The Commissioner Of Income Taxpatiala v. M S Punjab Tractors Ltd/ . .,Phase Iv Mohali

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH --- Income Tax Appeal No. 451 of 2010Date of decision: 26thOctober, 2010 -The Commissioner of Income TaxPatiala -, --- Appellant Versus M s Punjab Tractors Ltd/ . .,Phase IV Mohali, --- Respondent ’CORAM:HON BLE MR JUSTICE ADARSH KUMAR GOEL. ’HON BLE MR JUSTICE AJAY KUMAR MITTAL. --- Present:Mr Tejinder K Joshi Central Government. . , Standing Counsel for the appellant, . --- AJAY KUMAR MITTAL J, . , . -This order will dispose of Income tax Appeal Nos -. 451 and 452 of 2010 as the question of law and facts is common in both -the appeals. The facts have been noticed from Income tax AppealNo. 451 of 2010. -This appeal under Section 260 A of the Income tax Act,1961 (for short “the Act ”’ ) has been filed by the Revenue against theorderdated 20.11.2009, passedbytheIncome Tax AppellateTribunal Chandigarh Bench A, ‘ ’, Chandigarh (in short “the Tribunal”)in ITA No. 270/Chandi/2006 in respect of the assessment year2002-2003. In short, the facts of the case necessary for-adjudicating the present appeal are that the respondent assesseefiled its return for the assessment year 2002-2003 declaring anincome of Rs. 1,20,63,57,898/- on 31.10.2002 and subsequentlyfiled revised return on 19.4.2004 declaring same income of Rs.1,20,63,57,898/-. The case of the appellant came under scrutinyand the assessment was completed under Section 143(3) of the Actvide order dated 30.3.2005 at an income of Rs. 1,32,12,53,448/-wherein the assessing officer made certain additions vide order dated30.3.2005 (Annexure A -1). The assessee filed appeal against the order of the -assessing officer. The Commissioner of Income tax (Appeals) {inshort “CIT A ”( ) } directed the assessing officer to admit the claim forguest house expenses interest on loan to sister concern legal fees; , for income tax matters incentive paid to dealers and deduction under, Section 80HHC of the Act As regards the claim of deduction under. Section 80-IA, the CIT A( ) after following its own decision for theassessment year 1999-2000, directed the assessing officer to makethe allocation on the basis of turnover as regards the items ofcommon expenditure in the two units i e . . Swaraj Tractor Division(STD) andSwarajCombineDivision (SCD) videorder dated30.1.2006, Annexure A -2. The order of the CIT ( ), AAnnexure A -2 was challenged in-appeal by the Revenue before the Income tax Appellate Tribunal (forshort “the Tribunal”). The Tribunal set aside the finding of the CIT A( )on the issue with regard to interest on loan to the sister concern and-directed the assessing officer to re compute the claim for deductionunder Section 80HHC in accordance with the ratio of law laid down in the judgment of the Gujarat High Court inCIT v . Gasketes &Radiators Distributors, (2006) 206 CTR 209 and apex Court in CIT v Lakshmi Machine Works (2007) 290 ITR 667. The order of CITin respect of deduction under Section 80-IAand incentive paid . ( ) Ain respect of deduction under Section 80-IAto the dealers was upheld. . This is how the instant appeal has been preferred by the Revenue wherein the following substantial questions of law have been claimed : i) In the facts and circumstances of the case whether, the ITAT is legally justified in not sustaining thedisallowanceofdeductionu s/ 80-IA of Rs.7,33,54,620/- made on the basis of difference inselling & distributionexpenses, fixedcost andvariable cost per unit between the two divisions i e . .STD & SCD even when the assessee had failed to, justify the same during the course of the assessmentproceedings. ii) In the facts and circumstances of the case whether, , In the facts and circumstances of the case whether, , theITATislegallyjustifiedinholdingthat thevariation in cost per unit (tractor) has been explainedby the assessee even when the assessee had failed, iii) iv) v) to substantiate its claim of expenses booked in thetractor unit of Swaraj Combine Division. . ii) In the facts and circumstances of the case whether, , In the facts and circumstances of the case whether, , theITATislegallyjustifiedinholdingthat thevariation in cost per unit (tractor) has been explainedby the assessee even when the assessee had failed, iii) iv) v) to substantiate its claim of expenses booked in thetractor unit of Swaraj Combine Division. . In the facts and circumstances of the case whether, the ITAT is legally justified in confirming the findingof the CIT A( ) that the profits have been computedduring the year in a consistent manner ignoring that, -the principle ofres judicatais not applicable to theincome tax proceedings. In the facts and circumstances of the case whether, the ITAT is legally justified in not sustaining thedisallowanceofdeductionu s/ 80-IA, withoutappreciating that in view of the assessee s failure to’ lead the relevant evidences, the AO was justifiedu s/ 114 of the Indian Evidence Act to take anadverse view. In the facts and circumstances of the case whether, or not the mere shifting of profit from one unit to theotherbymakingadjustmentsoftheexpensesbooked and claiming deduction u s / 80-IA thereon isa colourable device to reduce the tax liability and as vi) such the case stands covered by the ratio of thedecision of the Hon ble Apex Court in the case of’Mc Dowell Ltd vs CTO. . (154 ITR 148) (SC).In the facts andcircumstances of the case whether, the ITAT is legally justified in confirming the order ofCIT A( ), whohaddeletedtheaddition of Rs.1,81,72,000/- on account of incentive paid to thedealers ignoring that the assessee had failed tosubstantiateastohow muchamounthad beenreceived from the dealers for the specific purposeagainstwhichincentivehad been paid to them.Also, theassesseeneitherproducedcopies ofagreementswiththedealersnecessitatingsuchpayments nor filed any evidence of such paymentsto the dealers and thus failed to prove that theexpenditure was wholly and exclusively laid out forthe purposes of its business. We have heard learned counsel for the appellant andhave perused the record. . -Learned counsel for the appellant Revenue has very fairly - submitted that questions Nos. 1 to 5 claimed in this appeal above are-the same as in Income tax Appeal No. 431 of 2010, which has beendisposed of todaywhere the said questions have been held not tobe substantial questions of law and therefore in view of that in the, , , present appeal also, it is to be held that said questions are notsubstantial questions arising for the consideration of this Court. . Adverting to question No.6 claimed by the Revenue, theTribunal had held that the deletion which was made by the CIT A( ) onaccount of incentive paid to the dealers is in the nature of business, expenses and is, thus, admissible deduction. The Tribunal whileholding the same had recorded the following finding: “We have heard the rival submissions and perused therecord The assessee is a State Government undertaking. carrying on the business of manufacturing of tractors The. assessee for all tractor sales except government institutionsale, bills to respective dealers at dealer price. Thedealers in turn sell the tractors at MRP thereby taking his, profit margin The assessee claims that. 99 per cent of itsturn over is directly dealer sale with no commission The. government institution sale is routed through respective dealers region where the goods are sold on tender ratersand dealer is paid commission separately. The said commission is added in the quotation and thus is not “We have heard the rival submissions and perused therecord The assessee is a State Government undertaking. carrying on the business of manufacturing of tractors The. assessee for all tractor sales except government institutionsale, bills to respective dealers at dealer price. Thedealers in turn sell the tractors at MRP thereby taking his, profit margin The assessee claims that. 99 per cent of itsturn over is directly dealer sale with no commission The. government institution sale is routed through respective dealers region where the goods are sold on tender ratersand dealer is paid commission separately. The said commission is added in the quotation and thus is not debited to the profit and loss account of the company.However because of tough market conditions during the, , year the assessee company promoted incentive schemefor its dealers to promote sales and to realize the saleproceeds. The scheme was based on installation, offtakes and payment targets wherein incentive was paid onachievingcumulativemonthendsalesoveracertaintarget and also meeting the payment targets. During theyear under consideration the assessee paid a sum of Rs.1,81,72,000/- as incentive to dealers and claimed thesameasbusinessexpenditure. Similarincentives todealers were paid in assessment years 1997-98 and 1998-99 and were allowed. However no incentive was paid in, assessment years 1999-2000 and 2000-01. From theperusal of details of incentive paid to the dealers, ittranspires that the assessee had paid the said incentive to 186 dealers as against 355 dealers concerned to theassessee. The said incentive was paid on achievingcumulativemonthendsalesandformeetingbillingpayment targets. The assessee has filed the copy ofspecial incentive scheme- April 2001 before us in whichthe policy of the company for paying incentive in respectof different models of tractor is incorporated. The schemefurther provides that the special incentive would be givenonly on the receipt of payment for full value of model andnot part value. The expenditure incurred by the assesseefor achieving targets of its business are to be allowed asbusinessexpenditureinthehandsoftheassesseekeeping into consideration the fact that the assessee is astate government undertaking and no pecuniary benefit isderived by achieving higher targets of sale. The themeformulated by the assessee was in respect of the targetsbeing achieved over and above a benchmark establishedby the assessee company. Accordingly, in some casesthe incentive was allowed for sale of two to three tractorsonly. The incentive paid to the dealers is in the nature of businessexpenditureandhencenoelementof advertisement. In the absence of any evidence beingbroughtonrecordbytheAssessingOfficerthat thepayments being made to the dealer were not genuine orthe dealers had not made the sales of tractors in respect of which it was allowed the incentives, we confirm theorder of CIT A( ) in allowing the claim of the assessee inentirety ”. We have heard learned counsel for the appellant andperused the record. . From the perusal of the above we find that the Tribunal, , hadcometotheconclusionthattheassessee, which is aGovernment Undertaking carrying on the business of manufacturingthe tractors, had produced the bills relating to all the dealers. Theincentive had to be given to the dealers so as to increase the salestoachieveoverandaboveabenchmarkestablished by the-assessee company. In such a situation it could not be held that the, incentive paid to the dealers was not the business expenditure of theassessee. Learned counsel for the appellant submitted that this Court -should re appreciate the evidence and record a fresh conclusion on -the basis thereof. He however could not point out any mis reading, , ormis appreciation-ofevidencewhichmayimpelthis Court toconclude that the findings recorded by the Tribunal were erroneous, or perverse in any manner. . , hadcometotheconclusionthattheassessee, which is aGovernment Undertaking carrying on the business of manufacturingthe tractors, had produced the bills relating to all the dealers. Theincentive had to be given to the dealers so as to increase the salestoachieveoverandaboveabenchmarkestablished by the-assessee company. In such a situation it could not be held that the, incentive paid to the dealers was not the business expenditure of theassessee. Learned counsel for the appellant submitted that this Court -should re appreciate the evidence and record a fresh conclusion on -the basis thereof. He however could not point out any mis reading, , ormis appreciation-ofevidencewhichmayimpelthis Court toconclude that the findings recorded by the Tribunal were erroneous, or perverse in any manner. . In view of the above, we are of the opinion that nosubstantial questions of law proposed by the Revenue arise that mayattractattentionofthisCourtfordecision. Theappeals areconsequently dismissed. AJAY KUMAR MITTALJUDGE ( ) October*rkmalik 26, 2010* ADARSH KUMAR GOEL)JUDGE (