Ita/39/2017 Of The Principal Commissioner Of Income Tax v. M/S Apollo Tyres Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE VIJU ABRAHAM WEDNESDAY, THE 22 DAY OF SEPTEMBER 2021 / 31ST BHADRA, 1943 ITA NO. 39 OF 2017 AGAINST THE ORDER IN ITA 189/Coch/2016 OF I.T.A.TRIBUNAL,COCHINBENCH, ERNAKULAM APPELLANT/Respondent: THE PRINCIPAL COMMISSIONER OF INCOME TAXKOCHI-1, KOCHI, INCOME TAX OFFICES,CENTRAL REVENUE BUILDING, I S PRESS ROAD, KOCHI-682018.BY ADVS.SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES)JOSE JOSEPH, SC, FOR INCOME TAXCHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENTK.M.V.PANDALAI, INCOME TAX DEPARTMENT RESPONDENT/APPELLANT: M/S APOLLO TYRES LTD6TH FLOOR, CHERUPUSHPAM BUILDING, SHANMUGHAM ROAD, ERNAKULAM,682031, PRESENT ADDRESS 3RD FLOOR, AREEKAL MANSION, NEAR MANORAMA JUNCTION, PANAMPILLY NAGAR, KOCHI-682036.BY ADVS.SRI.V.ABRAHAM MARKOSSRI.ABRAHAM JOSEPH MARKOSSRI.HARAN THOMAS GEORGESRI.ISAAC THOMASSRI.JOSEPH MARKOSE SR. THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON22.09.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA No.39 of 2017 JUDGMENT S.V.Bhatti, J. The Principal Commissioner of Income Tax, Kochi-1/Revenue isthe appellant. M/s.Apollo Tyres Ltd., Kochi/Assessee is the respondent.The Revenue being aggrieved by the order in ITA No.189/Coch/2016dated 10.01.2017 for the Assessment Year 2011-12 has filed the instantappeal. 2. The instant appeal was tagged and listed for hearing along with ITA No.44 of 2017. The substantial questions raised in these twoappeals,to a great extent,are similar. For convenience, we aredictating a separate judgment in ITA No.39 of 2017. 3. Heard the learned Standing Counsel Mr.Christopher Abrahamand learned Senior Adv.Mr.Joseph Markose for the parties. 4. On 18.11.2011, the assessee filed return of income for theassessment year 2011-12 declaring total income of Rs.11,40,85,979/-. The assessment has been taken up for scrutiny under Section 143(3) ofthe Income Tax Act (for short 'The Act'). The assessment was referred ITA No.39 of 2017 3 to the Transfer Pricing Officer, Kochi (TPO) for determining the ArmsLength Price under Section 92CA(1) of the Act. The Assessing Officer on31.3.2015 communicated draft assessment order under Section 143Bread with Section 144C(1) of the Act. The assessee objected to theproposed draft assessment and the matter was referred to the DisputeResolution Panel (DRP) under Section 144C(5) of the Act. DRP,videorder dated 23.12.2015,issued directions to the Assessing Officer forcompleting the assessment. A.O.,vide order dated 23.2.2016,issuedfinal assessment order under Section 143(3) read with Section 144C ofthe Act. The assessee filed ITA No.189/Coch/2016 before the ITAT,Cochin Bench. The Tribunal accepted the case of assessee on thefollowingadditions/disallowances. ITA No.39 of 2017 4 5Disallowance of claim of prepaid expenses Hence the appeal under Section 260A of the Act. SUBSTANTIAL QUESTION NO.1 1. Whether the Hon’ble ITAT, in the facts and circumstances ofthe case as well as in law, is right in holding that the expenditureon setting up of new unit at Chennai as revenue expenditure,thereby directing to delete the disallowance of Rs.25,96,83,876/-which was held to be capital expenditure in the impugnedassessment order?the case as well as in law, is right in holding that the expenditureon setting up of new unit at Chennai as revenue expenditure,thereby directing to delete the disallowance of Rs.25,96,83,876/-which was held to be capital expenditure in the impugnedassessment order? ITA No.39 of 2017 4 5Disallowance of claim of prepaid expenses Hence the appeal under Section 260A of the Act. SUBSTANTIAL QUESTION NO.1 1. Whether the Hon’ble ITAT, in the facts and circumstances ofthe case as well as in law, is right in holding that the expenditureon setting up of new unit at Chennai as revenue expenditure,thereby directing to delete the disallowance of Rs.25,96,83,876/-which was held to be capital expenditure in the impugnedassessment order?the case as well as in law, is right in holding that the expenditureon setting up of new unit at Chennai as revenue expenditure,thereby directing to delete the disallowance of Rs.25,96,83,876/-which was held to be capital expenditure in the impugnedassessment order? 1.1 Whether the Hon’ble ITAT, in the facts and circumstances ofthe case as well as in law, is right in directing to delete theabove addition purely on the basis of assessee’s contentionthat impugned expenditure were of routine administrativeexpenses not relating to acquisition and installation of anycapital asset in relation to setting up of the new unit atChennai, in the light of Hon’ble ITAT’s decision in assessee’scase for A.Y.2009-10, wherein similar matter was involved andthe Hon’ble ITAT remitted the issue back to the file of theAssessing Officer for ascertaining the exact nature of theimpugned expenditure and decision afresh?the case as well as in law, is right in directing to delete theabove addition purely on the basis of assessee’s contentionthat impugned expenditure were of routine administrativeexpenses not relating to acquisition and installation of anycapital asset in relation to setting up of the new unit atChennai, in the light of Hon’ble ITAT’s decision in assessee’scase for A.Y.2009-10, wherein similar matter was involved andthe Hon’ble ITAT remitted the issue back to the file of theAssessing Officer for ascertaining the exact nature of theimpugned expenditure and decision afresh? 5. The substantial questions referred to above are similar to theThe substantial questions referred to above are similar to the question Nos.1 and 1.2 in Assessee’s own case for the assessment year2010-11 considered and disposed of in the accompanying judgmentrendered in ITA No.44 of 2017.Hence substantial question Nos.1 and ITA No.39 of 2017 5 1.1 are answered in favour of the assessee and against the revenue by following the reasons and conclusions recorded while answeringsubstantial question Nos. 1 and 1.2 in ITA No.44 of 2017. SUBSTANTIAL QUESTION No.1.2 1.2 Whether the Hon’ble ITAT, in the facts andcircumstances of the case as well as in law, is right in holdingwithout appreciating the fact that the assessee company hadclaimed loan processing free and bank charges as formingpart of expenditure incurred in connection with setting upof new unit at Chennai before coming to the conclusion thatthe above expenditure was administrative nature ascontended by the assessee?circumstances of the case as well as in law, is right in holdingwithout appreciating the fact that the assessee company hadclaimed loan processing free and bank charges as formingpart of expenditure incurred in connection with setting upof new unit at Chennai before coming to the conclusion thatthe above expenditure was administrative nature ascontended by the assessee? 6. Substantial Question No.1.2 is similar to Question No.2 in ITA No.44 of 2017.By following the discussion and reasoning recordedwhile answering Question No.2 in ITA No.44 of 2017, substantial questionwhile answering Question No.2 in ITA No.44 of 2017, substantial question No.1.2 is answered in favour of assessee and against the revenue. SUBSTANTIAL QUESTION No.2 6. Substantial Question No.1.2 is similar to Question No.2 in ITA No.44 of 2017.By following the discussion and reasoning recordedwhile answering Question No.2 in ITA No.44 of 2017, substantial questionwhile answering Question No.2 in ITA No.44 of 2017, substantial question No.1.2 is answered in favour of assessee and against the revenue. SUBSTANTIAL QUESTION No.2 2. Whether the Hon’ble ITAT in the facts and circumstances ofthe case, is legally right in deleting the weighted deduction ofRs.4,90,41,754/- u/s 35(2AB) claimed by the assessee in respect ofexpenditure claimed on R & D expenses met outside India?the case, is legally right in deleting the weighted deduction ofRs.4,90,41,754/- u/s 35(2AB) claimed by the assessee in respect ofexpenditure claimed on R & D expenses met outside India? 7. Substantial Question No.2 is similar to Substantial Question No.3 ITA No.39 of 2017 6 ITA No.44 of 2017.By following the reasoning recorded while answering Question No.3 in ITA No.44 of 2107, substantial question No.2 is answered in favour of revenue and against the assessee. SUBSTANTIAL QUESTION No.2.1 Whether the Hon’ble ITAT, in the facts and circumstances ofthe case as well in law, is correct in applying the decision ofGujarat High Court in CIT v Cadila Healthcare Ltd. reported in31 Taxmann. Com 300 to the facts of the assessee’s case, whichare entirely distinguishable from the said decision? 8. Substantial Question No.2.1 is similar to Question No.3.1 in ITA No.44 of 2017. By following the reasoning recorded while answering Question No.3.1 in ITA No.44 of 2017, substantial question No.2.1 isanswered in favour of revenue and against assessee. SUBSTANTIAL QUESTION NO.2.2 2.2 Whether the Hon’ble ITAT, in the facts andcircumstances of the case, is correct to hold that being anincentive provision, Section 35(2AB) should be liberallyinterpreted and deduction allowed in view of Hon’ble SupremeCourt decision in Bajaj Tempo Ltd. reported in 62 Taxmann.480bereft of the prerequisite of a certificate of DSIR? 9. Substantial Question No.2.2 is similar to Question No.3.2 in ITA No.44 of 2017 and by following the reasoning recorded while answering ITA No.39 of 2017 7 Question No.3.2 in ITA No.44 of 2017, substantial question No.2.2 isanswered in favour of revenue and against the assessee. SUBSTANTIAL QUESTION Nos.3, 3.1 and 3.2 3. Whether the Hon’ble ITAT is right in the facts andcircumstances of the case as well as in law to delete unrealizedforeign exchange fluctuation gain of Rs.71,59,329/- on theground that the same has been suo motu offered by the assesseein computation of total income for subsequent year?circumstances of the case as well as in law to delete unrealizedforeign exchange fluctuation gain of Rs.71,59,329/- on theground that the same has been suo motu offered by the assesseein computation of total income for subsequent year? 3.1 Whether the Hon’ble ITAT is right in the facts andcircumstances of the case and in law to also hold that suchunrealized foreign exchange fluctuation gain is to be treatedon capital account to be adjusted against cost of asset as andwhen realized as per Section 43A?circumstances of the case and in law to also hold that suchunrealized foreign exchange fluctuation gain is to be treatedon capital account to be adjusted against cost of asset as andwhen realized as per Section 43A? 3.2 Whether the Hon’ble ITAT is correct in holding thatunrealized foreign exchange gain of Rs.4,72,34,591/- is to betreated as capital receipt and on actual realization to beadjusted against cost of asset as per Section 43A?unrealized foreign exchange gain of Rs.4,72,34,591/- is to betreated as capital receipt and on actual realization to beadjusted against cost of asset as per Section 43A? 10. Substantial Question Nos.3, 3.1 and 3.2 are similar to Question 3.2 Whether the Hon’ble ITAT is correct in holding thatunrealized foreign exchange gain of Rs.4,72,34,591/- is to betreated as capital receipt and on actual realization to beadjusted against cost of asset as per Section 43A?unrealized foreign exchange gain of Rs.4,72,34,591/- is to betreated as capital receipt and on actual realization to beadjusted against cost of asset as per Section 43A? 10. Substantial Question Nos.3, 3.1 and 3.2 are similar to Question No.(e) in ITA No.249 of 2015. By following the discussion and reasoning recorded while answering Question No.(e) in ITA No.249 of 2015,substantial question Nos.3, 3.1 and 3.2 are answered in favour ofassessee and against the revenue. SUBSTANTIAL QUESTION No.4 4. Whether the Hon’ble ITAT is correct in directing to delete the ITA No.39 of 2017 8 so-called disallowance of prepaid expenses of Rs.5,15,34,726/-when in fact no such disallowance had apparently been proposedin the draft assessment order nor made in the final impugnedassessment order? 11. Substantial Question No.4 relates to pre-paid expenses/advance payment made by the assessee about the expenses tobe incurred in future. The assessee claimed pre-paid expenses for a sumof Rs.5,15,34,726/- in the assessment year 2010-11. 12. ITA No.44/2017 has consideredthe entitlement of assessee tobook the pre-paid expenses of the advance expenses paid as expensesincurred for the assessment year 2010-11. The same expenditure isclaimed in the present year as well. The claim of assessee since is rejectedfor the assessment year 2010-11, we are of the view that the assessee isentitled to claim expenses for the assessment year 2011-2012. TheTribunal has allowed the claim of assessee amounting to Rs.5,15,34,726/-during the assessment year 2011-12. The claim is finally interdicted byus while answering Substantial Question No.7 in ITA No.44 of 2017. Inthe case on hand, the Tribunal, in paragraph-83 has recorded thefollowing finding. “Ground No. 11 pertains to the disallowance of ITA No.39 of 2017 9 prepaid expenses of Rs. 5,15,34,726/- claimed by theappellant. In ITA No. 223/C/2015, A.Y. 2010-11, wehave allowed an identical ground no. 12 raised by theappellant therein. In terms of the aforesaid order, weallow ground no. 11.” 13. It may be noticed that the expenses claimed by the assessee are same in assessment year 2010-11 and 2011-12. For the assessment year 2010-11, it has been found that advance expenses cannot be booked for the previous year ending 31.3.2010. The assessee since has incurred theexpenditure in the subsequent year i.e. during the assessment year 2011-12 is entitled to claim allowances and the said question is answeredconfirming that the disallowance of pre-paid expenses amounting toRs.5,15,34,726/- claimed in assessment year 2010-11 is being allowed inthe assessment year 2011-12. Substantial Question is answered accordingly in favour of assesseeand against the revenue. ADDITIONAL QUESTION Nos.5 and 6 5. Whether on the facts and in the circumstances of the case,is the Tribunal competent to remit issues back to the file ofthe Dispute Resolution Panel for issuance of directions afresh? 6. Whether on the facts and in the circumstances of the case,did not the Tribunal err in remitting the issue of transfer ITA No.39 of 2017 10 pricing adjustment of Rs.12,50,380/- to the file of the TransferPricing Officer for reconsideration by properly applying thecomparables in sheer agreement with the assessee'scontention that the Transfer Pricing Officer rejected certaincomparable companies without assigning any reasons? 14. The substantial questions are covered by the judgment reported in v Commissioner of Income Tax, Shillong Assam Travels Shipping Service,Dibrugarh[1]. By following the same, questions are answered in favour ofassessee and against the revenue. 6. Whether on the facts and in the circumstances of the case,did not the Tribunal err in remitting the issue of transfer ITA No.39 of 2017 10 pricing adjustment of Rs.12,50,380/- to the file of the TransferPricing Officer for reconsideration by properly applying thecomparables in sheer agreement with the assessee'scontention that the Transfer Pricing Officer rejected certaincomparable companies without assigning any reasons? 14. The substantial questions are covered by the judgment reported in v Commissioner of Income Tax, Shillong Assam Travels Shipping Service,Dibrugarh[1]. By following the same, questions are answered in favour ofassessee and against the revenue. Appeal is allowed in part as indicated above. sd/- S.V.BHATTI JUDGE sd/- VIJU ABRAHAM css/ JUDGE APPENDIX OF ITA 39/2017