COMMISSIONER OF INCOME TAX vs. M/S PUNJAB TRACTORS LTD.

Income-tax Appeal No. 451 of 2010 1

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ---

. 451 2010 Income Tax Appeal No of

: 26 Date of decision th , 2010 October

- , 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

-

. 451 This order will dispose of Income tax Appeal Nos 452 2010

and of as the question of law and facts is common in both

Income-tax Appeal No. 451 of 2010 2

.

-

the appeals The facts have been noticed from Income tax Appeal . 451 2010. No of

260

-

, This appeal under Section A of the Income tax Act 1961 (

’ )

for short “the Act ” has been filed by the Revenue against the 20.11.2009,

order dated passed by the Income Tax Appellate ,

‘ ’, (

) Tribunal Chandigarh Bench A Chandigarh in short “the Tribunal”

. 270/ /2006

in ITA No Chandi in respect of the assessment year 2002-2003. ,

In short the facts of the case necessary for

- adjudicating the present appeal are that the respondent assessee

2002-2003

filed its return for the assessment year declaring an

. 1,20,63,57,898/- 31.10.2002

income of Rs on and subsequently

. filed revised return on declaring same income of Rs 1,20,63,57,898/-.

The case of the appellant came under scrutiny

143(3)

and the assessment was completed under Section of the Act

. 1,32,12,53,448/- vide order dated at an income of Rs

wherein the assessing officer made certain additions vide order dated 30.3.2005 ( -1). Annexure A Income-tax Appeal No. 451 of 2010 3

The assessee filed appeal against the order of the .

- ( ) { assessing officer The Commissioner of Income tax Appeals in ( ) }

short “CIT A ” directed the assessing officer to admit the claim for

;

,

guest house expenses interest on loan to sister concern legal fees

,

for income tax matters incentive paid to dealers and deduction under 80

.

Section HHC of the Act As regards the claim of deduction under 80- ,

( )

Section IA the CIT A after following its own decision for the 1999-2000,

assessment year directed the assessing officer to make

the allocation on the basis of turnover as regards the items of

. .

common expenditure in the two units i e Swaraj Tractor Division ( )

( )

STD and Swaraj Combine Division SCD vide order dated 30.1.2006, -2. Annexure A

( ), -2

The order of the CIT A Annexure A was challenged in

-

( appeal by the Revenue before the Income tax Appellate Tribunal for

).

( ) short “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 deduction

80

under Section HHC in accordance with the ratio of law laid down in

the judgment of the Gujarat High Court in . & CIT v Gasketes

, Radiators Distributors (2006) 206 209

CTR and apex Court in CIT

Income-tax Appeal No. 451 of 2010 4 .

v Lakshmi Machine Works (2007) 290 667. ITR The order of CIT ( )

80-

A in respect of deduction under Section IA and incentive paid

. to 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 the

/ 80-

. disallowance of deduction u s IA of Rs 7,33,54,620/-

made on the basis of difference in &

,

selling distribution expenses fixed cost and

. . 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

the ITAT is legally justified in holding that the

( )

variation in cost per unit tractor has been explained

,

by the assessee even when the assessee had failed

Income-tax Appeal No. 451 of 2010 5

to substantiate its claim of expenses booked in the

. tractor unit of Swaraj Combine Division iii)

, In the facts and circumstances of the case whether

the ITAT is legally justified in confirming the finding

( )

of the CIT A that the profits have been computed

,

during the year in a consistent manner ignoring that

the principle of - res judicata

is not applicable to the

. income tax proceedings iv)

, In the facts and circumstances of the case whether

the ITAT is legally justified in not sustaining the

/ 80- , disallowance of deduction u s IA without

’

appreciating that in view of the assessee s failure to

,

lead the relevant evidences the AO was justified / 114

u s of the Indian Evidence Act to take an . adverse view v)

, In the facts and circumstances of the case whether

or not the mere shifting of profit from one unit to the

other by making adjustments of the expenses

/ 80-

booked and claiming deduction u s IA thereon is

a colourable device to reduce the tax liability and as Income-tax Appeal No. 451 of 2010 6

such the case stands covered by the ratio of the

’ 1,81,72,000/-

on account of incentive paid to the

dealers ignoring that the assessee had failed to

substantiate as to how much amount had been

received from the dealers for the specific purpose

. against which incentive had been paid to them ,

Also the assessee neither produced copies of

agreements with the dealers necessitating such

payments nor filed any evidence of such payments

to the dealers and thus failed to prove that the

expenditure was wholly and exclusively laid out for

. the purposes of its business

We have heard learned counsel for the appellant and

. have perused the record

Income-tax Appeal No. 451 of 2010 7

-

Learned counsel for the appellant Revenue has very fairly

. 1 5

submitted that questions Nos to claimed in this appeal above are

-

. 431 2010,

the same as in Income tax Appeal No of which has been

disposed of today where the said questions have been held not to

, , ,

be substantial questions of law and therefore in view of that in the

,

present appeal also it is to be held that said questions are not

. substantial questions arising for the consideration of this Court

.6

, Adverting to question No claimed by the Revenue the

( ) Tribunal had held that the deletion which was made by the CIT A on

,

account of incentive paid to the dealers is in the nature of business

, ,

.

expenses and is thus admissible deduction The Tribunal while

: holding the same had recorded the following finding “

We have heard the rival submissions and perused the .

record The assessee is a State Government undertaking

. carrying on the business of manufacturing of tractors The

assessee for all tractor sales except government institution ,

. sale bills to respective dealers at dealer price The

,

dealers in turn sell the tractors at MRP thereby taking his

.

99

profit margin The assessee claims that per cent of its

. turn over is directly dealer sale with no commission The Income-tax Appeal No. 451 of 2010 8

government institution sale is routed through respective

dealers region where the goods are sold on tender raters

.

and 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 scheme

for its dealers to promote sales and to realize the sale .

, proceeds The scheme was based on installation off

takes and payment targets wherein incentive was paid on

achieving cumulative month end sales over a certain

.

target and also meeting the payment targets During the

. year under consideration the assessee paid a sum of Rs 1,81,72,000/-

as incentive to dealers and claimed the

.

same as business expenditure Similar incentives to

1997-98 1998- dealers were paid in assessment years and 99

. ,

and were allowed However no incentive was paid in 1999-2000 2000-01. assessment years and From the

, perusal of details of incentive paid to the dealers it

transpires that the assessee had paid the said incentive to Income-tax Appeal No. 451 of 2010 9 186

355

dealers as against dealers concerned to the .

assessee The said incentive was paid on achieving

cumulative month end sales and for meeting billing

.

payment targets The assessee has filed the copy of

- 2001

special incentive scheme April before us in which

the policy of the company for paying incentive in respect

.

of different models of tractor is incorporated The scheme

further provides that the special incentive would be given

only on the receipt of payment for full value of model and

.

not part value The expenditure incurred by the assessee

for achieving targets of its business are to be allowed as

business expenditure in the hands of the assessee

keeping into consideration the fact that the assessee is a

state government undertaking and no pecuniary benefit is

.

derived by achieving higher targets of sale The theme

formulated by the assessee was in respect of the targets

being achieved over and above a benchmark established

. ,

by the assessee company

Accordingly in some cases

the incentive was allowed for sale of two to three tractors .

only The incentive paid to the dealers is in the nature of Income-tax Appeal No. 451 of 2010 10

business expenditure and hence no element of .

advertisement In the absence of any evidence being

brought on record by the Assessing Officer that the

payments being made to the dealer were not genuine or

the dealers had not made the sales of tractors in respect

,

of which it was allowed the incentives we confirm the

( )

order of CIT A in allowing the claim of the assessee in . entirety ”

We have heard learned counsel for the appellant and

. perused the record

,

From the perusal of the above we find that the Tribunal

,

had come to the conclusion that the assessee which is a

Government Undertaking carrying on the business of manufacturing

,

. the tractors had produced the bills relating to all the dealers The

incentive had to be given to the dealers so as to increase the sales

to achieve over and above a benchmark established 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 the . assessee

Income-tax Appeal No. 451 of 2010 11

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

-

or mis appreciation of evidence which may impel this Court to

,

conclude 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 no

substantial questions of law proposed by the Revenue arise that may

.

attract attention of this Court for decision The appeals are . consequently dismissed (

) AJAY KUMAR MITTAL JUDGE (

) ADARSH KUMAR GOEL 26, 2010 October JUDGE * * rkmalik