of Companies Act, 1956. It is engaged in the business of manufacture and sale of tyres, tubes and dealing in flaps. The return of income for AY 2020-21 was filed on Printed from counselvise.com 2 ITA No. 679/Coch/2024 Apollo Tyres Ltd. 17.12.2020 declaring loss of Rs. 324,09,47,701/- and also reported book profit u/s. 115JA of Rs. 587,52,13,537/-. The assessee company also reported certain international transactions from AE in from 3CEB. 3. On noticing the above international transactions, the AO referred the matter to the Transfer Pricing Officer (TPO) u/s. 92CA(1) of the Act for the purpose of benchmarking the above international transactions. The TPO vide order dated 14.06.2023 passed u/s. 92CA(3) of the Act suggested upward TP adjustment aggregating to Rs. 12,58,57,164/-. However, subsequently the order was rectified u/s. 154 of the Act on 12.06.2023 as under in respect of the following segments: - a) Software development segments of Rs. 56,48,130/- b) Recovery of expenses of Rs. 3,07,02,519 4. On receipt of the TPO’s order, the AO passed draft assessment order u/s. 143(3) r.w.s. 144C(1) of the Act on 22.09.2023 proposing to make the following additions: - i. TP adjustment – Rs. 3,61,58,496/- ii. The appellant company made claim for deduction of Rs. 129,77,42,588/- u/s. 35(2AB) of the Act being the 200% of the following expenditure incurred on Research and Development:- 50% of additional claim of Rs. 75,89,85,525/- revenue expenditure Printed from counselvise.com 3 ITA No. 679/Coch/2024 Apollo Tyres Ltd. 150% Capital Expenditure Rs. 53,87,57,064 Out of the above expenditure the DSIR in Form 3CL quantified the eligible amount as under: - (Rs. In lakhs) Land and Building Rs. 280.30 Capital Expenditure (Capital Rs. 1280.86/- Equipment other than Building) 3498.12 Revenue Expenditure Rs. 8122.42/- Building Rs. 133,26/- Total Rs. 11620.54/- The AO was of the opinion that in the absence of quantification of expenditure by DSIR the balance amount cannot be allowed. Accordingly made addition u/s. 35(2AB) of Rs. 36,69,03,588/- 5. On receipt of the draft assessment order, the appellant company filed objections before the Dispute Resolution Panel (DRP) contesting all the above additions. The DRP partly allowed objections. 6. On receipt of the directions from the DRP, the AO had passed the final assessment order dated 20.06.2024 passed u/s. 143(3) r.w.s. 144C(13) r.w.s. 144Bof the Act at a total loss of Rs. 279,84,04,204/- after making the following additions: - Additions on account of TP adjustment 3,61,58,496 Disallowance u/s. 35(2AB) 36,69,03,588 Disallowance of CESS 3,94,81,413 Printed from counselvise.com 4 ITA No. 679/Coch/2024 Apollo Tyres Ltd. 7. Being aggrieved by the final assessment order the appellant is in appeal before this Tribunal in the present appeal raising the following grounds: - “1. The assessment order passed u/s 143(3) r.w.s., 144C(13) & 144B of the Income-tax Act, 1961 ('the Act') dated 20th June, 2024, by the Assessment Unit, Income Tax Department (AO') pursuant to the directions of the Dispute Resolution Panel ('DRP'), and the additions/disallowances made by the Id. AO/TPO, are grossly injudicious, unwarranted, against the facts of the case and bad in law. 2. The additions/disallowances made are unsustainable, unjust, highly excessive and are not based on any material on record. Total Business loss of the Appellant has been incorrectly and un-lawfully assessed under normal provisions of the Act at Rs. 279,84,04,204/- as against returned business loss of Rs. 324,09,47,701/-. 3. Regarding transfer pricing adjustment of Rs.56,48,130/- (Corporate IT services) a. That the Ld. TPO/AO/DRP erred in not appreciating that the Transfer Pricing documentation is maintained as per the provisions of the Indian Transfer Pricing Law, and in the absence of any defect, the economic analysis undertaken by the Appellant should stand accepted. Moreover, the AO/DRP/TPO grossly erred by making a transfer pricing addition of Rs. 56,48,130/- to the income of the Appellant and erred in holding that the international transactions pertaining to provision of software development services do not satisfy the arm's length principle envisaged under the Act. b. That the Ld. TPO/AO/DRP erred in adopting and applying filters of current year data, companies having different financial year ending, service income < 1 cr. Printed from counselvise.com 5 ITA No. 679/Coch/2024 Apollo Tyres Ltd. SWD is less than 75% of the total operating revenues,, export service income < than 75% of the sales and employee cost <25% of the turnover. Adoption of such filters is arbitrary and contrary to the provisions of the Act. c. The TPO/AO/DRP failed to appreciate that the comparables chosen by the TPO are not functionally comparable since they do not meet the Functions performed. assets used, risks assumed ('FAR') test as envisaged under Rule 108(2) of the Income Tax Rules, 1962 ('the Rules') and hence cannot be used for benchmarking the transaction. Hence, such comparables ought to be excluded from the final list of comparable companies. d. The TPO/AO/DRP erred in not appreciating that all the comparables chosen by the Appellant in its Transfer Pricing Documentation meet the FAR test, and as such are comparable to the Appellant. Hence, such comparables ought to be included in the final list of comparable companies, e. That the TPO/ AO/DRP erred in not allowing the benefit of working capital adjustment and risk adjustment, to the Appellant, without appreciating that such an adjustment is warranted in terms of Rule 10B(3) of the Rules, 4. Regarding transfer pricing adjustment of Rs. 3.07.02.519% on Cost-to-Cost Recovery of Salary expenses from AEs a. On the facts and in the circumstances of the case and in law, the Ld. AO/TPO/DRP grossly erred in not appreciating that the recovery of salary expenses of Rs. 14,38,73,097/- (which was rectified by Ld. TPO vide its Order dt. 12-06-2023) by the Appellant Company from its associated enterprises ('AEs') is purely on cost to cost basis, hence no mark-up was warranted. Printed from counselvise.com 6 ITA No. 679/Coch/2024 Apollo Tyres Ltd. b. Without prejudice to the above and on the facts and in the circumstances of the case and in law, the Ld. AO/TPO/DRP has failed to appreciate that in past three years. on exactly similar facts & issue adjustment was made at an average rate of 9.96%. However, in the current year, adjustment of 21.34%. (approx. -1.5 times of the average mark-up being applied in the preceding years) has been made which is grossly arbitrary, injudicious and bad at law. 5. Regarding disallowance of Rs. 35,28,65,197/- being R&D Revenue Expense and Rs. 1,40,38,500/- being R&D Capital Expense claimed under section 35(2AB) of the Act a. The Ld. AO/DRP erred in law and on facts, in disallowing the weighted deduction of Rs. 35,28,65,197/- of R&D Revenue Expense and Rs. 1,40,38,500/- of R&D Capital Expense as claimed by the Appellant under section 35(2AB) of the Act in respect of expenditure incurred by it for its in-house R&D facility. b. The Ld. AO/DRP failed to appreciate that all the requisite pre-conditions for 35(2AB) have been fulfilled by the Appellant, and section 35(2AB) being a beneficial provision with a view to encourage in-house research and development, is applicable on the facts of the present case. c. The Ld. AO/ DRP failed to appreciate that Form 3CL is a mere procedural intimation and cannot form the basis to compute the deduction u/s 35(2AB). 6. Regarding incorrect addition of Rs. 29.88 crs made in Book Profit: The Ld. AO erred in law and on facts, in considering Deemed Total Income (Book Profit) u/s 115JB of the Act at Rs. 617,40,70.233/- as against the correct returned Printed from counselvise.com 7 ITA No. 679/Coch/2024 Apollo Tyres Ltd. amount of Rs. 587,52,13,537/-, This has resulted in increase of book profit u/s 115JB by Rs 29,88,56,696/-. 7. Regarding incorrect computation of interest u/s 244A: The Ld. AO has erred in not correctly computing interest as per provision of Section 244A of the Income Tax Act on the refund amount as determined in assessment order. The above grounds are without prejudice to each other. The Appellant Company reserves the right to add, alter, amend or modify any of the grounds appealed against during the course of hearing. 8. The ground of appeal Nos. 1 & 2 are general in nature, requiring no adjudication. 9. The ground of appeal No. 3 challenges the addition on account of transfer pricing adjustment of Rs. 56,48,130/- in respect of provision of Corporate IT services. This issue stands remitted back to the file of the AO/TPO in terms of the passed by Tribunal on 10.01.2017 for AY 2011-12. 10. The ground appeal No.4 challenges the transfer pricing adjustments of Rs. 3,7,02,590/- (recovery of salary expenses). This issue stands remitted back to the file of the AO/TPO in terms of the passed by Tribunal on 10.01.2017 for AY 2011-12. 11. The ground of appeal No. 5 challenges the disallowance of claim u/s. 35(2AB) of the Act. Similar issue is decided by this Bench in assessee’s own case in ITA No. 609/Coch/2027 for AY 2013-14. For the detailed reasons given paras10&11 of the said Printed from counselvise.com 8 ITA No. 679/Coch/2024 Apollo Tyres Ltd. order, these grounds of appeal stand remitted to the file of AO on the lines indicated therein. Thus, this grounds stands partly allowed for statistical purposes. 12. Grounds Nos. 6 & 7 are dismissed as not pressed during the course of hearing. 13. In the result, the appeal filed by the assessee stands partly allowed for statistical purposes. Order pronounced in the open court on 10th September, 2025. Sd/ Sd/ (RAHUL CHAUDHARY) JUDICIAL MEMBER (INTURI RAMA RAO) ACCOUNTANT MEMBER Cochin, Dated: 10th September, 2025 n.p. Copy to: 1. The Appellant 2. The Respondent 3. The Pr. CIT concerned 4. The Sr. DR, ITAT, Cochin 5. Guard File Assistant Registrar ITAT, Cochin Printed from counselvise.com "