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

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH --- Income Tax Appeal No. 453 of 2010Date of decision: 26thOctober, 2010 -The Commissioner of Income Tax,Patiala --- 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. 453and 454 of 2010 as the question of law and facts is common in both -the appeals. The facts have been noticed from Income tax AppealNo. 453 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. 594/Chandi/2008 in respect of the assessment year2004-2005. Brieflystatedthefactsofthecasearethat the-respondent assessee filed its return for the assessment year 2004-2005 on 1.11.2004, declaring an income of Rs. 49,71,52,397/- andsubsequentlyfiledrevisedreturnon 20.3.2006 declaring sameincome of Rs. 49,71,52,397/-. The case of the appellant came underscrutiny and the assessment was completed under Section 143(3) oftheActvideorderdated 29.12.2006 at an income of Rs.54,54,96,270/- wherein the assessing officer made certain additionsas noticed in the order (Annexure A -1). Aggrieved by the order of the assessing officer the, -assessee filed appeal. The Commissioner of Income tax (Appeals){in short “CIT A ”( ) } disposed of appeal vide order dated 29.4.2008, Annexure A -2 and directed the assessing officer to admit the claims onaccountofexpensesofcapital natureanddeduction underSection 80HHC. Andasregardstheadditionon account ofdisallowance of incentive paid to the dealers the same was directed, to be allowed in cases where PAN of the dealer was provided by theassessee. Regardingadditiononaccountofapportionment ofexpenses under Section 14 , A the same was upheld to the extent ofRs. 25 lacs only whereas the claim of deduction under Section 80-IAarising out of mere shifting of profit from one unit to the other bymaking adjustments of the expenses booked i e . . between SwarajTractor Division and Swaraj Combine Division, (SCD), the CIT A( )partly decided the issue in favour of the assessee. However, asregardstheadditionofRs. 1,14,45,533/- onaccountofapportionment of expenses of SCD it was directed to be deleted by, holding that only some heads of expenditure had been allocated inthe ratio of 90:10 and the basis of apportionment of the remainingexpenses appeared to be reasonable. The CIT A( ) also directed theassessing officer to delete the addition on account of apportionmentof interest in view of the fact that factual details that higher interesthad been charged to the exemption eligible unit, furnished by the -assessee had remained un controverted - . -assessee had remained un controverted - . 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, vide order dated 20.11.2009,Annexure A -3, set aside the finding of the CIT A( ) on the issue withregard to interest on loan to the sister concern and directed the-assessing officer to re compute the claim for deduction under Section80HHC in accordance with the ratio laid down in the judgment of theGujarat High Court inCIT v . Gasketes & Radiators Distributors,(2006) 206 CTR 209 and that of the Supreme Court inCIT v .Lakshmi Machine Works (2007) 290 ITR 667 (SC). As regards theaddition on account of apportionment of expenses under Section 14Awhich was upheld to the extent of Rs. 25 lacs, was deleted by theTribunal whereas the addition on account of disallowance of incentive, paid to the dealers and the deduction under Section 80-IA weredeleted by the Tribunal by following the orders in the case of thepresent assessee itself relating to the assessment years 2002-03 and2003-04. This is how the instant appeal has been preferred by the Revenue claiming that the following substantial questions of law arise for determination by this Court : In the facts and circumstances of the case whether, , i) the ITAT is legally justified in not sustaining thedisallowanceofdeductionu s/ 80-IA of Rs.1,16,44,973/- made on the basis of difference inselling & distributionexpenses, fixedcost andvariable cost per unit between the two divisions i e . . . . 1,16,44,973/- variable 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 assessment proceedings . 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 explained by the assessee even when the assessee had failed, to substantiate its claim of expenses booked in thetractor unit of Swaraj Combine Division. . iii) In the facts and circumstances of the case whether, , the ITAT is legally justified in confirming the finding iv) v) of the CIT A( ) that the profits have been computed during 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, , 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 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). vi) vii ) In the facts andcircumstances of the case whether, the ITAT is legally justified in confirming the order ofCIT A( ), whohaddeletedtheaddition of Rs.1,03,12,868/- 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. vi) vii ) In the facts andcircumstances of the case whether, the ITAT is legally justified in confirming the order ofCIT A( ), whohaddeletedtheaddition of Rs.1,03,12,868/- 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. In the facts and circumstances of the case whether, the ITAT is legally justified in deleting the additionmade on account of apportionment of expenses u s /14 , Awhen the assessee failed to provide separatedetails of expenses relating to exempt income thusfailing to discharge its onus that it had not incurred operating and administrative expenses on investment made by it on which huge dividend (exempt) incomehad been earned. had been earned. We have heard learned counsel for the appellant andhave perused the record. . -Learned counsel for the appellant Revenue has very fairly - submitted that question Nos. 1 to 6 claimed in this appeal are the-same as in Income tax Appeal No. 451 of 2010, which has beendisposed of today and therefore in view of that in the present appeal, , also it is to be held that said questions are not substantial questions, of law for the consideration of this Court. . Adverting to question No.7 claimed by the Revenue, theTribunal had directed the Assessing Officer to delete the disallowance of Rs. 25 lacs made under Section 14 A of the Act. While doing so,the Tribunal in paras 43 to 45 of its order held as under, :“43. Thequestionforadjudicationis, whether anydisallowance is warranted under Section 14 A of the Act in 14 A of the Act inA of the Act in disallowance is warranted under Section 14 A of the Act in 14 A of the Act inA of the Act ina case where the assessee claims to have made theinvestment in the shares of Indian Companies in the past, years and the dividend income from which is claimed as exempt . The claim of the assessee before the authorities belowisthatnopartoftheinterestexpenditure isattributable to the investments made in shares of Indian companies as the said investments were made in theearlier years wherein no disallowance had been made.Further the assessee claims that during the year underconsideration no expenditure is attributable to the earning, of dividend income. From the perusal of the assessment. From the perusal of the assessmentFrom the perusal of the assessment of dividend income. From the perusal of the assessment. From the perusal of the assessmentFrom the perusal of the assessmentorder we find that the claim of the assessee was to have, made in investments in the shares from which dividend income had arisen as under : 44. We find that similar issue arose before the Hon ble’ Punjab and Haryana High Court in CIT Vs Hero Cycles Ltd wherein it has been held as under :- “In view of finding reproduced above it is clear that, of dividend income. From the perusal of the assessment. From the perusal of the assessmentFrom the perusal of the assessmentorder we find that the claim of the assessee was to have, made in investments in the shares from which dividend income had arisen as under : 44. We find that similar issue arose before the Hon ble’ Punjab and Haryana High Court in CIT Vs Hero Cycles Ltd wherein it has been held as under :- “In view of finding reproduced above it is clear that, the expenditure on interest was set off against theincome from interest and the investment in the shareand funds were out of dividend proceeds. In view ofthis finding of fact, disallowance u s / 14 A was notsustainable. Whether, inagivensituation, anyexpenditurewasincurredwhichwastobedisallowed is a question of fact, . The contention oftherevenuethatdirectlyorindirectlysomeexpenditureisalwaysincurredwhichmust bedisallowed under section 14A and the impact ofexpenditure so incurred cannot be allowed to be setoff against the business income which may nullifythe mandate of section 14 , Acan not be accepted.Disallowance u s / 14 A requires finding of incurring ofexpenditurewhereitisfoundthatforearningexempted income no expenditure has been incurred,disallowance under section 14 A cannot stand In the. present case, finding on this aspect, against theRevenue, isnotshowntobeperverse. Consequently , disallowance is not permissible . We have taken this view earlier also in ITA No. 504 of-2008 (Commissioner of Income Tax Chandigarh IIVs. M s/ . WinsomeTextileIndustriesLimited,Chandigarh) decided on 25.8.2009, wherein it wasobserved as under: observed as under: “6. Contention raised on behalf of the assessee had made investment in shares out of its own funds the assessee had taken loans on which, interest was paid and all the money available with the assessee was in common kitty, asheldbythisCourtinCITVsAbhishekIndustriesLimited, (2006) 286 ITR 1 and,therefore, disallowance under section 14 A was justified . 7. We do not find any merit in this submission. Judgment of this Court in Abhishek Industries (supra) was on the issue of allowability of interest paid on loans given to sister concerns , without interest. It was held that deduction of interest was permissible when loan was taken for business purpose and not for diverting thesame to sister concern without having nexus with the business. Observations made thereinhave to be read in that contest. In the presentcase, admittedly, the assessee did not makeany claim for exemption. In such a situation,section 14 A could have no application ”. In line with the ratio laid down by the Hon ble Punjab’’ 45. In line with the ratio laid down by the Hon ble Punjab’’and Haryana High Court in CIT Vs M s Hero Cycles Ltd/ . (ITA No. 331 of 2009) order dated November 4, 2009 andin view of the fact that the authorities below have failed to point out any interest expenditure attributable to earning/of dividend income during the year, no disallowance u s /14 A of the Act is warranted. Accordingly, we direct theAssessing Officer to delete the disallowance of Rs. 25lacs made under Section 14 A of the I T Act ” . . . We have heard learned counsel for the appellant andperused the record. From the perusal of the above we find that the Tribunal, In line with the ratio laid down by the Hon ble Punjab’’ 45. In line with the ratio laid down by the Hon ble Punjab’’and Haryana High Court in CIT Vs M s Hero Cycles Ltd/ . (ITA No. 331 of 2009) order dated November 4, 2009 andin view of the fact that the authorities below have failed to point out any interest expenditure attributable to earning/of dividend income during the year, no disallowance u s /14 A of the Act is warranted. Accordingly, we direct theAssessing Officer to delete the disallowance of Rs. 25lacs made under Section 14 A of the I T Act ” . . . We have heard learned counsel for the appellant andperused the record. From the perusal of the above we find that the Tribunal, after relying upon a judgment of this Court dated November, 4, 2009in CIT Vs M s Hero Cycles Ltd/ . (ITA No. 331 of 2009) and havingregard to the fact that the authorities below had failed to point outany interest expenditure attributable to earning of dividend income/during the year, held that no disallowance u s / 14 A of the Act waswarranted and accordingly, directed the Assessing Officer to deletethe disallowance of Rs. 25 lacs made under Section 14 A of the I T . .Act.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 thesubstantial questions of law proposed by the Revenue do not arisethat may attract attention of this Court for decision The appeals are. consequently dismissed. October 26, 2010 *rkmalik * AJAY KUMAR MITTALJUDGE ( ) ADARSH KUMAR GOELJUDGE ( )