THE PRINCIPAL COMMISSIONER OF INCOME TAX vs. M/S. APPOLO TYRES LTD.

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE VIJU ABRAHAM THURSDAY, THE 23RD DAY OF SEPTEMBER 2021 / 1ST ASWINA, 1943 ITA NO. 148 OF 2019 AGAINST THE ORDER DATED 24.07.2017 IN ITA 35/Coch/2017 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/RESPONDENT: THE PRINCIPAL COMMISSIONER OF INCOME TAX KOCHI -1, KOCHI CENTRAL REVENUE BUILDING, I.S PRESS ROAD, KOCHI 682 018. BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/Appellant: M/S. APOLLO TYRES LTD. 6TH FLOOR, CHERUPUSHPAM BUILDING, SHANMUGHAM ROAD, ERNAKULAM 682 031 PRESENT ADDRESS 34D FLOOR, AREEKAL MANSION, NEAR MANORAMA JUNCTION, PANAMPILLY NAGAR, KOCHI 682 036. BY ADVS. SRI.JOSEPH MARKOSE (SR.) SRI.ABRAHAM JOSEPH MARKOS SRI.ISAAC THOMAS SHRI.ALEXANDER JOSEPH MARKOS SHRI.SHARAD JOSEPH KODANTHARA SRI.V.ABRAHAM MARKOS SRI.P.G.CHANDAPILLAI ABRAHAM SHRI.VIPIN ANTO H.M. THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 23.09.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA No.148 of 2019 2 ITA No.148 of 2019 JUDGMENT S.V.Bhatti, J. Heard learned Advocates Mr.Christopher Abraham and Mr.Joseph Markos for parties. 2. The Principal Commissioner of Income Tax, Kochi/Revenue is the appellant. Apollo Tyres Ltd. is the respondent. The revenue has filed the instant appeal against the order of the ITAT Cochin Bench in ITA No.35/Coch/2017 dated 24.7.2017. The three issues which are referred to in the appeal relate to pre- operative expenditure claimed by the assessee, weighted deduction under Section 35(2AB) and addition on account of upward TP adjustment. 3. The issues have arisen in the return filed for the assessment year 2012-2013. The revenue raises the following substantial questions of law: 1) Whether on the facts and in the circumstances of the case. (i) The Tribunal is right in law in remitting the issue

ITA No.148 of 2019 3 of preoperative expenditure of Rs.21,67,95,249/- to the Assessing Officer for fresh consideration?

(ii) The Tribunal is right in law in the conditional/fettered remit? (iii) ought not the Tribunal have appreciated that there might have been element of capital expenses in the impugned expenditure which are liable to be capitalised as per law? 2) Whether on the facts and in the circumstances of the case, the Tribunal is right in law - (i) In holding that the claim for weighted deduction for clinical trial expenditure is allowable? (ii) In remitting the issue of disallowance of part of weighted deduction under Section 35(2AB) to the Assessing Officer? (iii) In remitting to the Assessing Officer with a condition that "the amount which is eligible for such weighted deduction have to be computed considering Form 3 CL and if the figures in Form 3 CL is at variance with the claim, the Assessing Officer has to carefully check whether each of the items included in such claim is coming within the purview of Section 35(2AB) of the Act". (iv)(a) In its direction that the impugned expenditure (Rs.4,92,42,456/-) even though incurred outside assessee's in-house facility in India liable to be allowed under Section 35(2AB) since the impugned expenditure

ITA No.148 of 2019 4 was nothing but part of assessee's in house R & D expenditure without which the venture of tyre manufacturing could have been got through. (b) Is not the above direction frustrating the intention of the legislature? (c) Is the direction of the Tribunal in paragraph 19 of the order justified and in accordance with law and procedure? (d) The Tribunal is right in law in interfering with the three parts of the expenditure under Sec.35(2AB)? 3) Whether, on the facts and in the circumstances of the case. (i) The Tribunal is right in law in remitting the issue of transfer pricing adjustment relating to I.T. enabled services rendered by the assessee to its AE. (Associated Enterprises) to the Transfer Pricing Officer for reconsidration? (ii) The Tribunal is right in holding that functionality of comparables is the factor alone to decide the ALP in the case. (iii) Ought not the Tribunal have appreciated that not only functional comparability but the employees' cost and profitability etc. are also comparables for determining the Arm's Length Price. 4. Substantial Question No.2 relates to the claim of assessee towards weighted deduction under Section

ITA No.148 of 2019 5 35(2AB) of the Act. The memorandum of appeal refers to pendency of appeals on a similar substantial question of law in Income Tax Appeal Nos.39 and 44 of 2017. These Income Tax Appeals are allowed in part by this Court vide judgments dated 22.9.2021. The issue now, firstly, is against the remand for consideration of assessee's claim under Section 35(2AB). The assessee is not in appeal before us. The examination of substantial question is limited to whether remand is justified for the reasons and view taken by the Tribunal or not. After detailed examination of the reasons assigned by the Tribunal, we are of the view that the the revenue failed to make out a ground warranting interference with an order of remand on the claim for deduction under Section 35(2AB). The decision of this Court in connected matters (Income Tax Appeal Nos.39 and 44 of 2017) is available and it is for the parties to invite the attention of the Assessing Officer to those decisions as may be appropriate in furtherance of the respective contentions. Except, with the above

ITA No.148 of 2019 6 observation, there is no need to entertain the question raised and canvassed on merits, and the remand order of Tribunal is upheld. The question is answered against revenue and in favour of assessee. 5. Substantial Question Nos.1 and 3 relate to the pre- operative expenditure and addition on account of upward TP adjustment. The Tribunal, for cogent and valid reasons, held desirable to direct the Assessing Officer to re-examine these issues and make the assessment order. Before us what constitutes a substantial at the outset is whether the remand ordered by the Tribunal is warranted or not. 6. Adv.Christopher Abraham made strenuous efforts by pointing out as to how the Tribunal itself would have decided the issue instead of remitting the matter to Assessing Officer. We are of the considered view that if we entertain such exercise, we will also be getting into the minor details which are substantially questions of fact and we will be recording the finding as not pursued by

ITA No.148 of 2019 7 the Tribunal. The revenue is unable to satisfy us that, firstly, remand is avoidable in the case on hand, in the circumstances of this case, a substantial question of law is entertained and decided in favour of the revenue by us. 7. Considering the scope of jurisdiction under Section 260A and particularly, that the issues are, at best, before the Assessing Officer, while confirming the order of remand by the Tribunal, the questions are answered in favour of assessee and against the revenue. For the aforementioned reasons the appeal fails. Dismissed accordingly. No order as to costs. Sd/- S.V.BHATTI JUDGE sd/- VIJU ABRAHAM JUDGE css/

ITA No.148 of 2019 8 APPENDIX OF ITA 148/2019 PETITIONER ANNEXURE ANNEXURE A COPY OF THE ORDER U/S. 92CA(3) DATED 29/01/2016 FOR ASST. YEAR 2012-13 PASSED BY THE ACIT (TP), RANGE 2(3)(1), KOCHI ANNEXURE B TRUE COPY OF THE DRAFT ASSESSMENT U/S. 143(3) R.W.S 143(3) R.W.S 144 C(1) DATED 31/03/2016 FOR ASST. YEAR 2012-2013 ANNEXURE C TRUE COPY OF THE ORDER UNDER SEC. 144C(5) DATED 15-12-2016 CONTAINING DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL, BANGALORE IN FNO 88/DRP-2/BLR/2016-17 ANNEXURE D COPY OF THE FINAL ASSESSMENT ORDER U/S. 143(3) R.W.S 144C DATED 25/01/2017 FOR ASST. YEAR 2012-2013 ANNEXURE E CERTIFIED COPY OF THE APPELLATE, ORDER OF THE ITAT, COCHIN BENCH IN ITA NO. 35/COCH/2017 DATED 24/07/2017