AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (9) TMI 839
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....following international transactions in Form 3CEB: - S.No. Description of Transaction Amount 1 Sale of tyres 4,89,75,09,019 2 Sale of semi finished goods 26,73,908 3 Sale of raw material 1,78,745 4 Purchase of tyres 36,79,783 5 Purchase of raw material 24,69,878 6 Purchase of semi finished goods 13,35,810 7 Purchase of second hand moulds (purchase of capital goods) 18,26,398 8 Receipt of royalty 4,36,55,867 9 Payment of royalty 1,49,06,399 10 Receipt of research and testing services 12,81,14,109 11 Receipt of corporate marketing services 391,40,800 12 Provision of corporate purchase services 23,08,219 13 Provision of corporate information technology services 2,32,10,5456 14 Investment in equity 50,02,98,250 15 Reimbursement of expenses 1,07,78,001 16 Recovery of expenses 3,69,14,146 3. On noticing the above international transactions, the AO referred the matter to the Transfer Pricing Officer (TPO) u/s. 92CA(1) of the Act for the purpose of benchmarking the above international transactions. The TPO vide order dated 28.10.2016 pa....
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.... deduction u/s. 35(2AB) - The appellant company made claim for deduction of Rs. 80,28,91.589/- u/s. 35(2AB) of the Act as against the expenditure certified by DSIR of Rs. 24,53,93,000/- in Form 3CL. The AO was of the opinion that the details of expenditure incurred during the previous year relevant to the assessment year under consideration is as under: - Particulars Amount in Rs. R&D as allowed by the DSIR in Form 3CL 245,393,000 R&D expense incurred by Apollo Vredestein BV, Netherlands; Vredestein GmbH, Germany and Apollo Tyres Global R&D BV, Netherlands 128,114,109 R&D expense incurred for testing of tyres outside India 12,510,307 Other R&D expense incurred at Limda (Vadodra) 20,868,464 Total 406,885,880 The AO was of the opinion that the R&D expenditure incurred in-house is alone is eligible for deduction. Accordingly, allowed deduction u/s. 35(2AB) of Rs. 31,21,05,589/-. v. The AO made disallowance of Rs. 15,60,53,000/- being expenditure incurred by the assessee on R&D outside India. vi. The AO made addition of Rs. 14,06,31,409/- u/s. 40(a)(i) of the Act on the ground that the appellant company had failed to deduct....
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....al additions on book profit determined u/s. 115JB of the Act. 4. On receipt of the draft assessment order, the appellant company filed objections before the Dispute Resolution Panel (DRP) contesting all the above additions. The DRP issued directions on 04.09.2017 confirming the TP adjustments. However, the DRP had directed the AO to allow balance of additional depreciation following the Tribunal's decision in assessee's own case for earlier assessment year. The DRP also confirmed the disallowance of preoperative expenditure, disallowance of excessive claim u/s. 35(2AB), also disallowance u/s. 40(a)(ia) of Rs. 151,122,545/- and R&D expenditure incurred outside India, the year end provisions for expenditure of Rs 2,86,39,000/-, addition of Rs. 29,99,048/- u/s. 40(a)(ia) of the Act and Gas Turbine expenditure claimed for deduction of cost of gas turbine overhauling charges of Rs. 5,59,29,379/-. However, the DRP had set aside the ground to disallowance of Rs. 15,60,53,000/- to the AO. The DRP had upheld the addition made to the book profit for the purpose of determining the tax liability u/s. 115JB of the Act. 5. On receipt of the directions from the DRP, the AO had passed the fi....
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....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 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. 5. The learned AO has erred in disall....
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....auling 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. 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....
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....eimbursement 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 modify any of the grounds appealed against during the course of hearing." 7. The ground of appeal Nos. 1 & 2 are general in nature, require no adjudication. Ground Nos. 8 and 10 are not pressed by the learned counsel for the assessee, hence dismissed as not pressed. 8. The ground of appeal 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 t....
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....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 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)(i....
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....acturing 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 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....
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....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 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....
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....ein GmbH, Germany and Apollo Tyres Global R&D B.V., Netherlands 12,81,14,109 R&D expense incurred for testing of tyres outside India 1,25,10,307 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 order dated 10.01.2017. The decision of the Tribunal was confirmed by the Hon'ble Kerala High Court in ITA No. 40 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 ITA No.257/Coch/2015 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....
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....ed 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 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. ....
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....spectfully 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 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 v....
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.... 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. 11. Brief facts of the case are that the appellant had engaged services of an organization called MPCMS for rendering professional services in terms of agreement entered into by it on 01.04.2004, which is valid for a period of 5 years. This entity is a sister concern of the appellant company. During the previous year relevant to the assessment year under consideration, the appellant paid total sum of Rs. 7,33,77, 497/-. Out of the said sum of Rs. 7,33,77,497/- the appellant had deducted TDS only on a sum of Rs. 1,32,42,920/- and on the balance amount no tax was deducted at source treating it as mere reimbursement of expenditure to MPCMS. The said payee, i.e. MPCMS also raised different bills. The AO was of the opinion that the money paid towards management consultancy charges under composite contract and the contract did not envisage any bifurcation of the amounts. The appellant was liable to deduct tax at source on entire amount paid to the MPCMS. As the appellant had failed to deduct tax at source on th....
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....ble to tax the rights of the payee are safeguarded u/s. 197 & 197A but the only requirement is to file an application for determination of income to the AO that such sum would not be chargeable to tax in the case of the recipient or for determination of appropriate portion of such sum chargeable or for grant of certificate authorising the recipient to receive the amount without deduction of tax or deduction of income tax at lower rate or no deduction. It is not the case of the appellant that the recipient had obtained any such certificate from the AO. Further, we find that the appellant had not discharged the onus of proving that it is a mere reimbursement of expenditure made by the appellant. The provisions of section 194C does not permit the recipient to bifurcate the gross sum in terms of the contract into two different heads. When the law mandates a particular thing to be done in a particular manner, then it has to be done in the manner. In this connection, attention is drawn to the decision of the Privy Council in Nazir Ahmad v. King Emperor, AIR 1936 PC 253 which dictum has been followed by the honourable Supreme Court in UPSC v. S. Papaiah [1997] 7 SCC 614 and many other cas....
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....de 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. ITA No. 106/2002 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 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). 16. We have carefully perused the orders of the lower authorities and submissions made by the learned counsel for the assessee. The provisions were made by the assessee company for meeting the liability towards business promotion expenditure outside India. It is settle....
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....visions 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 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....
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....s expenditure so far as the assessee is concerned. We have already mentioned earlier about the change in corporate thinking vis-a-vis gifts at the time of Diwali. We must at this stage clarify that we are not laying down a general proposition that an assessee should claim an item of expenditure without satisfying due requirements laid down by law or the rules but the present ground of appeal is being decided strictly keeping in view the facts of the present case and it can not be made applicable on a universal basis. The ld. counsel pointed out during the course of hearing that in the preceding assessment year Diwali expenses of similar type were allowed the quantum being Rs. 1.28 lakhs and the assessee's turnover was Rs. 405.48 lakhs whereas during the year under appeal the expenditure was Rs. 2.16 lakhs and the turnover had gone uptoRs. 578,29 lakhs. This factual statement is not disputed by the Id. DR and we do find on perusal of 'Annexure D' of the Paper Book that the ratio of the expenditure to the turnover in both the years, appears to be quite favourable. Then again there is no basis on the part of the CIT(A) to hold that the expenditure of Rs. 1,83,460 is "perso....