The Commissioner Of Income-Tax (C)Ludhiana v. M/S. Punjab Wool Combers Ltd.ludhiana

IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH --- Income-tax Reference No. 119 of 1996Date of decision: 9.9.2010 The Commissioner of Income-tax (C)Ludhiana Versus M/s. Punjab Wool Combers Ltd.Ludhiana --- Petitioner --- Respondent CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present:Mr. Rajesh Katoch, Advocate for the petitioner. --- AJAY KUMAR MITTAL, J. In this reference filed under Section 256(1) of the Income-tax Act, 1961 (for short “the Act’”) the Income Tax Appellate Tribunal,Chandigarh Bench, Chandigarh, (in short “the Tribunal”) vide orderdated 30.5.1996, passed in Reference Application No. 310/Chandi/95arising out of ITA No. 1408/Chandi/94 at the instance of the Revenue, inrespect of assessment year 1990-91, has referred the followingquestions of law, for the opinion of this Court: “1. Whether on the facts and in the circumstances of thecase, the Income-tax Appellate Tribunal is right in law in holding that the provisions of section 80I(8)and (9) are not applicable in this case and that theCommissioner of Income Tax (Appeals) was notjustified in restoring this issue back to the AssessingOfficer for reconsideration? Whether, on the facts and in the circumstances ofthe case, the Income-tax Appellate Tribunal is right inlaw in holding that no adjustments could be made bythe Assessing Officer while working out thededuction u/s 80I of the Income Tax Act, in thiscase? Both the questions are inter-connected and, therefore, are being takenup together. Brief facts necessary for adjudication of the reference maybe noticed. The assessee Company is engaged in manufacture andsale of wool tops in the head office, i.e. combing unit and hosiery andknitting yarn in the spinning unit. The assessee filed return in respect ofassessment year 1990-91 declaring income of Rs. 99,80,390/- whereasin the revised return filed on 1.2.1991, the assessee declared income ofRs. 99,88,880/-. The assessee claimed deduction under Section 80-I ofthe Act in respect of the spinning unit, initially at Rs. 48,49,050/- andlater on in the revised return at Rs. 43,49,673/-. Deduction underSection 80-I were claimed at the rate of 25% of Rs. 1,73,98,693/-, whichwas arrived at after reducing Rs.33,31,678/- under Section 32AB andRs. 17,26,466/- as trading profits from the profits in respect of thespinning unit. During the course of scrutiny, the assessing officer came to the conclusion that profits of the combing unit had been reduced toincrease the profits of the spinning unit with a view to claim higher reliefunder Section 80-I. It was noticed that for the assessment year 1989-90 the assessee had shown profit in the combing unit at 11.04%whereas the same had declined to 7.11% in the year relevant to theassessment year in question. Similarly, in respect of spinning unit, thegross profit rate was 14.28% whereas in the assessment year underdiscussion had shown the said rate at 14.12%. In the opinion of theassessing officer, the profits of the spinning unit had been inflated to theextent of Rs.96,16,477/-. The assessing officer, thus, computed thededuction under Section 80-I of the Act at Rs. 20,42,020/-. Theassessee noticed that there were certain mistakes in the computation ofdeduction u/s 80-I and, hence, moved an application under Section 154of the Act. The assessing officer calculated the relief under Section 80-Iat Rs.30,14,523/- as against the amount of Rs. 20,42,020/- calculatedearlier. The assessee preferred appeal before the Commissioner ofIncome-tax (Appeals) {in short “CIT(A)”} who set aside the order of theassessing officer and remitted the matter for applying the provisions ofSection 80-I(8) and (9) of the Act. Not satisfied with the said order aswell, the assessee filed further appeal before the Tribunal. The assessee preferred appeal before the Commissioner ofIncome-tax (Appeals) {in short “CIT(A)”} who set aside the order of theassessing officer and remitted the matter for applying the provisions ofSection 80-I(8) and (9) of the Act. Not satisfied with the said order aswell, the assessee filed further appeal before the Tribunal. The Tribunal observed that setting aside of a particularissue without any reasoning in a given case may result in a grievance tothe assessee. The Tribunal accepted the submission made on behalfof the assessee that section 80-I (8) of the Act could apply only wherethe goods had been transferred from one unit to another unit at less than market price. It was shown on behalf of the assessee to theTribunal that except in respect of one lot of 3539 Kgs. out of total of815361 Kgs. there was a little difference of Rs. 7,715/-. In this regard,the Tribunal noted that when total transfer was of the order of Rs.14,37,24,264/-, the difference of Rs. 7,715/- was insignificant and verynominal. It was further noted that though the transfer rate was slightlyless than the market rate, it was still higher than the cost price of thecombing unit. The Tribunal, after relying on a decision of anotherTribunal, in Punjab Concast Ltd. vs. IAC reported in 49 ITD 430 was ofthe opinion that the assessing officer was not empowered to reallocatethe expenses under Section 80-I(6) or 80-I(8) of the Act. It was noted,in particular, that for the assessment years 1986-87 to 1989-90, theassessee had been allowed relief under Section 80-I without anyinterference from the assessing officer. The Tribunal, thus, held thatthere was no justification for the learned CIT(A) to have set aside theissue for reconsideration of deduction under Section 80-I(8) of the Act. So far as the question of applicability of Section 80-I (9) ofthe Act is concerned, the Tribunal accepted the submission made onbehalf of the assessee that the provisions of the said Section wereapplicable only where there were transactions between the assesseeand an outsider and not when there were transactions between one unitand the other of the same assessee. The Tribunal, thus, held thatsetting aside of the assessment order by the CIT (A) for deciding theissue of relief under Section 80-I by considering the provisions ofSections 80-I (8) and 80-I (9) of the Act was not justified. This is how the aforesaid two questions have been referred to this Court for its opinion. We have heard learned counsel for the petitioner-Revenueand have perused the record. The issue for adjudication in the present case is, whetherthe assessee who was deriving income from manufacture and sale ofwool tops at its woolen unit and had made certain profits from theCombing unit had reduced the profits of the spinning unit in order tomake higher relief under Section 80-I of the Act. The Tribunal onappreciation of evidence that there was no attempt on the part of theassessee to reduce the profits of the combing unit in order to enhancethe profit of the assessee to claim higher deductions under Section 80-I,observed in paras 14 to 16 of its order as under: “14. We also find substantial merit in the submissions ofthe learned Counsel for the assessee that section 80-I(8)could apply only where the goods had been transferredfrom one unit to other unit at less than the market price. Ithas been demonstrated before us by the learned counselfor the assessee that except in respect of one lot of 3539Kg. out of total of 815361 Kg. there was a slight differenceof Rs. 7,715/-. It is significant to note that when the totaltransfer was of the order of Rs. 14,37,24,264/-, thedifference of Rs. 7,715/- was insignificant and verynominal. It is also significant to note that though thetransfer rate was slightly less than the market rate, it wasstill higher than the cost price of the combing unit. 15. In the case of Punjab Concast Ltd. (supra), the Tribunal has also held that the Assessing Officer is not empoweredto re-allocate the expenses u/s 80-I(6) or u/s 80-I(8) of theIncome Tax Act. We find that for the assessment yearsfrom 1986-87 to 1989-90 the assessee has been allowedrelief u/s 80-I without any interference from or disturbanceby the Assessing Officer. The method of accounting hasbeen the same in the earlier years as in the year underconsideration and for a difference of measly amount of Rs.7,715/-, the entire claim of the assessee cannot be upset.We, therefore, hold that there was no justification for thelearned CIT(A) to set aside the issue for reconsideration ofdeduction u/s 80-I(8) of the Act. 16.As regards the applicability of section 80-I(9), we arein agreement with the reasoning of the learned Counsel forthe assessee that the said section is applicable only wherethere are transactions between the assessee and anoutsider and not when there are transactions between oneunit and the other of the same assessee. We, therefore,hold that the learned CIT(A) was not justified in settingaside the assessment order for deciding afresh the issue ofrelief u/s 80-IU by considering the provisions of sections80-I(8) and 80-I(9) of the Act. We further hold that sincethere was no difference between the transfers fromcombing unit to the spinning unit, there was no justificationfor making any adjustments as made by the AssessingOfficer. The first two grounds are, therefore, accepted.” The Tribunal on appreciation of evidence concluded thatthere was no difference in the rate adopted by the assessee in respectof transfers from combing unit to the spinning unit and that theprovisions of Section 80-I(8) and (9) were not attracted in the presentcase. In view of the aforesaid findings of fact recorded by theTribunal, which has not been shown to be perverse in any manner bythe learned counsel for the petitioner-Revenue so as to persuade thisCourt to hold that the Tribunal had erroneously decided the issue infavour of the assessee. The first question noted above is accordinglyanswered against the Revenue and in favour of the assessee. In the light of the above, the second question beingconsequential also stands decided in the same terms. Referencestands disposed of. (AJAY KUMAR MITTAL) JUDGE September 9, 2010*rkmalik/gbs (ADARSH KUMAR GOEL) JUDGE