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. 431 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 appeal under Section - 260 A of the Income tax Act, 1961 (for short “the Act ” ’ ) has been filed by the Revenue against the order dated 24.9.2009, passed by the Income Tax Appellate Tribunal , Chandigarh Bench A ‘ ’, Chandigarh ( in short “the Tribunal”) in ITA No.269/Chandi/2006 in respect of the assessment year 1999-2000. 269/Chandi/2006 in respect of the assessment year 1999-2000. -In short, the facts of the case are that the respondentassessee filed its return on 24.12.1999 for the assessment year 1999-2000 declaring an income of Rs. 1,45,26,10,930/- and subsequentlyfiledarevisedreturnon 19.3.2001 declaring income of Rs.1,45,29,54,950/-. The case of the appellant came under scrutinyand the assessment was completed under Section 143(3) of the Actvide order dated 31.1.2003 at an income of Rs. 1,53,23,05,496/-wherein the assessing officer made the following additions vide orderdated 31.1.2005 (Annexure A -1): i)Rs. 14,13,306/- on account of disallowance of deductionclaimed under Section 80HHC ii)Rs. 7,79,37,240/- onaccount of disallowance ofdeduction claimed under Section 80-IA 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 fordeduction under Section 80HHC and as regards deduction under-Section 80-IA, the CIT A( ) directedtheassessing officer to re compute the same, holding that adjustment made in the fixed cost, variable cost and selling and distribution expenses and allocation offinance charges could not be sustained and that so far as the itemsof common expenditure in the two units i e Swaraj Tractor Division, . . (STD) andSwarajCombineDivision (SCD) were concerned,allocation be made on the basis of the turnover The CIT. ( ), Athus,disposed of the appeal in the manner indicated above, vide orderdated 27.1.2006, 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 appeal preferred by the Revenue wasdismissed vide order dated 24.9.2009, Annexure A -3. The Tribunalrelied upon a decision of the apex Court inCIT v Lakshmi Machine . Works (2007) 290 ITR 667 (SC) in respect of the issue concerningdeduction under Section 80HHC. This is how the instant appeal has been preferred by the Revenue wherein the following substantial questions of law have beenclaimed: i)In the facts and circumstances of the case whether, the ITAT is legally justified in not sustaining the ii) iii) disallowanceofdeductionu s/ 80-IA of Rs.5,12,77,884/- 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. . 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, 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, theITATislegallyjustifiedinholdingthat thevariation in cost per unit (tractor) has been explainedby the assessee even when the assessee had failed, 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. iv)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 the v) otherbymakingadjustmentsoftheexpensesbooked and claiming deduction u s / 80-IA thereon is a colourable device to reduce the tax liability and assuch 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). We have heard learned counsel for the appellant andhave perused the record. The questions noticed above, claimed to be the-substantial questions of law by the Revenue, are inter related and-dependent upon the fact whether the dis allowance of deduction -claimed by the respondent assessee under Section, 80-IA of the Actby the assessing officer had been rightly reversed by the CIT A( ) andtheTribunal. TheTribunalonappreciationofevidence, whileaffirming the finding of the CIT A( ) had recorded in paras 15 and 16 of its judgment as under, : “15. Wehaveconsideredtherival submissions-carefully. The assessee is a multi division company asnoted by us earlier. It has three Divisions, namely, STD,SED and SFD. Earlier STD was eligible for deduction u s /80-IA and the period of claiming deduction u s / 80-IAalready expired, and during the year, profits of STD arenot eligible for 80-IA benefits. SCD has two units Tractor, Unit and Harvest Combine Unit and the profits of theTractor Unit of SCD are eligible for deduction u s / 80-IA It. isalsofactuallynotindisputethattheassessee ismaintaining separate books of account and costing recordsfor each of the three Divisions As regards SCD separate. , costing records are also maintained for Tractor Unit andthe Harvest Combine Unit. The profits computed in theTractorUnithavebeensubjecttoscrutiny by the Assessing Officer. He has compared the costing records of the SCD and STD. According to the Assessing Officerthe cost per unit on tractor manufactured in SCD is lowerthan that in STD in relation to elements of selling anddistributing expenses, fixed cost and variable cost. Thedetailsofsuchvariationareenumeratedin theassessment order. In view of the variation in the cost perunit, theAssessingOfficerhasadjustedtheprofitsdeclared in the Tractor Unit of SCD which has resulted inscaling down of deduction u s / 80-IA of the Act.the cost per unit on tractor manufactured in SCD is lowerthan that in STD in relation to elements of selling anddistributing expenses, fixed cost and variable cost. Thedetailsofsuchvariationareenumeratedin theassessment order. In view of the variation in the cost perunit, theAssessingOfficerhasadjustedtheprofitsdeclared in the Tractor Unit of SCD which has resulted inscaling down of deduction u s / 80-IA of the Act. 16. In this back ground, we may observe that theAssessing Officer is competent to examine the method ofaccountingfollowedbytheassesseetocompute itsincome. TheAssessingOfficerisalsocompetent toexamine the reliability of the books of account maintainedbytheassesseesoastosatisfyhimselfabout thecorrectnessorcompletenessoftheaccountsof theassessee. It is also well settled that where the AssessingOfficer finds that the method of accounting adopted by theassessee is not regularly followed or where the method ofAssessing Officer is competent to examine the method ofaccountingfollowedbytheassesseetocompute itsincome. TheAssessingOfficerisalsocompetent toexamine the reliability of the books of account maintainedbytheassesseesoastosatisfyhimselfabout thecorrectnessorcompletenessoftheaccountsof theassessee. It is also well settled that where the AssessingOfficer finds that the method of accounting adopted by theassessee is not regularly followed or where the method of accounting adopted does not result in deduction of true income, the same can be rejectedby the AssessingOfficer. In this view of the matter, we find that in theinstant case, there is no allegation, much less a finding,bytheAssessingOfficerthattheaccounts of theassessee are incorrect or incomplete. Even with regard tothe method of accounting employed by the assessee,there is no adverse finding by the Assessing Officer. InOfficer. In this view of the matter, we find that in theinstant case, there is no allegation, much less a finding,bytheAssessingOfficerthattheaccounts of theassessee are incorrect or incomplete. Even with regard tothe method of accounting employed by the assessee,there is no adverse finding by the Assessing Officer. In other words, the books of account maintained by the assessee and the income declared thereon have not been found to be unreliable by the Assessing Officer . We say so for the reason that the only allegation of the Assessing, Officer is that the cost of production per unit in SCD Unit varies with that of the STD Unit Nevertheless there is no. , allegationbytheAssessingOfficerthatthere is anyexpenditure booked in STD, which otherwise pertains toSCD. There is also no allegation that any of the incomesallegationbytheAssessingOfficerthatthere is anyexpenditure booked in STD, which otherwise pertains toSCD. There is also no allegation that any of the incomes stated in SCD otherwise belongs to STD. This means thatthere is no instance of expenditure or, income noted bythere is no instance of expenditure or, income noted by the Assessing Officer which has been booked in the accounts of a wrong Division The difference in the cost of. production between the two Divisions can only be anindicator but cannot be taken to mean that the assesseehas inflated its profits in one of the Divisions. Nothing hasbeen established by the Assessing Officer to say that theexpenditure which was chargeable against the incomes of SCD, hasnotbeensocharged. Therefore, in ourconsidered opinion the adjustment made to the profits of, the Tractor Unit of SCD is merely passed on conjecturesand surmises and is not factually supported. Furthermore, thevariationinthecostperunit, has beenexplained by the assessee. According to the assessee foreachoftheDivisions, profitsareworkedout afterconsideringactualexpenses. Onlytheexpenses ofcommonnatureareapportionedbetweendifferentDivisions, on which there is no dispute. The assesseefurther pointed out that in the new unit it has used latest, technology and latest plan & machinery which would showlower per unit cost. The assessee also pointed fallacies inthe approach of the Assessing Officer whereby only those elements of cost have been picked up which were lower inthe new unit as compared to the older unit whereas the, , , the new unit as compared to the older unit whereas the, , , elements of cost have been picked up which were lower inthe new unit as compared to the older unit whereas the, , , the new unit as compared to the older unit whereas the, , , Assessing Officer overlooked the items of expenditurewhere the cost per unit in the new unit was higher ascompared to older unit All these explanations were before. -the Commissioner of Income tax ( ) Aand on such basis,the points raised in the impugned Ground, have been-decided by the Commissioner of Income tax ( ) Ain favour-of the assessee. The Commissioner of Income tax ( )Ahas also noted that the profits have been computed duringthe year in a consistent manner as in the past and also in, the subsequent two A Y . . 2000-01 and 2001-02. To suchexplanations and the basis adopted by the Commissioner-ofIncome tax ( ) Atodecidetheissue, there is nonegation from the side of the Revenue Thus in our view. ,the variation in the cost noted by the Assessing Officerstands explained and such variation ipso facto cannot bea reason to scale down the deduction claimed u s / 80IA ofthe Act in relation to the Tractor Unit of SCD. Thevariation in some of the elements of cost could at best be, an indicator to investigate further, but no material has been established by the Revenue to show that the profits-in Tractor Unit of SCD are in genuine. On this aspectalso, thereisnocontroversyfromtheside of theRevenue ”. A perusal of the aforesaid finding would show that the Tribunalcame to the conclusion that the assessee who was having threeUnits, namely SED, , SFD and STD did not divert any income from, one Unit to the other and, therefore, the Assessing Officer was notjustified in disallowing the deductions under Section 80-IA of the Act. Learned counsel for the Revenue made strenuous efforts-to persuade this Court to re appreciate the evidence and record freshconclusion on the basis thereof. But the counsel could not point out--any mis reading or mis appreciation of evidence on the basis ofwhich it could be recorded that the findings of CIT ( ) Aas affirmed bythe Tribunal were erroneous or perverse in any manner, . The viewtaken by the authorities below is plausible view based on appreciationof evidence available on record. No exception can, therefore, betaken to said findings. We, therefore, in exercise of our jurisdiction-under Section 260 A of the Act would not like to re appreciate the evidence available on record as sought to be contended by the learned counsel for the appellant . In view of the above , we are of the opinion that the substantial questions of law proposed on behalf of the Revenue do not arise in this case that may attract attention of this Court fordecision The appeal is consequently dismissed. . (AJAY KUMAR MITTAL)JUDGE October 26, 2010*rkmalik* ADARSH KUMAR GOELJUDGE ( )