M/S APPOLLO TYRES LTD,ERNAKULAM V. DCIT TP-2(3)(1), KOCHI

ITTPA 7/COCH/2022

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Apollo Tyres Ltd. appealed against the final assessment order for the Assessment Year 2018-19, which included significant transfer pricing adjustments and disallowances related to research and development expenditures. The company contested the additions made by the AO following the directions of the Dispute Resolution Panel (DRP). The Tribunal found merit in re-evaluating certain aspects of the case, particularly the application of transfer pricing and the deductions claimed under section 35(2AB) of the Income Tax Act, 1961. The case highlights the complexities involved in international transactions and the interpretation of tax provisions related to R&D expenditures.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 775283 (ITAT-COCHIN)
• Duration Of Justice: 3 year(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: 2018-2019
• Appeal Filed On: 29-08-2022
• Other Referred Cases: IT(TP)A No. 609/Coch/2027 for AY 2013-14, AY 2011-12
• 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; TDS; FORM 26AS
• Section: 143(3); 115JB

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. 07/Coch/2022 Assessment Year: 2018-19 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 28.07.2022passed 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) 2018-19. 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 2018-19 was filed on Printed from counselvise.com 2 IT(TP)A No. 07/Coch/2022 Apollo Tyres Ltd. 28.11.2018 declaring income of Rs. 278,49,52,950/- and also reported book profit u/s. 115JB of Rs. 860,34,11,295/-. The return of income was revised on 27.03.2019 declaring income of Rs. 233,37,70,673/- and book profit u/s. 115JB remained the same. 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 30.07.2021 passed u/s. 92CA(3) of the Act suggested upward TP adjustment aggregating to Rs. 11,92,84,770/- in respect of the following segments: - a) Software development segments of Rs. 62,98,200/- b) Corporate purchase services segment Rs. 8,71,650/- c) Recovery of expenses of Rs. 3,22,77,750/- d) Interest on loans and advances Rs. 7,98,37,170/- 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 30.07.2021 proposing to make the following additions: - i. TP adjustment – Rs. 11,92,84,770/- ii. Disallowance of excess claim of deduction u/s. 35(2AB) – The appellant company made claim for deduction of Rs. 311,95,18,318/- u/s. 35(2AB) of the Act being the 200% of Printed from counselvise.com 3 IT(TP)A No. 07/Coch/2022 Apollo Tyres Ltd. the following expenditure incurred on Research and Development:- Revenue Expenditure Rs. 125,24,48,349/- Capital Expenditure (Capital Rs. 29,39,35,178 Equipment other than Building) Building Rs. 1,33,25,641/- Out of the above expenditure the DSIR vide report dated 30.03.2021 in Form 3CL quantified the eligible amount as under: - (Rs. In lakhs) Revenue Expenditure Rs. 6,026.50/- Capital Expenditure (Capital Rs. 1280.86/- Equipment other than Building) Building Rs. 133,26/- Total Rs. 7,440.62/- The AO was of the opinion that in the absence of form 3CL no expenditure can be allowed. 5. On receipt of the draft assessment order, the appellant company filed objections before the Dispute Resolution Panel (DRP) contesting all the above additions. However, the DRP directed the AO to allow the expenditure to extent quantified by DSIR in Form 3CL. The AO accordingly made addition on account excess deduction u/s. 35(2AB) of Rs. 2,35,74,170/- and Rs. 1,79,97,392/-.The DRP issued directions on 14.06.2022 confirming the TP adjustments and other additions. On receipt of the directions from the DRP, the AO had passed the final assessment order dated 28.07.2022 passed u/s. 143(3) r.w.s. 144C(13) r.w.s. 144Bof the Act Printed from counselvise.com 4 IT(TP)A No. 07/Coch/2022 Apollo Tyres Ltd. at a total income of Rs. 334,65,12,775/- after making the following additions: - Adjustment recommended by TPO 11,92,84,770 Disallowance of claim of deduction u/s. 35(2AB) 83,83,40,2560 On account of Duty Drawback 16,38,171 Disallowance of CESS 5,34,78,805 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 28th July, 2022, by the Assessment Unit 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. 246,73,96,990/-. 3. Regarding disallowance of Rs. 2,35,74,170/- being R&D Revenue Expense and Rs. 1.79.97.392/-being R&D Capital Expense claimed under section 35(2AB) of the Act a. The Assessment Unit/DRP erred in law and on facts, in disallowing the weighted deduction of Rs. 2,35,74,170/- of R&D Revenue Expense and Rs. 1,79,97,392/- 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. Printed from counselvise.com 5 IT(TP)A No. 07/Coch/2022 Apollo Tyres Ltd. b. The Assessment Unit/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 Assessment Unit / 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). 4. Regarding transfer pricing adjustment of Rs. 3,22,77,750/- 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 Assessment Unit/TPO/DRP grossly erred in not appreciating that the recovery of salary expenses of Rs. 18,11,32,158/- by the Appellant Company from its associated enterprises ('AEs') is purely on cost to cost basis, hence no mark-up was warranted. b. Without prejudice to the above and on the facts and in the circumstances of the case and in law, the Assessment Unit/TPO/DRP has failed to appreciate that in past three years, on exactly similar facts & issue adjustment was made in range of 4.69%-7.37%. However in the current year, adjustment of 17.82% (approx. three - four 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 transfer pricing adjustment of Rs. 62,98,200/- (Corporate IT services) a. That the TPO/Assessment Unit/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 Printed from counselvise.com 6 IT(TP)A No. 07/Coch/2022 Apollo Tyres Ltd. economic analysis undertaken by the Appellant should stand accepted. Moreover, the Assessment Unit/DRP/ TPO grossly erred by making a transfer pricing addition of Rs. 62,98,200/- 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/Assessment Unit/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/ Assessment Unit/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 ('F AR') 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/Assessment Unit/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/ Assessment Unit/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. Printed from counselvise.com 7 IT(TP)A No. 07/Coch/2022 Apollo Tyres Ltd. 6. Regarding TDS credit of Rs. 1,54,95,411/- duly appearing in Form 26AS, however, not allowed while computing tax liability a. The Assessment Unit has grossly erred in not following the direction of Id. DRP to allow full amount of TDS credit as appearing in Form 26AS. The Assessment Unit allowed TDS credit of Rs. 1,72,81,982/- only as against total credit of Rs. 3,27,77,393/-reflected in Form 26AS, thus resulting in short TDS credit allowance of Rs. 1,54,95,411/- (.Rs. 3,27,77,393 Rs. 1,72,81,982). 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, these grounds of appeal stand remitted to the file of AO on the lines indicated therein. Thus, these grounds stand partly allowed for statistical purposes. 9. The ground appeal Nos.4 challenges the transfer pricing adjustments of Rs. 3,22,77,750/- (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. Printed from counselvise.com 8 IT(TP)A No. 07/Coch/2022 Apollo Tyres Ltd. 10. The ground of appeal No. 5 challenges the addition on account of transfer pricing adjustment of Rs. 62,98,200/- 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. 11. Grounds No. 6 is dismissed as not pressed during the course of hearing. 12. 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 "