APOLLO TYRES LTD,ERNAKULAM V. THE DCIT, KOCHI

ITTPA 1/COCH/2022

AI Insights

Apollo Tyres Ltd. appealed against the final assessment order for the Assessment Year 2017-18, which included significant additions to their declared income based on transfer pricing adjustments and disallowances of deductions related to their in-house R&D expenditures. The Tribunal's decision to remit the issues back to the AO indicates that there were complexities in the application of transfer pricing laws and the interpretation of deductions under section 35(2AB) of the Income Tax Act, 1961. The case highlights the ongoing legal debates surrounding the arm's length principle in transfer pricing and the eligibility of certain expenditures for tax deductions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 773566 (ITAT-COCHIN)
• Duration Of Justice: 3 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 10-09-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2017-2018
• Appeal Filed On: 04-03-2022
• Other Referred Cases: ITA No. 40 & 43 of 2017, ITA No. 609/Coch/2027
• 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: Transfer pricing; International transaction; Depreciation; Wholly owned subsidiary
• Section: 143(3)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH BEFORE SHRI INTURI RAMA RAO, AM AND SHRI RAHUL CHAUDHARY, JM IT(TP)A No. 01/Coch/2022 Assessment Year: 2017-18 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 24.01.2022passed u/s. 143(3) r.w.s. 144C(13) r.w.s. 144(B) of Income Tax Act, 1961 (hereinafter \"the Act\") for Assessment Year (AY) 2017-18. 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 2017-18 was filed on Printed from counselvise.com 2 IT(TP)A No. 01/Coch/2022 Apollo Tyres Ltd. 28.03.2018 declaring income of Rs. 4,49,83,43,740/-. The assessee company also reported several international transactions from AE in from 3CEB. 3. On noticing the 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 29.01.2021 passed u/s. 92CA(3) of the Act suggested upward TP adjustment aggregating to Rs. 1,26,98,065/- in respect of the following segments: - a) Software development segments of Rs. 59,47,180/- b) Recovery of expenses of Rs. 67,50,885/- 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 31.03.2021 proposing to make the following additions: - i. TP adjustment – Rs. 1,26,98,065/- ii. Disallowance of excess claim of deduction u/s. 35(2AB) – The appellant company made claim for deduction of Rs. 2,99,14,88,038/- u/s. 35(2AB) of the Act.The AO was of the opinion that the R&D expenditure incurred in-house is alone is eligible for deduction. Accordingly, made an addition u/s. 35(2AB) of Rs. 98,98,78,876/-. 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 issued directions Printed from counselvise.com 3 IT(TP)A No. 01/Coch/2022 Apollo Tyres Ltd. on 30.12.2021 confirming the TP adjustments and other additions. On receipt of the directions from the DRP, the AO had passed the final assessment order dated 24.01.2022 passed u/s. 143(3) r.w.s. 144C(13)r.w.s. of the Act at a total income of Rs. 549,57,57,000/- after making the following additions: - Adjustment recommended by TPO 1,26,98,065 Disallowance of claim of deduction u/s. 35(2AB) 98,98,78,876 Disallowance of depreciation on Gas Turbine 51,63,682 6. 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. 92CA(3), 144C(13) & 144B of the Income-tax Act, 1961 ('the Act') dated 24th January, 2022, by the National Faceless Assessment Centre (NFAC) 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 income of the Appellant has been incorrectly and un-lawfully assessed under normal provisions of the Act at Rs. 549,57,57,000/-. 3. Regarding disallowance of Rs. 98,98,78,876/- being deduction claimed under sec. 35(2AB) of the Act a. The NFAC/DRP erred in law and on facts, in disallowing the weighted deduction of Rs. 98,98,78,876/- as claimed by the Appellant under sec. 35(2AB) of the Act in respect Printed from counselvise.com 4 IT(TP)A No. 01/Coch/2022 Apollo Tyres Ltd. of expenditure incurred by it for its in-house R&D facility. b. The NFAC/DRP erred in adopting a restrictive interpretation to the phrase \"in-house\" without appreciating that there is no embargo under sec. 35(2AB), which restricts the deductibility of an expenditure that is incurred at different premises, relatable to the \"in-house\" R& D activity. c. The NFAC/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. d. The NFAC / 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). e. Without prejudice to the above grounds, the NFAC/DRP has grossly erred in law in not following the decision of jurisdictional Hon'ble Kerala High Court passed in Appellant's own case for AY 2010-11 & 2011-12 in ITA No. 40 & 43 of 2017 and not allowing section 35(2AB) deduction of the R&D Salary expense amounting to Rs. 40.46 crores (included in total disallowance of Rs. 98.98 crores) reimbursed by the Appellant Company to its wholly owned subsidiary Apollo Tyres Global R&D BV, Netherlands (ATGRD). f. Without prejudice to the above grounds, the NFAC/DRP has erred in not allowing the weighted deduction of the R&D salary reimbursement amounting to Rs. 10.78 crores for the period 1 April to 30th June 2016 i.e. before amendment to Rule 6(7A)(b) by Income Tax (10th Amendment) Rules, 2016 w.e.f. 01.07.2016. Printed from counselvise.com 5 IT(TP)A No. 01/Coch/2022 Apollo Tyres Ltd. 4. Regarding transfer pricing adjustment of Rs. 59,47,180/- (Corporate IT services) a. That the TPO/NFAC/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 NEAC/DRP/TPO grossly erred by making a transfer pricing addition of Rs. 59,47,180/- 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 TPO/NFAC/DRP erred in adopting and applying filters of current year data, companies having different financial year ending, service income < 1 cr, SWD is less than 75% of the total operating revenues, RPT more than 25%, 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/NFAC/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 10B(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/NFAC/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 Printed from counselvise.com 6 IT(TP)A No. 01/Coch/2022 Apollo Tyres Ltd. comparables ought to be included in the final list of comparable companies. e. That the TPO/NFAC/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. 5. Regarding transfer pricing adjustment of Rs.67,50,885/- (Recovery of Salary expenses) a. On the facts and in the circumstances of the case and in law, the NFAC/TPO/DRP grossly erred in not appreciating that the recovery of salary expenses of Rs. 67,50,885/- by the Appellant Company from its associated enterprises ('AEs') is purely on cost to cost basis. Hence no mark-up was warranted. 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.” 7. The ground of appeal Nos. 1 & 2 are general in nature, requiring no adjudication. 8. The ground of appeal No. 3 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 order, this ground of appeal stands remitted to the file of the AO on the lines indicated therein. Thus, this ground of appeal stands partly allowed for statistical purposes. Printed from counselvise.com 7 IT(TP)A No. 01/Coch/2022 Apollo Tyres Ltd. 9. The ground of appeal No. 4 challenges the addition on account of transfer pricing adjustment of Rs. 59,47,180/- 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. 5 challenges the transfer pricing adjustments of Rs. 67,50,885/- (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. 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 "