MRF LIMITED,CHENNAI vs. DCIT, CENTRAL CIRCLE 3(3), CHENNAI

ITTPA 5/CHNY/2024Status: DisposedITAT Chennai04 May 2026AY 2015-1635 pages
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What were the facts?

The assessee, MRF Limited, an Indian tyre manufacturer, filed appeals against the final assessment orders for Assessment Years (AY) 2015-16 and 2016-17, issued by the Deputy Commissioner of Income-tax (DCIT), Central Circle 3(3), Chennai, under Section 147 read with Section 144C(13) of the Income Tax Act, 1961. The reassessment proceedings were initiated following a survey on 22 November 2019, concerning transactions with MRF SG Pte Ltd, deduction claims under Section 35(2AB), disallowance of provisions for litigation, and transfer pricing adjustments. The Assessing Officer (AO) and Transfer Pricing Officer (TPO) made upward adjustments. The Dispute Resolution Panel (DRP) upheld these adjustments. The assessee appealed to the Income Tax Appellate Tribunal (ITAT) on various grounds, including the validity of reassessment, time-barring, disallowances related to litigation provisions, MRF SG transactions, Section 35(2AB) deduction, raw material purchases, corporate guarantee, Chapter VI-A deductions, TDS credit, and interest levy.

What did the Tribunal hold?

The Tribunal decided the issues as follows: Regarding Issue 1 (Validity of reassessment proceedings) and Issue 2 (Time-barring of reassessment order), the assessee chose not to pursue these grounds, hence they were dismissed as not pressed or withdrawn. Regarding Issue 5 (Disallowance under Section 35(2AB)), the Tribunal held that the AO/DRP cannot sit in judgment over the DSIR's quantification of eligible deduction. Disallowances based solely on survey statements are unsustainable, and survey findings from 2019 cannot invalidate earlier certified deductions. Following binding precedents in the assessee's own case, the disallowance was deleted. Regarding Issue 4 (Disallowance under Section 40A(2)(b) read with Section 37 - MRF SG Transactions), the Tribunal noted that the TPO had already benchmarked the transaction. The AO cannot re-examine the reasonableness of the expenditure, and allegations of a sham transaction lacked cogent evidence. Double disallowance under TP and corporate tax provisions is impermissible, hence the disallowance was deleted. Regarding Issue 6 (TP Adjustment – Raw Material Purchases), the adjustment was to be restricted to 0.5% considering the APA and subsequent developments, if not already offered. Regarding Issue 7 (Corporate Guarantee TP Adjustment), following co-ordinate bench decisions, a corporate guarantee without cost may not warrant adjustment. However, considering the APA adjustment was deleted, it could be restricted to 0.5%. Regarding Provision for Litigation (Issue 3), as the assessee partially submitted evidence, the matter was restored to the AO for fresh examination. Regarding Chapter VI-A Disallowance (Issue 8), it was restored to the AO for verification and deletion if erroneous. Regarding TDS Credit (Issue 9), the AO was directed to grant the correct credit after verification. Regarding Interest u/s 234B (Issue 10), it was held to be consequential. For AY 2016-17, interest u/s 234B & 234C were also held as consequential. Regarding Penalty Proceedings (Issue 11), they were held as premature. For AY 2016-17, TP Issues related to MRF SG Transactions, APA, and Corporate Guarantee were rendered academic/infructuous as the assessee entered into a Bilateral APA and filed a modified return u/s 92CD. MAT adjustment was rectified and hence infructuous. The operative directions included deletion of disallowances, restoration of certain issues to the AO for fresh examination, and direction to grant TDS credit. The Tribunal expressly left undecided the specific quantum of adjustment for raw material purchases and corporate guarantee if not already offered, and the final outcome of the restored issues.

What were the issues?

The Tribunal had to decide the following issues: 1. Whether the reassessment proceedings initiated under Section 147 of the Act are invalid, bad, and void-ab-initio (Grounds 2 to 8)? 2. Whether the reassessment order is barred by limitation of time as per Section 153 of the Act (Ground 9)? 3. Whether the disallowance of provision for litigation and related disputes is justified (Grounds 10, 11)? 4. Whether the disallowance of transactions with MRF SG under Section 40A(2)(b) read with Section 37 of the Act is justified (Grounds 12 to 20)? 5. Whether the disallowance of deduction claimed under Section 35(2AB) is justified (Grounds 21 to 28)? 6. Whether the transfer pricing upward adjustment towards purchase of raw materials from MRF SG is justified (Grounds 29, 30)? 7. Whether the transfer pricing adjustment on account of provision for corporate guarantee is justified (Grounds 31 to 34)? 8. Whether the adhoc disallowance of Chapter VI-A deduction is justified (Ground 35)? 9. Whether the short credit of TDS eligible to the Appellant is justified (Ground 36)? 10. Whether the erroneous levy of interest under Section 234B of the Act is justified (Ground 37)? 11. Whether the initiation of penalty proceedings under Section 274 read with Section 271(1)(c) and Section 271AA of the Act is justified (Ground 38)? Assessee's Contentions: - Reassessment proceedings and order are invalid and time-barred. - Disallowance of litigation provision, MRF SG transactions, Section 35(2AB) deduction, raw material purchase TP adjustment, corporate guarantee TP adjustment, Chapter VI-A deduction, TDS credit, and interest levy are unjustified. - Penalty proceedings are premature and bad in law. Revenue's Contentions: - The DRP and AO's findings, as incorporated in the judgment, represent the revenue's submissions.

Which sections of the Income-tax Act were involved?

Section 147,Section 144C(13),Section 148,Section 35(2AB),Section 40A(2)(b),Section 37,Section 153,Section 92B,Section 115JB,Section 154,Section 143(3),Section 234B,Section 234C,Section 274,Section 271(1)(c),Section 271AA,Section 92CD

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI

Before: SHRI MANU KUMAR GIRI & SHRI S.R.RAGHUNATHA

Hearing: 04.05.2026

PER MANU KUMAR GIRI, JM:

The captioned appeal in filed by the assessee, arise from the final assessment orders of Deputy Commission of Income Tax, Central Circle 3(3), Chennai dated 19.01.2024 and 27.01.2024 issued u/s. 147 read with Section 144C(13) of the Income Tax Act, 1961 (“the Act”) for Assessment Years 2015-16 and 2016-17. IT (TP)A 5 & 6/Chny/2024 (AY 2015-16 & 2016-17) MRF Vs DCIT CC 3(3)

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