Ita/148/2019 Of The Principal Commissioner Of Income Tax v. 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 23 DAY OF SEPTEMBER 2021 / 1ST ASWINA, 1943 ITA NO. 148 OF 2019 AGAINST THE ORDER DATED 24.07.2017 IN ITA 35/Coch/2017 OFI.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/RESPONDENT: THE PRINCIPAL COMMISSIONER OF INCOME TAXKOCHI -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 031PRESENT ADDRESS 34D FLOOR, AREEKAL MANSION, NEAR MANORAMA JUNCTION, PANAMPILLY NAGAR, KOCHI 682 036.BY ADVS.SRI.JOSEPH MARKOSE (SR.)SRI.ABRAHAM JOSEPH MARKOSSRI.ISAAC THOMASSHRI.ALEXANDER JOSEPH MARKOSSHRI.SHARAD JOSEPH KODANTHARASRI.V.ABRAHAM MARKOSSRI.P.G.CHANDAPILLAI ABRAHAMSHRI.VIPIN ANTO H.M. THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON23.09.2021, 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 Abrahamand 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 appealagainst the order of the ITAT Cochin Bench in ITANo.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 additionon account of upward TP adjustment. 3. The issues have arisen in the return filed for theassessment year 2012-2013. The revenue raises thefollowing substantial questions of law: 1) Whether on the facts and in the circumstances of thecase. (i) The Tribunal is right in law in remitting the issue of preoperative expenditure of Rs.21,67,95,249/- to the Assessing Officer for fresh consideration? (ii) conditional/fettered remit? The Tribunal is right in law in the (iii) ought not the Tribunal have appreciated thatthere might have been element of capital expenses in theimpugned expenditure which are liable to be capitalisedas 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 forclinical trial expenditure is allowable? (ii) In remitting the issue of disallowance of part of weighted deduction under Section 35(2AB) to theAssessing Officer? (iii) In remitting to the Assessing Officer with acondition that "the amount which is eligible for suchweighted deduction have to be computed consideringForm 3 CL and if the figures in Form 3 CL is at variancewith the claim, the Assessing Officer has to carefullycheck whether each of the items included in such claimis coming within the purview of Section 35(2AB) of theAct". (iv)(a) In its direction that the impugned expenditure(Rs.4,92,42,456/-) even though incurred outsideassessee's in-house facility in India liable to be allowedunder Section 35(2AB) since the impugned expenditure was nothing but part of assessee's in house R & Dexpenditure without which the venture of tyremanufacturing could have been got through. (b) Is not the above direction frustrating the intention ofthe legislature? (c) Is the direction of the Tribunal in paragraph 19 ofthe order justified and in accordance with law andprocedure? (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 thecase. (iv)(a) In its direction that the impugned expenditure(Rs.4,92,42,456/-) even though incurred outsideassessee's in-house facility in India liable to be allowedunder Section 35(2AB) since the impugned expenditure was nothing but part of assessee's in house R & Dexpenditure without which the venture of tyremanufacturing could have been got through. (b) Is not the above direction frustrating the intention ofthe legislature? (c) Is the direction of the Tribunal in paragraph 19 ofthe order justified and in accordance with law andprocedure? (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 thecase. (i) The Tribunal is right in law in remitting the issue oftransfer pricing adjustment relating to I.T. enabledservices rendered by the assessee to its AE. (AssociatedEnterprises) to the Transfer Pricing Officer forreconsidration? (ii) The Tribunal is right in holding that functionality ofcomparables is the factor alone to decide the ALP in thecase. (iii) Ought not the Tribunal have appreciated that notonly functional comparability but the employees' costand profitability etc. are also comparables fordetermining 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 topendency of appeals on a similar substantial question oflaw in Income Tax Appeal Nos.39 and 44 of 2017. TheseIncome Tax Appeals are allowed in part by this Court videjudgments dated 22.9.2021. The issue now, firstly, isagainst the remand for consideration of assessee's claimunder Section 35(2AB). The assessee is not in appealbefore us. The examination of substantial question islimited to whether remand is justified for the reasons andview taken by the Tribunal or not. After detailedexamination of the reasons assigned by the Tribunal, weare of the view that the the revenue failed to make out aground warranting interference with an order of remandon the claim for deduction under Section 35(2AB). Thedecision of this Court in connected matters (Income TaxAppeal Nos.39 and 44 of 2017) is available and it is forthe parties to invite the attention of the Assessing Officerto those decisions as may be appropriate in furtheranceof the respective contentions. Except, with the above ITA No.148 of 2019 6 observation, there is no need to entertain the questionraised and canvassed on merits, and the remand order ofTribunal is upheld. The question is answered againstrevenue and in favour of assessee. 5. Substantial Question Nos.1 and 3 relate to the pre-operative expenditure and addition on account of upwardTP adjustment. The Tribunal, for cogent and validreasons, held desirable to direct the Assessing Officer tore-examine these issues and make the assessment order.Before us what constitutes a substantial at the outset iswhether the remand ordered by the Tribunal iswarranted or not. 6. Adv.Christopher Abraham made strenuous efforts by pointing out as to how the Tribunal itself would havedecided the issue instead of remitting the matter toAssessing Officer. We are of the considered view that ifwe entertain such exercise, we will also be getting intothe minor details which are substantially questions of factand 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 thecircumstances of this case, a substantial question of lawis entertained and decided in favour of the revenue by us. 6. Adv.Christopher Abraham made strenuous efforts by pointing out as to how the Tribunal itself would havedecided the issue instead of remitting the matter toAssessing Officer. We are of the considered view that ifwe entertain such exercise, we will also be getting intothe minor details which are substantially questions of factand 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 thecircumstances of this case, a substantial question of lawis entertained and decided in favour of the revenue by us. 7. Considering the scope of jurisdiction underSection 260A and particularly, that the issues are, at best,before the Assessing Officer, while confirming the orderof remand by the Tribunal, the questions are answered infavour 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 css/ sd/- VIJU ABRAHAM JUDGE APPENDIX OF ITA 148/2019 PETITIONER ANNEXUREANNEXURE ACOPY 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), KOCHIANNEXURE BTRUE 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 2012-2013ANNEXURE CTRUE COPY OF THE ORDER UNDER SEC. 144C(5) DATED 15-12-2016 CONTAINING DIRECTIONS ISSUEDBY THE DISPUTE RESOLUTION PANEL, BANGALORE INFNO 88/DRP-2/BLR/2016-17ANNEXURE DCOPY OF THE FINAL ASSESSMENT ORDER U/S. 143(3) R.W.S 144C DATED 25/01/2017 FOR ASST. YEAR 2012-2013ANNEXURE ECERTIFIED COPY OF THE APPELLATE, ORDER OF THEITAT, COCHIN BENCH IN ITA NO. 35/COCH/2017 DATED 24/07/2017