Ita/40/2017 Of The Principal Commissioner Of Income Tax, Kochi-I v. 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 31 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,COCHINBENCH, ERNAKULAM APPELLANT/RESPONDENT: THE PRINCIPAL COMMISSIONER OF INCOME TAX, KOCHI-I,KOCHI, INCOME TAX OFFICES,CENTRAL REVENUE BUILDING,I.S.PRESS ROAD, KOCHI-682018BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES)JOSE JOSEPH, SC, FOR INCOME TAXCHRISTOPHER 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 ON31.08.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: JUDGMENT ITA No.40 of 2017 S.V.Bhatti, J. Heard Sr.Advocate Joseph Markose and learned StandingCounsel 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 year2010-11. Substantial Question No.1 "Whether on the facts and in the circumstances of thecase and on an interpretation of Section 32(1)(iia) readwith the second proviso, is the Hon'ble ITAT right inlaw in holding that the left over additional depreciationbrought forward from immediately precedingassessment year has to be allowed in the subsequentassessment year and is nto the above finding againstlaw and perverse? 3. The identical issue in the case of assessee herein has already been considered by this Court in ITA No.87 of 2014 and decided in favour of the assessee and against the revenue. HenceQuestion No.1 is answered in favour of the assessee and againstthe revenue. Substantial Question No.3 "Whether on the facts and in the circumstances of the case, isthe Hon'ble ITAT right in law and fact in holding that DGPower Generation Units constituted an "undertaking" for thepurpose 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 anddecided in favour of the assessee and against the revenue. HenceQuestion No.3 is answered in favour of the assessee and against therevenue. Substantial Question No.4 "Whether on the facts and in the circumstances of the caseis the Hon'ble ITAT is right in not following thejurisdictional Kerala High Court's judgment in MerchemLtd. 378 ITR 443 and deleting the addition made u/s.36(1)(va) r.w.s.2(24)(x) in respect of belated payment ofemployees' contribution to PF by following a decision ofHon'ble Delhi High Court in AIMIL India Ltd. 321 ITR508, which is earlier decision and not binding, more so when the Hon'ble ITAT confirmed similar addition in othercases by following the latest jurisdictional Kerala HighCourt 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 infavour of the revenue and against the assessee. Substantial question No.2 Whether on the facts and in circumstances of the caseis the Hon'ble ITAT is right in law in allowing theassessee's claim of weighted deduction under Section35(2AB) in respect of the salary paid on outdoor R & Dfacility without qualification of the DSIR and that toofollowing 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 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 infavour of the revenue and against the assessee. Substantial question No.2 Whether on the facts and in circumstances of the caseis the Hon'ble ITAT is right in law in allowing theassessee's claim of weighted deduction under Section35(2AB) in respect of the salary paid on outdoor R & Dfacility without qualification of the DSIR and that toofollowing 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 enablesweighted deduction for incurring the expenditure with reference tosuch research and development stated to have been undertaken bythe assessee. The assessee states that the amount claimed towardsexpenditure has been incurred by the assessee to Apollo Tyres, Gmbh, Germanytowards reimbursement of salary and incidentalcost incurred towards employees by the subsidiary company. Oneof the employees Mr.Peter Becker was an employee of subsidiary ofassessee but is over all in charge of the R & D activities of assesseeand its subsidiary. Therefore, the salary paid to Mr.Peter Becker forthe services rendered by him in respect of company's R&D unit ofLimda, Baroda and is an allowable expenditure under section35(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 incurredtowards clinical trial activities outside the approved facility. TheAssessing Officer accepted the actual expenditure as admissiblededuction amounting to Rs.3,89,04,976/- and Rs.1,89,96,439totalling to Rs.5,79,01,415/- as business expenditure. Howeverweighted deduction of 50% amounting to Rs.2,89,50,708/- wasdisallowed. 6. Under Section 144(c)(5) of the Act, the Dispute ResolutionPanel-I, Bengaluru considered this as Ground No.10 of its orderdated 26.12.2014. DRP, upon consideration of revenue and the assessee, the case confirmed the finding of A.O. on the expenditure incurred towards clinical trial activities amounting toRs.1,89,96,439/- and accepted the weighted deduction claimed bythe 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 thequestion as follows: "In the present appeal we are concerned with theamount of Rs.3.89 crores. The assessee submittedduring the course of assessment proceedings that thesaid amount represents reimbursement of salary andother costs as incurred towards employees. It wasfurther submitted that one of the employee, Mr.PeterBecker is employed on the rolls of Apollo Tyres,Germany, a subsidiary of Apollo Tyre Limited but heis overall incharge of the R & D activities of thecompany in India and devotes substantial time to the R& D activities carried out by the company at is R & DUnit at Limda, Baroda. It was argued that the salarypaid to Mr.Peter Becker in respect of the servicesrendered by him in respect of company's R & D Unitat Limda, Baroda, is reimbursed by Apollo Tyres Ltd.To its subsidiary Apollo Gmbh, Germany and debitedin the books of the assessee company and as such is anallowable expenditure u/s 35(2AB) of the Income TaxAct. The A.O. Was of the view that deduction undersection 35(2AB) is limited to the expenditure onscientific research on in house research anddevelopment facility and therefore the amount paid tothe employee in Germany would not attract the benefit of the extra weighted deducted of 50% claimed underthat provision. The DRP, however, deleted theaddition and held that the salary paid to Sh.PeterBecker was entitled for deduction under Section35(2AB) of the Act. of the extra weighted deducted of 50% claimed underthat provision. The DRP, however, deleted theaddition and held that the salary paid to Sh.PeterBecker was entitled for deduction under Section35(2AB) of the Act. The Ld.DR has relied upont he draft assessmentorder to canvas his submissions that the deletion ofdisallowance was not in accordance with law. TheLd.AR on the other hand has reiterated thesubmissions made by the assessee before the DRP. Wehave heard the rival submissions. We are not inagreement with the view of the department.Admittedly, in the present case the nature of theexpenditure for R & D is not disputed by thedepartment. The Department has further not disputedthe fact that the said employee of the assesseecompany is overall in-charge of the R & D activitiesat Baroda. The mere fact that the said employee waspaid by Apollo Tyres, Germany and thereafterreimbursed by the assessee company would not ipsofacto lead to a conclusion that the expense on R & D ismade outside India. The deduction is therefore withinthe parameters of Section 35(2AB) of the Act. In viewthereof, Ground No.3 raised by the department isdismissed." 8. The said finding is assailed by the revenue. The question refers to salary paid at an outdoor R&D facility and the payment iswithout qualification of the DSIR. The case law cited is not followedboth by the DRP and the Tribunal while accepting the weighteddeduction under Section 35(2AB) of 50% on the salary paid to Mr.Peter Becker. The question does not refer to the circumstancesconsidered and accepted by the DRP while appreciating the claimof expenditure to accept the salary paid by the assessee companyto Mr.Peter Becker, an employee of subsidiary of the assessee as anallowable expenditure. The assessee demonstratedthe utilisationof services and once the salary paid to Mr.Peter Becker isacceptedas expenditure, the reason to disallow weighted deduction iscompletely wanting. The department could not before the Tribunaldemonstrate that the expenditure accepted in respect of Mr.PeterBecker is untenable in fact. The services are stated to have beentaken and remuneration paid to the employeein the field,sectionaccords weighted deduction as additional deduction. 9. The findings of fact recorded by the DRP and the Tribunalare available in the circumstances of the case, we are convincedthat the question framed is without merit. Hence question isanswered in favour of assessee and against the revenue. 10. In view of above discussion, the appeal stands allowed inpart, 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 infavour of revenue. No order as to costs. Sd/-S.V.BHATTIJUDGESd/-VIJU ABRAHAMJUDGE CSS/ APPENDIX OF ITA 40/2017