Ashok Leyland Ltd Vs DCIT (ITAT Chennai)
Summary : The Chennai ‘D’ Bench of the Income Tax Appellate Tribunal partly allowed Ashok Leyland Ltd.’s appeal and dismissed the Revenue’s cross-appeal for AY 2019–20 against the CIT(A)/NFAC order dated 16 March 2024. Judicial Member Aby T. Varkey and Accountant Member Amitabh Shukla delivered the order on 7 July 2025 after hearing the parties on 4 June 2025. The company manufactured and sold commercial vehicles. The disputes concerned transfer pricing of corporate guarantees, disallowance relating to exempt income, scientific-research expenditure, deduction for its Pantnagar manufacturing unit and deduction for CSR-related donations. The Tribunal condoned the Revenue’s 16-day filing delay, noting the explanation and the absence of serious objection from the assessee.
The scientific-research dispute concerned revenue expenditure of ₹538,76,62,852 at the approved in-house R&D facility and capital expenditure reported at ₹127,72,94,730. The assessee had claimed 150% weighted deduction on the revenue expenditure and initially restricted its capital-expenditure claim to ₹87,88,04,510. The Assessing Officer denied the weighted component in the absence of Form 3CL. During the first appeal, the assessee produced DSIR’s certificate approving revenue expenditure of ₹529,78,40,000 and capital expenditure of ₹114,69,23,000. The CIT(A) nevertheless restricted capital relief to the original claim and treated part of the revenue claim as excessive by comparing the amount certified with the expenditure debited to the profit and loss account.
The Tribunal held, following Tejas Networks Ltd. v. DCIT, that the lower tax authorities could not sit in judgment over the expenditure quantified and approved by DSIR under Section 35(2AB) read with Rule 6(7A). The facility had been approved in Form 3CM, and the relevant expenditure had been certified in Form 3CL. It therefore held the assessee entitled to weighted deduction at 150% on approved revenue expenditure of ₹529,78,40,000 and approved capital expenditure of ₹114,69,23,000. The finding concerned the statutory R&D deduction; its availability was not determined merely by how the expenditure appeared in the financial statements.
Addressing the alleged excess revenue claim, the Bench accepted that ₹304,48,15,892 had been charged to the profit and loss account, while ₹234,28,46,960 relating to salaries, raw materials, components and ongoing R&D projects had been capitalised in the books under the applicable Ind AS requirements. Since the latter amount had not been debited to the profit and loss account, its separate consideration in the tax computation did not amount to the duplicate claim assumed by the CIT(A). The Tribunal directed deletion of that alleged excess claim. It further directed allowance of ₹794,67,60,000 as weighted deduction on the DSIR-approved revenue expenditure and normal deduction under Section 35(1) for the remaining revenue expenditure of ₹8,98,22,852.
The Tribunal also entertained the additional capital-expenditure claim despite its omission from the original return. Relying on NTPC v. CIT and CIT v. Perlo Telecommunication and Electronic Components India Pvt. Ltd., it distinguished the restriction applicable to the Assessing Officer from the appellate authorities’ powers to consider legally available claims. It directed weighted deduction of ₹40,21,77,735 on the additional DSIR-approved capital expenditure of ₹26,81,18,490, being the difference between ₹114,69,23,000 and ₹87,88,04,510. The Assessing Officer was directed to recompute the deductions under Sections 35(2AB), 35(1)(i) and 35(1)(iv) in accordance with the findings. These grounds were formally allowed for statistical purposes.
For Section 80-IC, the assessee claimed ₹371,73,37,546 for its Pantnagar commercial-vehicle manufacturing unit, supported by audited stand-alone accounts and Form 10CCB. The order described AY 2019–20 as the unit’s tenth eligible year. The Assessing Officer substituted a 3% margin for the reported 11.51%, disallowing ₹303,22,16,976; the CIT(A) adopted 6.09% and restricted the disallowance to ₹168,14,24,514. The Tribunal followed its decision in the assessee’s own case for AY 2018–19, since the facts and the parties’ submissions were similar and the Revenue identified no distinguishing feature. It held that rejecting the audited unit accounts and estimating lower profits on the same reasoning was unjustified.
The earlier-year reasoning reproduced and followed in the order addressed the identification of Pantnagar products through chassis numbers, recognition of sales at prices charged to independent customers, and allocation of corporate, R&D, finance, marketing and other common costs on appropriate parameters. It rejected further hypothetical segregation of manufacturing profits from marketing and R&D efforts where the related costs had already been allocated. Higher profitability alone did not establish an arrangement under Section 80-IA(10), and defects in the accounts or the statutory basis for substituting profits had not been demonstrated. The earlier decision also distinguished GST discharge on stock movements from recognition of customer sales. Applying that reasoning to the year under appeal, the Tribunal directed allowance of the Section 80-IC deduction as claimed, allowed the assessee’s ground and dismissed the Revenue’s corresponding ground.
Finally, the Tribunal upheld deletion of the ₹4,32,97,964 disallowance of Section 80G deduction relating to CSR donations. The assessee had incurred CSR expenditure of ₹34.06 crore and had already disallowed the relevant expenditure under Explanation 2 to Section 37(1). The Bench held that the restriction in computing business income could not automatically be imported into the separate Chapter VI-A deduction. It relied on JMS Mining and the reasoning reproduced from Sikka Ports & Terminals, which addressed the Revenue’s voluntariness objection and distinguished payments involving material consideration. Specific CSR exclusions concerning the Swachh Bharat Kosh and Clean Ganga Fund did not create a general prohibition against other qualifying donations. The CIT(A)’s direction to allow relief after verifying Section 80G conditions remained intact. The Revenue’s appeal was dismissed, while the assessee’s appeal was partly allowed.
Cases Discussed
- Ashok Leyland Ltd. v. ACIT — ITA Nos. 554 & 561/Chny/2023, AY 2018–19 (ITAT Chennai). Followed on Pantnagar profits and Section 80-IC; the earlier-year findings were reproduced extensively.
- ACIT v. Sikka Ports & Terminals Ltd. — ITA Nos. 3047/Mum/2024 & 3755/Mum/2023 (ITAT Mumbai); date printed in the supplied order: 30.12.2014. Followed on independent eligibility of CSR donations under Section 80G. The printed date is inconsistent with the appeal numbers.
- L&T Finance Ltd. v. DCIT — [2024] 167 taxmann.com 503 (ITAT Kolkata). Discussed within the reproduced Sikka Ports decision concerning CSR monitoring and donations for specified purposes.
- Blue Dart Express Ltd. v. PCIT — ITA No. 1101/Mum/2024, 3 September 2024 (ITAT Mumbai). Reproduced through Sikka Ports on the distinction between business-income computation and Chapter VI-A relief.
- PCIT (Central) v. Avantha Realty Ltd. — [2024] 164 taxmann.com 376 (Calcutta High Court). Relied upon for prospective operation of the Finance Act, 2022 amendment to Section 14A.
- Agilent Technologies (International) (P.) Ltd. v. ACIT — [2024] 160 taxmann.com 238 (ITAT Delhi). Distinguished within the reproduced Sikka Ports reasoning concerning the nature of a donation.
- The Ramco Cements Ltd. v. DCIT — ITA No. 1897/Chny/2017, AY 2013–14, 3 July 2024 (ITAT Chennai). Cited by the assessee on Section 14A where no exempt income was earned.
- PCIT v. Era Infrastructure (India) Ltd. — [2022] 141 taxmann.com 289; 288 Taxman 384; 448 ITR 674 (Delhi High Court). Considered on the prospective Section 14A amendment.
- Naik Seafoods Pvt. Ltd. v. PCIT — ITA No. 490/Mum/2021, 26 November 2021 (ITAT Mumbai). Appears in the reproduced Sikka Ports decision supporting Section 80G relief for eligible CSR donations.
- CIT v. Perlo Telecommunication and Electronic Components India Pvt. Ltd. — T.C. No. 413 of 2014, 20 September 2021 (Madras High Court). Followed on entertaining an expenditure claim omitted from the original return.
- JMS Mining Pvt. Ltd. v. PCIT — 190 ITD 702; ITA No. 146/Kol/2021, 22 July 2021, AY 2016–17 (ITAT Kolkata). Relied upon for the absence of a general CSR prohibition in Section 80G.
- PCIT v. Redington (India) Ltd. — [2020] 122 taxmann.com 136; [2021] 430 ITR 298 (Madras High Court). Considered for corporate guarantees as international transactions and guarantee-fee benchmarking.
- Marg Ltd. v. CIT — [2020] 120 taxmann.com 84 (Madras High Court). Relied upon regarding Section 14A and the relationship of disallowance to exempt income.
- CIT v. Celebrity Fashion Ltd. — [2020] 119 taxmann.com 426 (Madras High Court). Followed on the need for a statutory basis and findings before Section 14A disallowance.
- First American (India) Pvt. Ltd. v. ACIT — ITA No. 1762/Bang/2019, 29 April 2020 (ITAT Bangalore). Relied upon by the CIT(A), whose Section 80G relief was sustained subject to statutory verification.
- CIT v. Chettinad Logistics (P.) Ltd. — [2018] 257 Taxman 2 (Supreme Court). Cited in the assessee’s grounds concerning the no-exempt-income position; distinct from the High Court decision.
- PCIT v. Harpreet Kaur — [2017] 88 taxmann.com 641; 397 ITR 125 (Delhi High Court). Discussed in the earlier-year order on estimation of eligible-unit profits without identifying defects or statutory conditions.
- CIT v. Chettinad Logistics (P.) Ltd. — [2017] 248 Taxman 55 (Madras High Court). Followed on deletion of Section 14A disallowance where no exempt income was earned.
- Redington (India) Ltd. v. Addl. CIT — T.C.A. No. 520 of 2016, 23 December 2016; [2017] 77 taxmann.com 257 (Madras High Court). Followed on actual exempt income and the limits of Rule 8D.
- CIT v. Everest Kanto Cylinders Ltd. — [2015] 58 taxmann.com 254; 232 Taxman 307; 378 ITR 57 (Bombay High Court). Applied to distinguish bank guarantees from corporate guarantees and restrict the guarantee fee to 0.5%.
- Tejas Networks Ltd. v. DCIT — [2015] 60 taxmann.com 309; 233 Taxman 426; W.P. No. 7004/2014, 24 April 2015 (Karnataka High Court). Followed on DSIR certification and the limits of the Assessing Officer’s jurisdiction under Section 35.
- Cheminvest Ltd. v. CIT — [2015] 378 ITR 33 (Delhi High Court). Mentioned within the reproduced Avantha Realty discussion on Section 14A.
- A.T. Kearney India (P.) Ltd. v. Addl. CIT — [2014] 50 taxmann.com 26; 153 ITD 693; 66 SOT 140 (Delhi Tribunal) (URO). Cited in the earlier-year decision on higher profitability and alleged arrangements.
- Prolifics Corporation Ltd. v. DCIT — [2015] 55 taxmann.com 226; 68 SOT 104 (ITAT Hyderabad) (URO). Discussed within the Redington corporate-guarantee extract on inherent risk and creditworthiness.
- Zavata India (P.) Ltd. v. ITO — [2013] 31 taxmann.com 147; 141 ITD 456 (ITAT Hyderabad). Cited in the earlier-year reasoning on eligible-unit profits.
- CIT v. Schmetz India (P.) Ltd. — [2012] 26 taxmann.com 336; 211 Taxman 59 (Bombay High Court) (Mag.). Applied within the earlier-year order: extraordinary profits alone do not prove an arrangement.
- CIT v. Pruthvi Brokers & Shareholders Pvt. Ltd. — [2012] 349 ITR 336 (Bombay High Court). Discussed in Perlo Telecommunication on additional claims before appellate authorities.
- Cadila Healthcare Ltd. v. Addl. CIT — [2012] 21 taxmann.com 483; [2015] 67 SOT 110 (ITAT Ahmedabad) (URO). Reproduced in the earlier-year order against hypothetical segregation of manufacturing, marketing and R&D profits.
- Rolls Royce Plc v. DIT — [2011] 339 ITR 147 (Delhi High Court). Distinguished in the reproduced Cadila discussion because it concerned attribution to Indian permanent-establishment operations.
- CIT v. Walfort Share and Stock Brokers (P.) Ltd. — [2010] 326 ITR 1 (Supreme Court). Appears in the reproduced Redington decision explaining the purpose of Section 14A.
- Liberty India v. CIT — [2009] 317 ITR 218 (Supreme Court). Discussed in the reproduced Cadila passage on profit-linked incentives and the need to interpret the decision in context.
- Goetze (India) Ltd. v. CIT — [2006] 284 ITR 323 (Supreme Court). Distinguished through Perlo: its restriction on the Assessing Officer does not curtail the Tribunal’s appellate powers.
- Addl. CIT v. Delhi Press Patra Prakashan — [2006] 10 SOT 74 (ITAT Delhi) (URO). Appears in the Cadila extract concerning higher eligible-unit margins and separate books.
- Rajasthan State Warehousing Corporation v. CIT — [2000] 242 ITR 450 (Supreme Court). Appears in the reproduced Redington passage on pre-Section 14A expenditure apportionment; the supplied extract prints the year as 2002.
- National Thermal Power Co. Ltd. v. CIT — [1998] 229 ITR 383 (Supreme Court). Relied upon to entertain an additional legally available deduction claim.
- DCIT v. Hindustan Dorr Oliver Ltd. — [1994] 45 TTJ (Mumbai) 552 (ITAT Mumbai). Discussed within Sikka Ports concerning payments made for material benefits; the supplied text uses “Darr” and describes it as a High Court decision.
- Commissioner of Expenditure Tax, Andhra Pradesh v. Shri P.V.G. Raju, Rajah of Vizianagaram — [1975] 101 ITR 465; [1976] 1 SCR 1017; (1976) 1 SCC 241, 29 September 1975 (Supreme Court). Quoted through Sikka Ports on donation without material return or quid pro quo.
- CIT v. Maharashtra Sugar Mills Ltd. — [1971] 82 ITR 452 (Supreme Court). Appears in the reproduced Redington discussion of the pre-Section 14A position.
