M/S.APOLLO TYRES LTD,COCHIN vs. THE PRINCIPAL COMMISSIONER OF INCOMETAX, COCHIN

5. On receipt of the directions from the DRP, the AO had passed the final assessment order dated 27.10.2017 passed u/s. 143(3) r.w.s. 144C of the Act at a total income of Rs. 306,07,39,110/- after making the following additions: - Adjustment recommended by TPO 3,48,96,832 Disallowance of pre-operative expenditure 13,28,53,754 Disallowance of Excess claim of deduction u/s. 31,21,05,589 35(2AB) Disallowance u/s. 40(a)(i) 14,06,31,409 Unrealised foreign exchange loss o capital assets 2,18,26,172 Difference out of TDS reconciliation 9,28,097 Disallowance of year end provisions 2,86,39,000 Disallowance u/s. 49(a)(ia) 29,99,048 Disallowance of Gas turbine overhauling charges 5,59,29,379 Provision for advances written back 8,00,00,000 Disallowance of Gifts 1,18,54,561

2. The additions/disallowances made are unsustainable, unjust, highly excessive and are not based on any material on record. The total income of the Appellant has been incorrectly and un-lawfully assessed under normal provision of the Act by the AO at Rs. 3,06,07,39,110/- as against declared income at Rs. 2,23,80,75,265/-. The AO also incorrectly and un-lawfully assessed Book Profit at Rs. 4,78,47,24,767/- as against declared income at Rs. 4,10,09,91,004/-.

3. That the Ld. AO has erred in facts and in law by disallowing revenue expenditure of Rs. 13,28,53,754/- (pre-operative expenses), incurred by appellant on assets put to use during the year for the expansion of its existing business of manufacturing tyres at Chennai Unit on an incorrect ground that the said expenses relate to erection and construction of plant and machinery and thus should be capitalized as part of cost of plant and machinery and building. 3.1 Without prejudice to the above, the Ld. AO has erred in facts and in law by not allowing depreciation including additional depreciation on the grounds that the same shall be allowed when the asset shall be put to use by the company. Even und though the assets have been put to use during the previous year relevant to the current assessment year, no depreciation has been allowed.

4. The learned AO has erred in disallowing the weighted deduction of Rs 31,21,05,589/- as claimed by the appellant u/s 35(2AB) of the Act in respect of expenditure incurred by it on its in-house R&D facility. 4.1 The Ld. AO has erred in not appreciating the correct facts while holding that the appellant is not engaged in Apollo Tyres Ltd. in-house R&D and has done these activities of test runs of tyres outside of the in-house facility. 4.2 Without prejudice to above, the Ld. AO has erred in making disallowance u/s 35(2AB) amounting to Rs 31,21,05,589/-. The AO has considered 200% of the amount for disallowance i.e. Rs 31,21,05,589/- (Rs 80,28,91,589 49,07,86,000/-) overlooking the fact that assessee should be allowed at least 100% of the amount incurred i.e. Rs 15,60,52,795/- (1/2 of 31,21,05,589/-) u/s 37 of the Income Tax Act, in any case. The addition made by the AO leads to addition to the taxable income of the appellant of the entire amount.

6. On the facts and circumstances of the case and in law, the learned AO erred in disallowing the claim of Foreign Apollo Tyres Ltd. Exchange Fluctuation Rs. 2,18,26,172/-on account of unrealized foreign exchange fluctuation loss on capital account, as business income without appreciating the fact that the same has been suo-moto added in the previous year in taxable income i.e. AY 2013-14.

7. The AO erred in disallowing the year end provision and making an addition of Rs. 2,86,39,000/- to the total income as per normal provision of the Act. 7.1 The AO also erred in disallowing the year end provision and making an addition of Rs. 2,86,39,000/- to the book profits of the Appellant. 7.2 The AO erred in not appreciating that the Product Publicity Expenses and Business Development Initiative for sales promotion has been made on a reasonable and scientific basis and hence is an allowable expense as per the provisions of the Act. Since individual parties were not identifiable at the time of creation of provision therefore TDS was not deducted. 7.3 The AO erred in net appreciating that the provision, created at the year-end is reversed in subsequent year and TDS was duly deducted at the time of actual credit payment to individual parties 8. The AO grossly erred in making a disallowance of Rs.5,59,29,379/-towards Gas Turbine Overhauling charges u/s 31(i) of the Act. 8.1 The ld. Assessing Officer has erred in not considering the fact that repairs are done to preserve and maintain the asset and not to bring in a new asset 8.2 Further, Ld. AO has failed to consider that when an integral part of machine is replaced, it would come within the connotation of "current repairs". Also, the repair of existing asset does not mean that the new asset has been bought.

Apollo Tyres Ltd. 8.3 Without prejudice, Gas turbine is Energy Saving Device and as such eligible for 80% Depreciation which the learned Assessing Officer did not allowed without considering the facts of the case.

9. The AO has erred in making addition of provision for advances written back of Rs 8,00,00,000/- 9.1 The AO erred in not appreciating that assessee suo-moto added actual receipt of Rs 8,06,55,980/- into taxable income and duly paid taxes as per the provision of the Act. 9.2 The AO failed to appreciate that disallowance of Rs 8,00,00,000/- would lead to double taxability of the same receipt, since the income is already included in financial statement and the appellant has shown in computation of income as taxable income.

10. The AO grossly erred in making a disallowance of Rs.5,59,29,379/- towards Gas Turbine Overhauling charges u/s 31 of the Act. 10.1 The Ld. Assessing officer has erred in not considering the fact that repairs are done to preserve and maintain the asset and not to bring in a new asset. 10.2 Further. Ld. AO has failed to consider that when an integral part of machine is replaced, it would come within the connotation of "current repairs". Also, the repair of existing asset does not mean that the new asset has been bought. 10.3 Without prejudice, Gas turbine is Energy Saving Device and as such eligible for 80% Depreciation which the learned Assessing Officer did not allow without considering the facts of the case.

11. The AO has erred in disallowing the deduction claimed u/s. 37 of Rs. 1,18,54,561/- being expenditure on gifts incurred wholly and exclusively for the purpose of business of assessee company.

Apollo Tyres Ltd. 11.1 The AO has also erred in considering expenditure on gifts is of personal and not allowed u/s 37(1) of the Income Tax Act 1961.

12. On the facts and in the circumstances of the case and in law, the L4 AO LA Transfer Pricing Officer ("TPO") grossly erred in making transfer pricing addition of Rs. 3,48,96,832/- (as detailed in bellows paras) by re- determining the arm's length price of the transaction by not appreciating that the arm length price is duly computed by independent Chartered Accountant in TP Memorandum. 12.1 On the facts and in the circumstances of the case and in law, the Ld. AO /ld. TPO grossly erred in making transfer pricing addition of Rs 3,04,17,859/-in respect of corporate guarantee provided by the Assessee on behalf of its associated enterprises (AEs) and while doing so ignoring the overall economic scenario and commercial considerations.

12.2 On the facts and in the circumstances of the case and in law, the Ld. AO/Ld. TPΟ grossly erred by making a transfer pricing addition of Rs. 9,57,364/- to the income of the Assessee and holding that the international transactions pertaining to provision of corporate IT services do not satisfy the arm's length principle envisaged under the Act. 12.3 On the facts and in the circumstances of the case and in law, the Ld. AO/Ld. ΤΡΟ grossly erred in not appreciating that the reimbursement of salary expenses of Rs. 35,21,609/- to its associated enterprises ('AEs') is purely on cost to cost basis. Hence no mark-up was warranted. The above grounds are without prejudice to each other. The Appellant company reserves the right to add, alter, amend or Apollo Tyres Ltd. modify any of the grounds appealed against during the course of hearing.”

No. 3 challenges the disallowance of pre-operative expenditure. During the previous year relevant to assessment year under consideration, the assessee company was in the process of setting up of new plant for the purpose of manufacturing at Chennai. It has incurred certain expenditure, details of which were extracted by the AO in the assessment order. This expenditure was classified as pre-operative in the books of account and capitalized. However, for the purpose of computing taxable income the same was claimed as revenue expenditure. The claim of the appellant company was rejected by the AO as well as the DRP by holding that pre-operative expenditure should form part of cost of the capital assets in terms of provisions of section 43(1) of the Act. This issue had arisen in earlier year in AY 2010-11 in assessee’s own case. The Tribunal vide order dated 10.01.2018 in had held it to be revenue expenditure. On further appeal by the Revenue before the Hon'ble Kerala High Court, the Hon'ble High Court in of 2017 held it to be revenue expenditure following the decision of the Hon'ble Delhi High Court in CIT v. Priya Village Road shows Ltd. [2011] 332 ITR

6. The substantial questions deal with the amount expended by the assessee towards preoperative expenses for establishing a plant, whether would constitute capital expenditure or revenue expenditure in the facts and circumstances of the case. Section 37 of the Act enables deduction of any expenditure which is laid out or expended wholly and exclusively for the purpose of the business or profession, as the case may be, and which is not in the nature of capital expenditure. In the infinite variety of situations and diversities in which the concept of what constitutes capital expenditure or revenue expenditure, it is not possible to formulate a general rule having universal application. However, a few broad and general tests have been suggested from time to time to ascertain on which side of the line the outlay in any particular case might reasonably falls. These tests are generally efficacious and serve as useful servants; but as masters, they tend to be over-exacting. The question in each case would necessarily be whether the tests relevant and significant in one set of circumstances are relevant and significant in the case on hand also, [see Alembic Chemical Works Co. Ltd. v. Commissioner of Income Tax, Gujarat']. We would not repeat the decisions considered by the Tribunal while recording a conclusion on the question under consideration. For brevity and also to complete the narrative on how this aspect of the matter is examined by the Courts, we refer to the following decisions: Core Health Care Ltd: Section 36(1)(iii) of the Income-tax Act, 1961, has to be read on its own terms: it is a code by itself. It makes no distinction between money borrowed to acquire a capital asset or a revenue asset. All that the section requires is that the assessee must borrow capital and the purpose of the borrowing must be Apollo Tyres Ltd. for business which is carried on by the assessee in the year of account. Unlike Section 37 which expressly excludes an expense of a capital nature, section 36(1)(iii) emphasises the user of the capital and not the user of the asset which comes into existence as a result of the borrowed capital. The Legislature has, therefore, made no distinction in section 36(1)(iii) between "capital borrowed for a revenue purpose" and "capital borrowed for a capital purpose". An assessee is entitled to claim interest paid on borrowed capital provided that the capital is used for business purpose irrespective of what may be the result of using the capital which the assessee has borrowed." Actual cost of an asset has no relevancy in relation to Section 36(1)(iii). The proviso inserted in section 36(1)(iii) by the Finance Act, 2003, with effect from April 1,2004, will operate prospectively. Held accordingly, that the assessee was entitled to deduction under section 36(1)(iii) prior to its amendment by the Finance Act, 2003, in relation to money borrowed for purchase of machinery even though the assessee had not used the machinery in the year of borrowing. Decision of the Gujarat High Court in Deputy CIT v Core Health Care Ltd. [2001]251 ITR 61 affirmed on this point. Held also, remanding the matters to the High Court, that the questions: (a) whether advertisement expenses incurred by the assessee to create a brand image with enduring benefit are allowable as revenue expenditure (b) whether the Tribunal had erred in granting deduction under Section 35D regarding short-term loan, in view of the Explanation to Section 35D(3) which refers only to long-term borrowings, and (c) whether the Tribunal had erred in directing deduction under Section 80HH and 80-1 on the miscellaneous income of Rs.26,64,113 being income on sale of empty containers, were substantial questions of law and Apollo Tyres Ltd. the High Court erred in dismissing the application of the Department on those questions and the High Court had to decide them." Relaxo Footwears Ltd: This order was challenged by the Revenue as well as the assessee. The Tribunal allowed the appeal filed by the assessee and dismissed the appeal of the Revenue. On further appeal by the Revenue contending that (i) the expenses incurred in a new unit earlier to the commencement of the manufacturing process had to be capitalised and the new business of the assessee could not be said to be an extension of the existing business, (ii) the expenditure incurred in connection with the purchase and installation of plant and machinery was capital in nature and thus disallowable, and (iii) the pre-operative expenses could not be written off at one go but had to be capitalised and admissible depreciation allowed thereon: Held, dismissing the appeal, that the new unit was a part of the existing business and there was no dispute that there was unity of control and inter lacing of the units. Thus the expenses incurred by the assessee for the setting up of the new unit which was a part of the existing business were therefore to be allowed as a revenue expenditure." (emphasis supplied) 6.1 The Revenue does not contend on the tenability or genuineness of the expenditure incurred by the assessee as preoperative expenditure for establishing a radial car tyre manufacturing unit in Chennai. The objection raised by the Assessing Officer is that the capitalization of expenditure since has been adopted by the assessee in its books of account, the outflow cannot be booked and claimed as expenditure under Section 37(1) of the Act. Now, therefore, the question raised is whether the expenditure incurred by the assessee for establishing a unit in Chennai is to be treated as revenue expenditure or should be capitalized in the asset of unit at Chennai. As noted by the Supreme Court in Alembic Chemical Apollo Tyres Ltd. Works Co. Ltd. case, though the tests are available for determining what constitutes revenue expenditure and capital expenditure, the final analysis depends on case to case basis. The reported cases in Sakthi Sugars and Priya Village Road shows Ltd cases, the following tests or requirements for identifying the expenditure, whether as capital or revenue, are juxtaposed for our consideration as well:

34. From the above decisions the test for identifying an expenditure as to whether it is a revenue expenditure or capital expenditure can be stated as under (1) If the amount spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, it would be a capital expenditure. (2) If on the other hand, it is not made for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits, it is a revenue expenditure. (3) For instance if the interest paid was in respect of the asset, which was acquired on an outright basis than it was intimately linked with the value of the asset. That determines the character of the expenditure and it was capital in nature. Keeping the about tests in mind, when we examine the case on hand, the various kinds of expenditures relating to the sum of 6,84,78,570/-, the details of which have been mentioned in paragraphs 19 and 20, disclose that all those expenditures were incurred in the relevant years for the purpose of manufacture of sugar in the respective factories with a view to earn profits and therefore they are nothing but revenue expenditure only. In other words, all expenses which were incurred by way of salaries, wages, bonus, provident fund contribution, workmen welfare expenses, power, fuel and water, manufacturing expenses, rent for office building etc., were all expenses which were incurred for the purpose of running of the business and it cannot be held to be by way of investment. In fact there was no dispute that whatever

11. The Hon'ble Delhi High Court in the case of CIT Vs. Priya Village shows, 332 ITR 594 observed as under: "10. A harmonious reading of the aforesaid two judgments of this Court, namely, Triveni Engg. Works Ltd. (supra) on the one hand and Modi Industries (supra) on the other, would demonstrate that one has to keep in mind the essential purpose for which such an expenditure is incurred. If the expenditure is incurred for starting new business which was not carried out by the assessee earlier, then such expenditure is held to be of capital nature. In that event it would be irrelevant as to whether project really materialised or not. However, if the expenditure incurred is in respect of the same business 'which is already carried on by the assessee, even if it is for the expansion of the business, namely, to start new unit which is same as earlier business and there is unity of control and a common fund, then such an expense is to be treated as business expenditure." 6.2 The case on hand satisfies all the independent and interrelated tests broadly laid down by the Sakthi Sugars and Priya Village Roadshows Ltd cases. The proposed new plant is evidencing unity of control and interlacing of the units of the assessee for capacity building of production of Radial tyres. The horizontal expansion is to sustain/earn more profitability from the business, the assessee is already doing. The assessee, in accordance with the accounting standard practices has capitalised the expenditure in its books of accounts, it is not claiming depreciation on the value of the capitalised asset. 6.3 Mr Joseph Markos has argued that the depreciation claimed is not upon including the preoperative expenses to the new plant at Chennai. The expenses are in effect outflow for increasing the business of the assessee and, therefore, rightly Apollo Tyres Ltd. treated and held as revenue expenditure by the Tribunal. The question, again, is not whether the assessee should be called upon to capitalise and claim depreciation; the question is whether the claim of the assessee conforms the deduction permissible under Section 37(1) of the Act. In the facts and circumstances of this case, we are of the view that the preoperative expenses amounting to Rs.26,97,79,538/- incurred by the assessee are revenue expenses, and are correctly so held by the Tribunal. The above view is fortified by a catena of decisions in favour of the assessee. We do not, as a matter of fact, see any reason distinguishable in the case on hand to accept the contest of the Revenue. For the above reasons and discussion, substantial question Nos.1, 1.1 and 1.2 are answered in favour of the assessee and against the Revenue.” Respectfully following the decision of the Hon'ble Kerala High Court in assessee’s own case, we hold that pre-operative expenditure is in the nature of revenue expenditure. Accordingly, we direct the AO to allow the pre-operative expenditure of Rs. 13,28,53,754/- as Revenue expenditure. In the result, the ground No. 3 stands allowed.

No.

3. Since ground of appeal No. 3 was allowed in favour of the assessee, ground No. 3.1 does not require any adjudication. Accordingly, ground No. 3.1 stands dismissed.

Nos. 4 to 4.2 challenge the disallowance of excessive claim u/s. 35(2AB) of the Act. The in-house R&D Units of the Company located at Limda (Vadodra) and Perambra (Kochi) are duly recognized by the Department of Scientific & Apollo Tyres Ltd. Industrial Research ("DSIR") up to 31-03-2014 and are eligible for deduction u/s 35. Further, Company's in-house R&D facility at Limda (Vadodra) has been approved under section 35(2AB) by DSIR along with Order of approval (in Form No. 3CM) dated July 6, 2012. The said approval is valid for a period of three years, ie, from April 1, 2012 to March 31, 2014. The approval entitles the Company to claim weighted average deduction at the rate of 200% of the expenditure (capital as well as revenue) incurred by it on R&D activities. During the year under consideration, the Assessee had incurred revenue expenditure on R&D activities amounting to Rs.38,47,20,950/-and capital expenditure amounting to Rs.2,21,64,930/-. Out of this the AO disallowed the following as tabulated below: - Particulars Amount R&D expense incurred by reimbursement of salary 12,81,14,109 and other expenses of Apollo Vrerdestein B.V., Netherlands; Vrerdestein GmbH, Germany and Apollo Tyres Global R&D B.V., Netherlands R&D expense incurred for testing of tyres outside 1,25,10,307 India Other R& D expenses incurred at Limda (Vadodra) 2,08,68,464 Total 15,60,52,275

11. It is submitted that in respect of reimbursement of salary and other expenses to Apollo Vrerdestein B.V., Netherlands the same were held to be allowable by the Tribunal for AY 2010-11 vide Apollo Tyres Ltd. order dated 10.01.2017. The decision of the Tribunal was confirmed by the Hon'ble Kerala High Court in of 2017 dated 31.08.2021. The relevant findings of the Hon'ble High Court are extracted below: - “7. The Revenue filed appeal before the Income Tax Appellate Tribunal in 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 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 upon the draft assessment order to canvas his submissions that the deletion of disallowance was Apollo Tyres Ltd. 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 toMr.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 Apollo Tyres Ltd. question is answered in favour of assessee and against the revenue.” Respectfully following the decision, we direct the AO to allow the R&D expenditure incurred towards reimbursement of salary and other expenses to Apollo Verdestein B.V., Netherlands of Rs. 128,114,109/- under the provisions of section 35(2AB) of the Act. As regards to the R&D expenditure incurred for testing of tyres outside India of Rs. 12,510,307/-, the issue was decided against the assessee by the decision of the Hon'ble Kerala High Court in assessee’s own case for AY 2010-11 in of 2017 dated 22.09.2021vide para 10.6 of the order, which reads as under: - “10.6 In our considered view, the Tribunal fell in a substantial error of law by not taking note of the qualifying words such as expenditure on scientific research on in-house research and development facility as approved by the prescribed authority. As rightly contended by Mr.Christopher Abraham, there is no need for liberal interpretation of a tax provision when the language is unambiguous and grant an incentive not provided by the Parliament to a set of cases. The incentive is admissible only when the expenditure is incurred on scientific research on in-house research and development facility. The object of incentive is to encourage indigenisation of technology and show up the know-how of the assessee/entrepreneurs. The Tribunal's conclusion is accepted the same opens a new eligibility facility without reference to approval by the prescribed authority for claiming incentive of weighted deduction. The circumstances considered and the principle laid in Cadila Healthcare are completely distinguishable. He takes note of the circumstances that the claim of the assessee now encompasses revenue expenses said to have been incurred at assessee's subsidiary at Germany. The said expenditure Apollo Tyres Ltd. allowed as weighted deduction then the words which have substantial meaning in Section 35(2AB) of the Act viz. that in- house research and development facility as approved by the prescribed authority would become otiose. The preference to liberal interpretation for literal construction is the correct principle. The meaning of words ought not to be stressed and strained while constructing the application of a provision in a statute. We are convinced that the Tribunal fell in a serious error by accepting the claim of assessee for weighted deduction amounting to Rs.94,98,220/-. The assessee fails to establish essential requirements for claiming weighted deduction. Therefore, the conclusion recorded by the Tribunal warrants interference under Section 260A of the Act and the question is answered in favour of the revenue and against the assessee.” Respectfully following the decision of the Hon'ble Kerala High Court we confirm the disallowances made by the AO in respect of R&D expenditure incurred outside India of Rs. 12,510,307/- and in respect of R&D expenditure incurred at Limda (Vadodara) of Rs. 20,868,464/-. We find merit in the submission of the appellant that the same qualifies for weighted deduction u/s. 35(2AB) of the Act as it was approved by DSIR. Accordingly, we direct the AO to allow the same. Thus, grounds of appeal Nos. 4 to 4.2 stand partly allowed.

12. The ground of appeal

No. 5 challenges the disallowance of Rs. 14,06,31,409/- u/s. 40(a)(i) of the Act for non-deduction of tax at source on reimbursement of cost incurred for R&D as there is no element of income. These are the expenditures which are incurred by the AE and reimbursed by the appellant company. It is the Apollo Tyres Ltd. contention of the appellant that reimbursements are not taxable in India under the DTAA or under the provisions of Income Tax Act and the assessee placed reliance on the following decisions: - i. CIT v. Dunlop Rubber Co. Ltd. [1983] 142 ITR 493 (Delhi) ii. Siemens Aktiongesellschaft 177 Taxman 82 (Bom HC) iii. CIT vs. Industrial Engineering Projects (P.) Ltd. [1993] 202 IATR 1014 (Delhi) iv. DLF Commercial Project Corporation 379 ITR 538 (Delhi) v. Tejaji Farasram Kharawalla Ltd. [1968] 67 ITR 95 (SC) vi. DECTA 237 ITR 190 AAR vii. ABB Ltd. 189 Taxmann 422 viii. Ernst and Young Ltd. 49 taxmann.com 386 (Kolkata ITAT)

13. We carefully considered the submissions made by the appellant. On mere perusal of the assessment order, it would reveal that the disallowance u/s. 40(a)(i) was made by the AO solely for the reason of non-deduction of tax at source on payments made to foreign AE. The AO was of the opinion that if a particular payment does not represent income, it is open to the assessee to apply to the AO of the payer for determination of the appropriate portion of income or to apply for issuance of certificate authorising the payer not to deduct tax at source or deduct tax at lower rate. The AO also placed reliance on the decisions of the Hon'ble Supreme Court in the case of Transmission Corporation of A.P. Ltd v. CIT [1999] 239 ITR 587 and also GE India Technology Centre P. Ltd. v. CIT [2010] 327 ITR 456. The issue whether the payment is merely in the nature Apollo Tyres Ltd. of reimbursement of expenditure or otherwise is a question of fact which required to be examined based on the material on record. On a mere perusal of the assessment order, it would show that the AO neither examined this factual aspect nor the assessee company laid the factual foundation to prove that it is mere reimbursement of expenditure. Even otherwise, the decisions relied upon by ld. Senior counsel were rendered in the context of the provisions of section 195 of the Act. Hence, the ratio of those decisions cannot be applied in the context of provisions of section 40(a)(i) of the Act. Once there is a failure on the part of the assessee to deduct tax at source, the provisions of section 40(a)(i) are triggered. Recently the coordinate bench of this Tribunal in the case involving identical facts and issues in the case of Muthoot Fincorp Ltd. in 465 & 496/Coch/2024 dated22.08.2025 (both AM & JM are parties) held as under: - “10. We have heard the rival contentions and perused the material available on record. The solitary issue that arises for our consideration is whether the CIT(A) was correct in law in upholding the disallowance of charges paid to MPCMS towards professional charges made by the appellant for non deduction of tax at source on such payments invoking provisions of section 40(a)(ia) of the Act.

No. 7 challenges the disallowance of year end provisions of Rs. 2,86,39,000/-. It is submitted that the appellant company made provisions for various expenditures. Since the payee was not identifiable, TDS was not made on such payment and, therefore, in the immediately next year the provision was reversed and deduction was claimed on the basis of actual expenditure. Reliance in this regard were placed on the following decisions: - i. Dishnet Wireless Ltd. v. DCIT [2015] 60 taxmann.com 329 (Chennai-Trib.) ii. Industrial Development Bank of India v. ITO [2007] 293 ITR (AT) 267 (Mumbai) iii. PCIT v. Sanghi Infrastructure Ltd. [2018] 96 taxmann.com 370 (Gujarat iv. DCIT v. Ercisson Communications Ltd. It is submitted that in assessee’s own case, the Delhi Tribunal for AY 2010-11 in the context of provisions of section 201 proceedings Apollo Tyres Ltd. held that there was no obligation to deduct tax at source following the decisions of the Hon'ble Supreme Court in the case of Bharat Earth Movers v. CIT [2000] 245 ITR 428 (SC) and Rotork Controls India P. Ltd. v. CIT [2009] 314 ITR

62. (SC).

No. 9 challenges the addition of advance written back of Rs. 8,00,00,000/-. It is submitted before as under: -  Subject loss of Rs. 17.34,34,860/- was incurred during year ended 31.03.2006 on account of fire at MSWC  Accounting treatment given by Assessee is not relevant, even though loss shown as recoverable in books during the previous year ended 31.03.2006 but not debited to Profit and Loss account in AY 2006-07.  In AY 2008-09 Rs. 4,24,96,060/- was received as part payment of claim from MSWC and was offered to tax also and hence has been allowed as a loss in AY 2006-07 by Hon'ble ITAT and for the balance amount of Rs. 13.10 crores, Assessee made a provision of Rs.

7. Crores and Rs. 6,09,38,800/- during AY 2008- 09 and AY 2010-11 respectively. These provisions were allowed by the AO.  Now in AY 2013-14, the Assessee received a further amount of Rs. 8.06 crores from MSWC against its fire loss claim. The Assessee thus reversed the amount of Rs. 8.06 crores against the Apollo Tyres Ltd. provision of Rs. 13.10 crores made in AY 2008-09 and AY 2010-11 and same is credited in the books for AY 2013-14.  Relevant Note No. 8 for this purpose was given in the computation of income for this AY.  The AO only looked into the Return for AY 2006-07 and did not take into consideration all the relevant facts. The AO erred in not appreciating that this was taken as a claim first time during the course of assessment proceedings in AY 2006-07 and hence finds no mention in the ROI.  Further, the Assessee had stated that if the loss is allowed, any subsequent amounts received from MSWC would be offered to tax. It is in this background that the Assessee thus reversed the amount of Rs. 8.06 crores against the provision of Rs. 13.10 crores made in AY 2008-09 and AY 2010-11 and same is credited in the books for AY 2013-14. Kindly refer Items 7 and 8 of Compilation No.2 Paper Book which is the Computation of Income for AY 2013-14 with supporting extract from P&1. Account where tvv he Appellant itself has offered this for tax under Other income. There is no question of a further addition when Assessee himself has offered this to tax in this AY. The present addition is a duplication. Thus, the sum and substance of the submissions of the learned counsel for the assessee is that the addition of Rs. 8,00,00,000/- amounts to double addition. The submission made by the learned counsel for the assessee are based on factual aspects which requires verification. Therefore, we are of the considered opinion that the matter requires remand to the file of AO for verification of the submissions made by the learned counsel for the assessee. If the submissions are found to be correct on due verification, the addition should be deleted. Thus, the ground No. 9 stands partly allowed.

Apollo Tyres Ltd.

Order pronounced in the open court on 1st September, 2025.