Ita/238/2019 Of Apollo Tyres Ltd v. The Assistant Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE VIJU ABRAHAM MONDAY, THE 13 DAY OF SEPTEMBER 2021 / 22ND BHADRA, 1943 ITA NO. 238 OF 2019 AGAINST THE ORDER IN ITA 249/2018 OF I.T.A.TRIBUNAL,COCHIN BENCH,ERNAKULAM APPELLANT/S: APOLLO TYRES LTD3RD FLOOR, AREEKAL MANSION, PANAMPILLY NAGR, KOCHI-682036(PAN AAACA 699OQ) BY ADVS.JOSEPH MARKOSE (SR.)SRI.V.ABRAHAM MARKOSSRI.ABRAHAM JOSEPH MARKOSSRI.ISAAC THOMASSRI.P.G.CHANDAPILLAI ABRAHAMSHRI.VIPIN ANTO H.M.SHRI.ALEXANDER JOSEPH MARKOSSHRI.SHARAD JOSEPH KODANTHARA RESPONDENT/S: THE ASSISTANT COMMISSIONER OF INCOME TAXCORPORATE CIRCLE-1(1), KOCHI-682018 BY ADV CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 13.09.2021,ALONG WITH ITA.225/2019, THE COURT ON THE SAME DAY DELIVERED THEFOLLOWING: ITA Nos.225 & 238/2019 -2- IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE VIJU ABRAHAM MONDAY, THE 13 DAY OF SEPTEMBER 2021 / 22ND BHADRA, 1943 ITA NO. 225 OF 2019 AGAINST THE ORDER IN ITA 339/2018 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/S: APOLLO TYRES LTD.3RD FLOOR,AREEKAL MANSION,PANAMPILLY NAGAR,KOCHI-682036.(PAN - AAACA 6990 Q) BY ADVS. JOSEPH MARKOSE (SR.)SRI.V.ABRAHAM MARKOS, SRI.ABRAHAM JOSEPH MARKOSSRI.ISAAC THOMAS, SRI.P.G.CHANDAPILLAI ABRAHAMSHRI.VIPIN ANTO H.M., SHRI.ALEXANDER JOSEPH MARKOSSHRI.SHARAD JOSEPH KODANTHARA RESPONDENT/S: THE ASSISTANT COMMISSIONER OF INCOME TAX,CORPORATE CIRCLE-1(1),KOCHI-682018. BY ADV CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 13.09.2021,ALONG WITH ITA.238/2019, THE COURT ON THE SAME DAY DELIVERED THEFOLLOWING: ITA Nos.225 & 238/2019 J U D G M E N T [ITA Nos.238/2019, 225/2019] S.V. Bhatti, J. Heard Senior Counsel Mr Joseph Markos and StandingCounsel Mr Christopher Abraham for parties. 2.M/s. Apollo Tyres Ltd Kochi/Assessee is theappellant. The Assistant Commissioner of Income Tax, Circle-1(1), Kochi/Revenue is the respondent in both the appeals. 2.1The assessee, being aggrieved by the order of the Tribunal and the authorities under Section 35(2AB) of theIncome Tax Act, 1961 (for short ‘the Act’) filed the instant twoappeals. The details of the Assessment Years, Orders etc arestated in the following tabular form: ITA Nos.225 & 238/2019 -4- Sl.Assessment Year &Order of Commissioner ofIncome TaxITA No.No.Date of AssessmentIncome TaxAppellate Tribunal Order12006-07; ITA NO.44/R-1/E/CIT(A)-ITA225/2019I/2015-16 DT.26.03.2018NO.339/COCH/2018dtd.31.03.2015DTD 21.03.201922007-08; ITA NO.43/R-1/CIT(A)-I/2015-ITA238/201916 DT.31.03.2017NO.249/COCH/2018dtd.31.03.2015DTD 21.03.2019 2.2The appeals are admitted on the following substantial question of law. “Whether on the facts and in the circumstances of the case, theAppellate Tribunal was right in confirming the disallowance ofdeduction under Section 35(2AB) of the Income Tax Act?” The circumstances noted by the Assessing Officer in ITA No.225/2019 in respect of the present controversy are referred to and the same would be sufficient for consideration and ITA Nos.225 & 238/2019 disposing of the other appeal as well. ITA No.225/2019 2.2The appeals are admitted on the following substantial question of law. “Whether on the facts and in the circumstances of the case, theAppellate Tribunal was right in confirming the disallowance ofdeduction under Section 35(2AB) of the Income Tax Act?” The circumstances noted by the Assessing Officer in ITA No.225/2019 in respect of the present controversy are referred to and the same would be sufficient for consideration and ITA Nos.225 & 238/2019 disposing of the other appeal as well. ITA No.225/2019 3.The assessee has set up two in-house Research andDevelopment (R&D) facilities, one at Perambra (Cochin) andanother at Limda (Vadodara). The facilities are recognized bythe Government of India, Ministry of Science and Technology,and Department of Scientific and Industrial Research (DSIR).The R&D facility at Perambra was granted recognition by DSIRin 1987 and the R&D facility at Limda was granted recognitionin the year 2001. The assessee has been claiming admissiblededuction, i.e., the revenue and capital expenditure incurred bythe assessee for maintaining and running the R&D facilities,under Section 35(1)(i) and (2)(ia) of the Act. The issue nowturns us to the entitlement of weighted deduction at 150%under Section 35(2AB). The assessee, on 12.11.2008, applied tothe competent authority for approval. The DSIR, vide letter ITA Nos.225 & 238/2019 dated 17.06.2009, granted approval for the period 01.04.2007 to 31.03.2010 by incorporating the following condition: “The above Research and Development facility is approved forthe purpose of Section 35(2AB) from 01.04.2007 to 31.03.2010,subject to the conditions underlined therein (approval forFinancial Year 2007-08 is recommended only for the purpose ofclaiming weight deduction on capital expenditure on R&Dequipment).” 3.1 The Assessing Officer noted that on 21.08.2008 the agreement stipulated by clause (iii) of Section 35(2AB) of the Actwas entered into by the assessee. Therefore, the importantstipulation for availing weighted deduction has been compliedwith on 21.08.2008. The Assessing Officer for two reasonsdeclined the deduction claimed by the assessee under Section35(2AB), namely the assessee has not filed revised returnclaiming the weighted deduction for the subject AssessmentYear, and that the agreement with the Department, which is a ITA Nos.225 & 238/2019 condition precedent, was entered into subsequent to theFinancial Year during which the deduction is claimed.Therefore, the assessee is not entitled to the weighteddeduction of 150% under Section 35(2AB). The Commissioner ofIncome Tax (Appeals) and the Tribunal have confirmed thefindings recorded by the Assessing Officer. Hence the TaxAppeal. 4.Before adverting to other circumstances, it iscontextual to refer to the judgment dated 20.04.2010 of DelhiHigh Court in assessee’s own case in W.P.(C) No.13338/2009,which has bearing on the consideration of the substantialquestion raised in the appeal. Briefly referred, the assessee inthe said writ petition prayed for quashing the order dated15.06.2009 wherein the approval was given with effect from01.04.2007 to 31.03.2010 as against the claim for approval forthe period 01.04.2004 to 31.03.2010. In other words, the ITA Nos.225 & 238/2019 assessee, after appreciating the effect of the order of theDepartment in granting the approval for the period 01.04.2007to 31.03.2010, questioned the said order independently andinvited the judgment dated 20.04.2010. The operative portionof the judgment reads thus: ITA Nos.225 & 238/2019 assessee, after appreciating the effect of the order of theDepartment in granting the approval for the period 01.04.2007to 31.03.2010, questioned the said order independently andinvited the judgment dated 20.04.2010. The operative portionof the judgment reads thus: “8. From the aforesaid two provisions of the said guidelines, itwas pointed out by Mr Chandhiok that, in the first instance, theapproval to in- house research and development centres havingvalid recognition by the Department of Scientific and IndustrialResearch, would, as a normal rule, be considered from the firstof April of the year in which the application is made in Form3CK. He submitted that in the present case, the application inForm 3CK was made on 21.08.2008 and, therefore, in terms ofthese guidelines, the approval would normally have beengranted from 01.04.2008. However, in view of the guidelineprescribed in Clause (vi) of para 6, a beneficial provision hasbeen made so as to extend the approval of an in-house researchand development centre to the previous year, but limited onlyto capital expenditure (excluding any capital expenditure onland and buildings). It is for this reason, according to MrChandhiok, that the approval in Form 3CM granted on15.06.2009 has been given with effect from 01.04.2007. It was also pointed out that it is because of these provisions, which arebeneficial to the petitioner, that the benefit of weighted taxdeduction for the year 2007-08, which is the year prior to theyear of application, has been limited to capital expenditure(excluding expenditure on land and building). However, for theperiod subsequent to 01.04.2008, the petitioner would beentitled to the entire benefit as stipulated under Section35(2AB), both on the capital expenditure as well as on revenueexpenditure, excluding, of course, the capital expenditure onland and building. 9. After having considered the arguments advanced by thecounsel for the parties, we are inclined to accept thesubmissions made by Mr Chandhiok on behalf of therespondent. While it may be true that, initially, the petitionerhad obtained approval right upto 31.03.2010, but that approvalwould be relatable only to Section 35(2AB) Before a company isentitled for deduction under the said Sub-section (1), it mustalso enter into an agreement with the prescribed authority forco-operation in such research and development facility and foraudit of accounts maintained for that facility. This isspecifically stipulated in Clause (3) of Section 35(2AB) of thesaid Act. We find that the agreement was entered into only on21.08.2008 when the petitioner made the application in Form3CK. We have already mentioned that part 'B' of the said form comprises of the said agreement. Such an agreement is acondition precedent to the kind of approval, for the purposes ofdeduction, which the petitioner is seeking. This condition wasonly met on 21.08.2008. Therefore, the petitioner's plea that itought to have been granted approval with effect from01.04.2004 and not with effect from 01.04.2007 is not acceptable.10. Insofar as the plea that the approval has been granted forthe financial year 2007-2008 only for capital expenditure andnot revenue expenditure, is concerned, we agree with thesubmissions made by Mr Chandhiok that the benefit would nothave normally accrued to the petitioner for the financial year2007-2008 because the approval would normally have beengranted only in the year in which the application in form 3CK ismade. If that were to be the case, then the petitioner could havegot approval only with effect from 01.04.2008, It is only becauseof the beneficial provisions indicated in the guidelines that thebenefit has been extended to the earlier year, being thefinancial year 2007-08, subject to the condition that suchbenefit would be limited only to the capital expenditure(excluding the capital expenditure on land and building). Thus,on this ground also, we feel that the petitioner has no case.” 5.The learned Senior Counsel appearing for the assessee informs the Court that the Special Leave Petition (SLP), ITA Nos.225 & 238/2019 filed against the judgment in W.P.(C) No.13338/2009 with delaycondonation petition, was pending during the assessmentproceedings. Subsequently, the Supreme Court since did notcondone the delay, the SLP was dismissed. Therefore, we are ofthe view that, for all purposes, the entitlement of assessee foravailing benefit from 01.04.2004 is covered by the order dated15.06.2009 of DSIR and the adjudication of the Delhi High Courtin assessee’s own case, W.P.(C) No.13338/2009. A few judgmentsare referred to for bringing home the argument that oncerecognition is granted, approval is not very essential and neednot be considered for the reason that Section 35(2AB) is anadditional incentive or deduction provided by the Act. Theclaim is dependent on fulfilling the requirements of the Section.This argument need not be considered for the reasons that theassessee, on the strength of a right in its favour or infirmity inthe stipulation of period by DSIR, availed the writ remedy. The ITA Nos.225 & 238/2019 prayers of assessee were rejected. The result is that theconclusion recorded against the assessee by the judgment inW.P.(C) No.13338/2009 bars the assessee from re-agitating thesame issue in subject assessment proceedings. The request ofthe assessee was to give approval with effect from 01.04.2004.For available reasons, and now approved by the judgment inW.P.(C) No.13338/2009, it has been granted with effect from01.04.2007 to 31.03.2010. This conclusion is confirmed by theDelhi High Court. The effort of the assessee again is in respect ofthe very same Assessment Year for which a different conclusionis attempted to be invited from this Court. The argument forweighted depreciation is rightly rejected by all the authoritiesunder the Act. 5.1We are in agreement with the findings recorded byall the three authorities and are of the view that the substantialquestion of law, by following the judgment dated 20.04.2010 of ITA Nos.225 & 238/2019 the Delhi High Court in assessee’s own case in W.P.(C)No.13338/2009 is answered in favour of the Revenue and againstthe assessee. ITA No.238/2019 6.By following the aforementioned discussions and thereasons, the substantial question framed in this appeal isanswered in favour of the Revenue and against the Assessee. Income Tax Appeals fail, accordingly dismissed. No orderas to costs. jjj Sd/-S.V.BHATTIJUDGESd/- VIJU ABRAHAMJUDGE APPENDIX OF ITA 225/2019 PETITIONER ANNEXURE ANNEXURE A TRUE COPY OF ASSESSMENT ORDER DATED 31/03/2015 PASSED BY THE RESPONDENT FOR ASSESSMENT YEAR 2006-07 ITA Nos.225 & 238/2019 the Delhi High Court in assessee’s own case in W.P.(C)No.13338/2009 is answered in favour of the Revenue and againstthe assessee. ITA No.238/2019 6.By following the aforementioned discussions and thereasons, the substantial question framed in this appeal isanswered in favour of the Revenue and against the Assessee. Income Tax Appeals fail, accordingly dismissed. No orderas to costs. jjj Sd/-S.V.BHATTIJUDGESd/- VIJU ABRAHAMJUDGE APPENDIX OF ITA 225/2019 PETITIONER ANNEXURE ANNEXURE A TRUE COPY OF ASSESSMENT ORDER DATED 31/03/2015 PASSED BY THE RESPONDENT FOR ASSESSMENT YEAR 2006-07 ANNEXURE BTRUE COPY OF APPELLATE ORDER DATED 26/03/2018 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-I,KOCHI. ANNEXURE C TREU COPY OF SECOND APPEAL DATED 04/09/2018 FILEDBY THE APPELLANT BEFORE THE INCOME TAX APPELLATE TRIBUNAL,COCHIN BENCH. ANNEXURE D CERTIFIED COPY OF ORDER DATED 21/03/2019 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL,COCHIN BENCH IN I.T APPEAL NO.339/COCH/2018 FOR ASSESSMENT YEAR 2006-07. APPENDIX OF ITA 238/2019 PETITIONER ANNEXURE ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 31.03.2015 PASSED BY THE RESPONDENT FOR ASSESSMENT YEAR 2007-08 ANNEXURE BTRUE COPY OF APPELLATE ORDER DATED 31/03/2017 PASSED BY THE COMMISSIONER OF INCOME (TAX) APPEALS-1, KOCHI ANNEXURE CTRUE COPY OF SECOND APPEAL DATED 10.05.2017 FILED BY THE APPELLATE BEFORE THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH ANNEXURE D TRUE COPY OF ORDER DATED 21.03.2019 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN IT APPEAL NO.249/COCH/2018