THE PRINCIPAL COMMISSIONER OF INCOME TAX, KOCHI-I, vs. M/S.APOLLO TYPES LTD.,

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE VIJU ABRAHAM TUESDAY, THE 31ST DAY OF AUGUST 2021 / 9TH BHADRA, 1943 ITA NO. 40 OF 2017 AGAINST THE ORDER IN ITA 257/Coch/2015 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/RESPONDENT: THE PRINCIPAL COMMISSIONER OF INCOME TAX, KOCHI-I, KOCHI, INCOME TAX OFFICES,CENTRAL REVENUE BUILDING,I.S.PRESS ROAD, KOCHI-682018 BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) JOSE JOSEPH, SC, FOR INCOME TAX CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT RESPONDENT/APPELLANT: M/S.APOLLO TYPES LTD., 6TH FLOOR, CHERUPUSHPAM BUILDING,SHANMUGHAM ROAD, ERNAKULAM PIN-682031, (PRESENT ADDRESS 3RD FLOOR, AREEKAL MANSION, NEAR MANORAMA JUNCTION, PANAMPILLY NAGAR, KOCHI-682036). OTHER PRESENT: SR ADV JOSEPH MARKOS THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 31.08.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA Nos.40 of 2017 2 JUDGMENT ITA No.40 of 2017 S.V.Bhatti, J. Heard Sr.Advocate Joseph Markose and learned Standing Counsel Sri. Christopher Abraham for parties. 2. The appeal is directed against the order dated 10.1.2017 in ITA No.257/Coch/2015 of ITAT Cochin Bench. The issues canvassed relate to the return filed by the assessee for the assessment year 2010-11. Substantial Question No.1 "Whether on the facts and in the circumstances of the case and on an interpretation of Section 32(1)(iia) read with the second proviso, is the Hon'ble ITAT right in law in holding that the left over additional depreciation brought forward from immediately preceding assessment year has to be allowed in the subsequent assessment year and is nto the above finding against law and perverse? 3. The identical issue in the case of assessee herein has

ITA Nos.40 of 2017 3 already been considered by this Court in ITA No.87 of 2014 and decided in favour of the assessee and against the revenue. Hence Question No.1 is answered in favour of the assessee and against the revenue. Substantial Question No.3 "Whether on the facts and in the circumstances of the case, is the Hon'ble ITAT right in law and fact in holding that DG Power Generation Units constituted an "undertaking" for the purpose of deduction u/s 80-IA of the Income Tax Act, 1961? 3. The identical issue in the case of assessee herein has already been considered by this Court in ITA No.103/2013 and decided in favour of the assessee and against the revenue. Hence Question No.3 is answered in favour of the assessee and against the revenue. Substantial Question No.4 "Whether on the facts and in the circumstances of the case is the Hon'ble ITAT is right in not following the jurisdictional Kerala High Court's judgment in Merchem Ltd. 378 ITR 443 and deleting the addition made u/s.36(1) (va) r.w.s.2(24)(x) in respect of belated payment of employees' contribution to PF by following a decision of Hon'ble Delhi High Court in AIMIL India Ltd. 321 ITR 508, which is earlier decision and not binding, more so

ITA Nos.40 of 2017 4 when the Hon'ble ITAT confirmed similar addition in other cases by following the latest jurisdictional Kerala High Court judgment in Merchem case? 4. The identical issue has already been considered by this Court in ITA No.151 of 2010 and answered in favour of the revenue and against the assessee. Hence Question No.4 is answered in favour of the revenue and against the assessee. Substantial question No.2 Whether on the facts and in circumstances of the case is the Hon'ble ITAT is right in law in allowing the assessee's claim of weighted deduction under Section 35(2AB) in respect of the salary paid on outdoor R & D facility without qualification of the DSIR and that too following conflicting case laws. 5. The assessee was served draft assessment order dated 28.3.2014 under Section 144C of the Act. Objection-10 deals with the claim of deduction under Section 35 (2AB) which enables weighted deduction for incurring the expenditure with reference to such research and development stated to have been undertaken by the assessee. The assessee states that the amount claimed towards expenditure has been incurred by the assessee to Apollo Tyres,

ITA Nos.40 of 2017 5 Gmbh, Germany towards reimbursement of salary and incidental cost incurred towards employees by the subsidiary company. One of the employees Mr.Peter Becker was an employee of subsidiary of assessee but is over all in charge of the R & D activities of assessee and its subsidiary. Therefore, the salary paid to Mr.Peter Becker for the services rendered by him in respect of company's R&D unit of Limda, Baroda and is an allowable expenditure under section 35(2)AB) of the Act. As regards the payment of 1,89,00,000 rupees, it is replied by the assessee that the expenditure was incurred towards clinical trial activities outside the approved facility. The Assessing Officer accepted the actual expenditure as admissible deduction amounting to Rs.3,89,04,976/- and Rs.1,89,96,439 totalling to Rs.5,79,01,415/- as business expenditure. However weighted deduction of 50% amounting to Rs.2,89,50,708/- was disallowed. 6. Under Section 144(c)(5) of the Act, the Dispute Resolution Panel-I, Bengaluru considered this as Ground No.10 of its order dated 26.12.2014. DRP, upon consideration of revenue and the

ITA Nos.40 of 2017 6 assessee, the case confirmed the finding of A.O. on the expenditure incurred towards clinical trial activities amounting to Rs.1,89,96,439/- and accepted the weighted deduction claimed by the assessee company at house facility. 7. The Revenue filed appeal before the Income Tax Appellate Tribunal in ITA No.257/Coch/2015 and the Tribunal considered the question as follows: "In the present appeal we are concerned with the amount of Rs.3.89 crores. The assessee submitted during the course of assessment proceedings that the said amount represents reimbursement of salary and other costs as incurred towards employees. It was further submitted that one of the employee, Mr.Peter Becker is employed on the rolls of Apollo Tyres, Germany, a subsidiary of Apollo Tyre Limited but he is overall incharge of the R & D activities of the company in India and devotes substantial time to the R & D activities carried out by the company at is R & D Unit at Limda, Baroda. It was argued that the salary paid to Mr.Peter Becker in respect of the services rendered by him in respect of company's R & D Unit at Limda, Baroda, is reimbursed by Apollo Tyres Ltd. To its subsidiary Apollo Gmbh, Germany and debited in the books of the assessee company and as such is an allowable expenditure u/s 35(2AB) of the Income Tax Act. The A.O. Was of the view that deduction under section 35(2AB) is limited to the expenditure on scientific research on in house research and development facility and therefore the amount paid to the employee in Germany would not attract the benefit

ITA Nos.40 of 2017 7 of the extra weighted deducted of 50% claimed under that provision. The DRP, however, deleted the addition and held that the salary paid to Sh.Peter Becker was entitled for deduction under Section 35(2AB) of the Act. The Ld.DR has relied upont he draft assessment order to canvas his submissions that the deletion of disallowance was not in accordance with law. The Ld.AR on the other hand has reiterated the submissions made by the assessee before the DRP. We have heard the rival submissions. We are not in agreement with the view of the department. Admittedly, in the present case the nature of the expenditure for R & D is not disputed by the department. The Department has further not disputed the fact that the said employee of the assessee company is overall in-charge of the R & D activities at Baroda. The mere fact that the said employee was paid by Apollo Tyres, Germany and thereafter reimbursed by the assessee company would not ipso facto lead to a conclusion that the expense on R & D is made outside India. The deduction is therefore within the parameters of Section 35(2AB) of the Act. In view thereof, Ground No.3 raised by the department is dismissed." 8. The said finding is assailed by the revenue. The question refers to salary paid at an outdoor R&D facility and the payment is without qualification of the DSIR. The case law cited is not followed both by the DRP and the Tribunal while accepting the weighted deduction under Section 35(2AB) of 50% on the salary paid to

ITA Nos.40 of 2017 8 Mr.Peter Becker. The question does not refer to the circumstances considered and accepted by the DRP while appreciating the claim of expenditure to accept the salary paid by the assessee company to Mr.Peter Becker, an employee of subsidiary of the assessee as an allowable expenditure. The assessee demonstrated the utilisation of services and once the salary paid to Mr.Peter Becker is accepted as expenditure, the reason to disallow weighted deduction is completely wanting. The department could not before the Tribunal demonstrate that the expenditure accepted in respect of Mr.Peter Becker is untenable in fact. The services are stated to have been taken and remuneration paid to the employee in the field, section accords weighted deduction as additional deduction. 9. The findings of fact recorded by the DRP and the Tribunal are available in the circumstances of the case, we are convinced that the question framed is without merit. Hence question is answered in favour of assessee and against the revenue. 10. In view of above discussion, the appeal stands allowed in part, mainly Question Nos.1 to 3 are answered in favour of

ITA Nos.40 of 2017 9 assessee and against the revenue. Question No.4 is answered in favour of revenue. No order as to costs. Sd/- S.V.BHATTI JUDGE Sd/- VIJU ABRAHAM JUDGE CSS/

ITA Nos.40 of 2017 10 APPENDIX OF ITA 40/2017 PETITIONER ANNEXURE ANNEXURE A COPY OF THE ORDER U/S.92CA(3) DATED 29.01.2014 FOR A.Y.2010-11 PASSED BY THE JDIT, TRANSFER PRICING OFFICER-I, KOCHI. ANNEXURE B COPY OF THE DRAFT ASSESSMENT ORDER U/S.144C, R.W.S. 143(3) DATED 28.03.2014 FOR A.Y.2010- 11. ANNEXURE C COPY OF ORDER U/S.144C(5) DATED 26.12.2014 CONTAINING DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL, BANGALORE IN F.NO.183/DRP- BNG/2014-15. ANNEXURE D COPY OF FINAL ASSESSMENT U/S.143(3)R.W.S.144C DATED 18.02.2015 FOR A.Y.2010-11. ANNEXURE E CERTIFIED PLUS COPY OF THE APPELLATE ORDER OF THE ITAT COCHIN BENCH IN ITA NO.257/COCH/2016 DATED 10.01.2017 [COMBINED ORDER IN ITA NO.223/COCH/2051 (A.Y.2010-11), IT(TP)A NO.189/COCH/2016(A.Y.2011-12, ITA NO.222/COCH/2016 (A.Y.2010-11), ITA NO.257/COCH/2015 (A.Y.2010-11) & IT(TP)A NO.130/COCH/2016 (A.Y.2011-12)].