M/S.APPOLLO TYRES LTD,ERNAKULAM V. DCIT, KOCHI

ITTPA 4/COCH/2021

AI Insights

Apollo Tyres Ltd. appealed against the final assessment order for the Assessment Year 2016-17, which included significant additions to their declared income based on transfer pricing adjustments and disallowances of various deductions. The Tribunal examined the grounds of appeal, which included challenges to the legality and excessiveness of the additions made by the AO, particularly regarding R&D expenditure deductions and transfer pricing adjustments. The Tribunal's decision involved remitting several issues back to the AO for re-assessment, highlighting the complexity and the need for detailed scrutiny of the transactions and claims involved.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 775281 (ITAT-COCHIN)
• Duration Of Justice: 4 year(s) 2 month(s) 12 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: 2016-2017
• Appeal Filed On: 29-06-2021
• Other Referred Cases: ITA No. 609/Coch/2027, ITA No. 575/Coch/2018, ITA No. 575/Coch/2018
• 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; Depreciation; Capital expenditure
• Section: 143(3); 37; 115JB; 37(1); 80G

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. 04/Coch/2021 Assessment Year: 2016-17 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 31.03.2021 passed u/s. 143(3) r.w.s. 144C(13) r.w.s. 143(3B) of Income Tax Act, 1961 (hereinafter \"the Act\") for Assessment Year (AY) 2016-17. 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 2016-17 was filed on Printed from counselvise.com 2 IT(TP)A No. 04/Coch/2021 Apollo Tyres Ltd. 28.11.2016 declaring income of Rs. 9,54,32,24,340/- and also reported book profit u/s. 115JB of Rs. 12,73,85,32,681/-. The return of income was revised on 23.03.2018 declaring income of Rs. 10,06,22,96,850/- and book profit u/s. 115JB of Rs. 12,44,68,66,017/-. 3. The assessee company also reported the following international transactions from AE in from 3CEB: - S.No. Description of Transaction Amount 1 Sale of tyres to ATTL 228,22,44,239 2 Sale of tyres to AVBV 202,94,84,626 3 Sale of tyres to ATAPL 38,93,24,153 4 Sale of tyres to Apollo Dubai 2,32,63,749 5 Sale of tyres to TEME 132,87,55,625 6 Sale of tyres to BV 12,54,227 7 Sale of semi-finished goods to AVBV 95,03,787 8 Purchase f tyres 13,76,94,612 9 Receipt of Research & Development Services 63,53,62,183 10 Receipt of corporate manufacturing & Quality services 26,98,79,495 11 Receipt of Corporate Marketing services 40,14,80,521 12 Receipt of Corporate Strategy services 35,00,82,309 13 Receipt of Business Advisory services 13,30,50,500 14 Receipt of Regional support services 5,28,02,793 15 Provision of Corporate Information Technology services 5,48,23,057 16 Purchase of Raw Materials 436,30,48,047 17 Purchase of other Raw Materials 26,06,896 18 Payment of Royalty 1,28,96,177 19 Receipt of Brand Royalty 6,40,14,020 Printed from counselvise.com 3 IT(TP)A No. 04/Coch/2021 Apollo Tyres Ltd. 20 Receipt of Interest 1,57,55,209 21 Investment in Equity 20,11,70,054 22 Reimbursement of expenses 3,65,48,879 23 Recovery of expenses 48,57,88,915 4. 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 12.12.2018 passed u/s. 92CA(3) of the Act suggested upward TP adjustment aggregating to Rs. 1,63,54,790/- in respect of the following segments: - a) Software segments of Rs. 77,79,940/- b) Recovery of expenses of Rs. 85,74,850/- 5. 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 31.12.2019 proposing to make the following additions: - i. TP adjustment – Rs. 1,63,54,790/- 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 details of expenditure incurred during the previous year relevant to the assessment year under consideration is as under: - Particulars Amount in Rs. R&D expense incurred by Apollo Tyres Global R&D BV, Netherlands 90,52,41,680 Printed from counselvise.com 4 IT(TP)A No. 04/Coch/2021 Apollo Tyres Ltd. R&D expense incurred for clinical trials 1,48,88,766 Revenue expenses of Perambra R&D Unit – not approved u/s. 35(2AB), however this unit was recognized by DSIR 1,56,55,925 Other R&D expenses such as Consultancy, Foreign travelling of Head-R&D, other senior personnel of R&D team & other R&D job related expenses 1,54,60,000 However, the DSIR had certified revenue expenditure of Rs. 39,12,69,000/- and Rs. 15,32,30,000/- towards capital expenditure. The AO was of the opinion that the expenditure certified by DSIR are only eligible for deduction. Accordingly, made an addition u/s. 35(2AB) of Rs. 2,07,68,18,080/-. iii. Disallowance out of 80IA Rs. 52,64490/- iv. Disallowance of deduction u/s. 80G on CSR - Rs. 6,44,28,000/- v. Claim of allowance of deduction of CESS of Rs. 10,14,27,952/- 6. 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 on 04.03.2021 confirming the TP adjustments and other additions. On receipt of the directions from the DRP, the AO had passed the final assessment order dated 31.03.2021 passed u/s. 143(3) r.w.s. 144C(13) r.w.s. 143(3A) & 143(3B) of the Act at a total income of Rs. 12,21,91,00,860/- after making the following additions: - Printed from counselvise.com 5 IT(TP)A No. 04/Coch/2021 Apollo Tyres Ltd. Adjustment recommended by TPO 1,63,54,790 Disallowance of claim of deduction u/s. 35(2AB) 2,07,68,18,080 Disallowance out of 80IA 52,64,490 Disallowance of CSR expenses 6,44,28,000 Disallowance of addition of CESS 10,14,27,952 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. 92CA(3) and sec. 144C(13), 143(3A) & 143(3B) of the Income-tax Act, 1961 ('the Act') dated 31 March, 2021, by the National e-Assessment Centre (NEAC) pursuant to the directions of the Dispute Resolution Panel ('DRP'), and the additions/disallowances made by the AO, are illegal 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. 12,21,91,00,860/-. 3. Regarding disallowance of Rs. 207,68,18,080/- being deduction claimed under sec. 35(2AB) of the Act a. The NEAC/DRP erred in law and on facts, in disallowing the weighted deduction of Rs. 207,68,18,080/- as claimed by the Appellant under sec. 35(2AB) of the Act in respect of expenditure incurred by it for its in-house R&D facility. b. The NEAC/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 Printed from counselvise.com 6 IT(TP)A No. 04/Coch/2021 Apollo Tyres Ltd. expenditure that is incurred at different premises, relatable to the \"in-house\" R& D activity. c. The NEAC/DRP failed to appreciate that all the requisite pre-conditions for 35(2AB) have been fulfilled by the Appellant, and 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 NEAC/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. The DRP erred in not adjudicating the ground of 200% weighted deduction, even though all the facts, material and evidence necessary to adjudicate the ground, was placed before the DRP, during the course of the hearing. f. Without prejudice to the above, the NEAC/DRP has grossly erred in making excessive disallowance of R&D Revenue expense amounting to Rs. 9512.46 lakhs as under:- R&D Revenue Expense Amount of Expense incurred Weighted R&D deduction (100% of expense) Incurred by Appellant (A) 13425.15 13425.15 Quantified by DSIR in Form 3CL (B) 3912.69 3912.69 Excess claimed by Appellant (C=A-B) 9512.46 9512.46 Amount disallowed by NEAC in assessment (D) 19024.92 Excessive disallowance made by NEAC (D-C) 9512.46 g. The NEAC/DRP grossly erred in not allowing deduction u/s 35(1)(iv) of the Act of R&D Building amounting to Printed from counselvise.com 7 IT(TP)A No. 04/Coch/2021 Apollo Tyres Ltd. Rs. 1743.26 lakhs which was duly approved & quantified by DSIR in Form 3CL as eligible R&D expense. h. Without prejudice to the above, in case deduction of R&D building expense of Rs. 1743.26 lakhs is not allowed u/s 35(1)(iv) of the Act, depreciation thereon be allowed to the Appellant Company. 4. Regarding claim of deduction under sec. 80-1A of the Act, in respect of shortfall compensation received amounting to Rs. 52,64,490/- a. The NEAC/DRP has erred in law and on facts, in reducing the deduction claimed under sec. 80-IA of the Act by Rs. 52,64,490/- being the amount of shortfall compensation received by the Appellant. b. The NEAC/DRP has erred in law and on facts, in holding that the said compensation received for shortfall in production of power, was not linked to power generation undertaking ie windmill, and therefore, not eligible for deduction u/s 80-1A of the Act. 5. Regarding disallowance of deduction under Section 80G of Rs. 6.44,28.000/- a. The NEAC/DRP has erred in law and on the facts of the case, in not appreciating that CSR expenditure amounting to Rs. 12,88,56,000/- is eligible for deduction of 50% i.e. Rs. 6,44,28,000/- u/s 80G of the Act. b. The NEAC/DRP has erred in alleging that payment qualifies for deduction u/s 80G of the Act only when it is made voluntarily and the present payment for which sec. 80G deduction is claimed is towards CSR which is mandated by section 135 of Company Act, 2013 and not voluntary. c. The NEAC/DRP has erred in applying the ratio of amendment brought in section 37(1) by the Finance Act 2014 on deduction u/s 80G of the Act. The AO has erred Printed from counselvise.com 8 IT(TP)A No. 04/Coch/2021 Apollo Tyres Ltd. in not appreciating that both the sections are mutually exclusive. 6. Regarding transfer pricing adjustment of Rs. 77,79,940/- (Corporate IT services) a. That the TPO/NEAC/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. 77,79,940/- 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/NEAC/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/NEAC/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/NEAC/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 Printed from counselvise.com 9 IT(TP)A No. 04/Coch/2021 Apollo Tyres Ltd. are comparable to the Appellant. Hence, such comparables ought to be included in the final list of comparable companies. e. That the TPO/NEAC/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. 7. Regarding transfer pricing adjustment of Rs. 85,74,850/- (Recovery of Salary expenses) a. On the facts and in the circumstances of the case and in law, the NEAC/TPO/DRP grossly erred in not appreciating that the recovery of salary expenses of Rs. 11,63,48,036/- by the Appellant Company from its associated enterprises ('AEs') is purely on cost to cost basis. Hence no mark-up was warranted. 8. Regarding deduction of Education Cess amounting to Rs. 10.14.27.952/- a. The NEAC/DRP erred in law and on facts, in not allowing the deduction of education cess amounting to Rs. 10,14,27,952/- being cess on income tax. The NEAC/DRP erred in not appreciating that deduction of education cess is an allowable business expense u/s 37 r.w.s. 40a(ii) of the Income Tax Act, 1961. 9. Regarding deduction of Surcharge amounting to Rs. 36,22,42,687/- a. The DRP erred in law and on facts, in not adjudicating the additional claim made before it and consequently, not allowing the deduction of Surcharge on income tax amounting to Rs. 36,22,42,687/- paid by the Appellant Company for the year under consideration. The DRP erred in not appreciating that deduction of Surcharge is an allowable business expense u/s 37 r. w.s. 40a(ii) of the Income Tax Act, 1961. Printed from counselvise.com 10 IT(TP)A No. 04/Coch/2021 Apollo Tyres Ltd. 10. Regarding Credit of tax of Rs. 6,95,22,320/- paid for AY 2016-17 via adjustment of refund of AY 2009-10 a. The NEAC erred in law and on facts in not allowing credit of tax payment of Rs. 6,95,22,320/- for AY 2016- 17, paid via adjustment of refund of AY 2009-10. 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 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, these grounds of appeal stand remitted to the file of AO on the lines indicated therein. Thus, this grounds stand partly allowed for statistical purposes. 10. The grounds of appeal No. 4 challenge disallowance of claim for deduction of Rs. 52,64,490/- u/s. 80-IA of the Act in respect of compensation received on account of shortfall in the production of power guaranteed in terms of the agreement by clause 3 with the contractor. This issue came up for consideration before this Bench in assessee’s own case in ITA No. 575/Coch/2018 for AY 2014-15, for the detailed reasons given therein vide para 28 this grounds of appeal stand dismissed. Printed from counselvise.com 11 IT(TP)A No. 04/Coch/2021 Apollo Tyres Ltd. 11. Ground No. 5 challenges the disallowance of expenditure on Corporate Social Responsibility (CSR) of Rs. 6,44,28,000/-. This issue came up for consideration before this Bench in assessee’s own case in ITA No. 575/Coch/2018 for AY 2014-15, for the detailed reasons given therein vide paras17 to 28stand remitted to the file of AO for due verification on the lines indicated therein. Thus, these grounds of appeal stand allowed for statistical purposes. 12. The ground of appeal No. 6 challenges the addition on account of transfer pricing adjustment of Rs. 77,79,940/- 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. 13. The ground appeal Nos. 7 challenges the transfer pricing adjustments of Rs. 85,74,850/- (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. 14. Grounds Nos. 8& 9 are dismissed as not pressed during the course of hearing. 15. Ground No. 10 regarding credit of tax of Rs. 6,95,22,320/- paid for AY 2016-17 via adjustment of refund of AY 2009-10. It is submitted that the refund due for AY 2009-10 was adjusted against regular tax dues of AY 2016-17. However, the same was not granted credit in the assessment order. This issue stands remitted back to the Printed from counselvise.com 12 IT(TP)A No. 04/Coch/2021 Apollo Tyres Ltd. file of the AO/TPO for due verification of the claim made by the appellant company. Accordingly, this ground of appeal stands partly allowed for statistical purposes. 16. 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 "