The Commissioner of Income-tax (C) v. M/s. Punjab Wool Combers Ltd

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 order dated 30.5.1996, passed in Reference Application No. 310/Chandi/95 arising out of ITA No. 1408/Chandi/94 at the instance of the Revenue, in respect of assessment year 1990-91, has referred the following questions of law, for the opinion of this Court: “1. Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in Income-tax Reference No. 119 of 1996 -2- law in holding that the provisions of section 80I(8) and (9) are not applicable in this case and that the Commissioner of Income Tax (Appeals) was not justified in restoring this issue back to the Assessing Officer for reconsideration? 2- Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in holding that no adjustments could be made by the Assessing Officer while working out the deduction u/s 80I of the Income Tax Act, in this case? Both the questions are inter-connected and, therefore, are being taken up together. Brief facts necessary for adjudication of the reference may be noticed. The assessee Company is engaged in manufacture and sale of wool tops in the head office, i.e. combing unit and hosiery and knitting yarn in the spinning unit. The assessee filed return in respect of assessment year 1990-91 declaring income of Rs. 99,80,390/- whereas in the revised return filed on 1.2.1991, the assessee declared income of Rs. 99,88,880/-. The assessee claimed deduction under Section 80-I of the Act in respect of the spinning unit, initially at Rs. 48,49,050/- and later on in the revised return at Rs. 43,49,673/-. Deduction under Section 80-I were claimed at the rate of 25% of Rs. 1,73,98,693/-, which was arrived at after reducing Rs.33,31,678/- under Section 32AB and Rs. 17,26,466/- as trading profits from the profits in respect of the spinning unit. During the course of scrutiny, the assessing officer came Income-tax Reference No. 119 of 1996 -3- to the conclusion that profits of the combing unit had been reduced to increase the profits of the spinning unit with a view to claim higher relief under 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 the assessment year in question. Similarly, in respect of spinning unit, the gross profit rate was 14.28% whereas in the assessment year under discussion had shown the said rate at 14.12%. In the opinion of the assessing officer, the profits of the spinning unit had been inflated to the extent of Rs.96,16,477/-. The assessing officer, thus, computed the deduction under Section 80-I of the Act at Rs. 20,42,020/-. The assessee noticed that there were certain mistakes in the computation of deduction u/s 80-I and, hence, moved an application under Section 154 of the Act. The assessing officer calculated the relief under Section 80-I at Rs.30,14,523/- as against the amount of Rs. 20,42,020/- calculated earlier. The assessee preferred appeal before the Commissioner of Income-tax (Appeals) {in short “CIT(A)”} who set aside the order of the assessing officer and remitted the matter for applying the provisions of Section 80-I(8) and (9) of the Act. Not satisfied with the said order as well, the assessee filed further appeal before the Tribunal. The Tribunal observed that setting aside of a particular issue without any reasoning in a given case may result in a grievance to the assessee. The Tribunal accepted the submission made on behalf of the assessee that section 80-I (8) of the Act could apply only where the goods had been transferred from one unit to another unit at less Income-tax Reference No. 119 of 1996 -4- than market price. It was shown on behalf of the assessee to the Tribunal that except in respect of one lot of 3539 Kgs. out of total of 815361 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 very nominal. It was further noted that though the transfer rate was slightly less than the market rate, it was still higher than the cost price of the combing unit. The Tribunal, after relying on a decision of another Tribunal, in Punjab Concast Ltd. vs. IAC reported in 49 ITD 430 was of the opinion that the assessing officer was not empowered to reallocate the 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, the assessee had been allowed relief under Section 80-I without any interference from the assessing officer. The Tribunal, thus, held that there was no justification for the learned CIT(A) to have set aside the issue for reconsideration of deduction under Section 80-I(8) of the Act. So far as the question of applicability of Section 80-I (9) of the Act is concerned, the Tribunal accepted the submission made on behalf of the assessee that the provisions of the said Section were applicable only where there were transactions between the assessee and an outsider and not when there were transactions between one unit and the other of the same assessee. The Tribunal, thus, held that setting aside of the assessment order by the CIT (A) for deciding the issue of relief under Section 80-I by considering the provisions of Sections 80-I (8) and 80-I (9) of the Act was not justified. This is how the aforesaid two questions have been referred Income-tax Reference No. 119 of 1996 -5- to this Court for its opinion. We have heard learned counsel for the petitioner-Revenue and have perused the record. The issue for adjudication in the present case is, whether the assessee who was deriving income from manufacture and sale of wool tops at its woolen unit and had made certain profits from the Combing unit had reduced the profits of the spinning unit in order to make higher relief under Section 80-I of the Act. The Tribunal on appreciation of evidence that there was no attempt on the part of the assessee to reduce the profits of the combing unit in order to enhance the 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 of the learned Counsel for the assessee that section 80-I(8) could apply only where the goods had been transferred from one unit to other unit at less than the market price. It has been demonstrated before us by the learned counsel for the assessee that except in respect of one lot of 3539 Kg. out of total of 815361 Kg. there was a slight difference of Rs. 7,715/-. It is significant to note that when the total transfer was of the order of Rs. 14,37,24,264/-, the difference of Rs. 7,715/- was insignificant and very nominal. It is also significant to note that though the transfer rate was slightly less than the market rate, it was still higher than the cost price of the combing unit.

15. In the case of Punjab Concast Ltd. (supra), the Tribunal Income-tax Reference No. 119 of 1996 -6- has also held that the Assessing Officer is not empowered to re-allocate the expenses u/s 80-I(6) or u/s 80-I(8) of the Income Tax Act. We find that for the assessment years from 1986-87 to 1989-90 the assessee has been allowed relief u/s 80-I without any interference from or disturbance by the Assessing Officer. The method of accounting has been the same in the earlier years as in the year under consideration 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 the learned CIT(A) to set aside the issue for reconsideration of deduction u/s 80-I(8) of the Act.

16. As regards the applicability of section 80-I(9), we are in agreement with the reasoning of the learned Counsel for the assessee that the said section is applicable only where there are transactions between the assessee and an outsider and not when there are transactions between one unit and the other of the same assessee. We, therefore, hold that the learned CIT(A) was not justified in setting aside the assessment order for deciding afresh the issue of relief u/s 80-IU by considering the provisions of sections 80-I(8) and 80-I(9) of the Act. We further hold that since there was no difference between the transfers from combing unit to the spinning unit, there was no justification for making any adjustments as made by the Assessing Officer. The first two grounds are, therefore, accepted.” Income-tax Reference No. 119 of 1996 -7- The Tribunal on appreciation of evidence concluded that there was no difference in the rate adopted by the assessee in respect of transfers from combing unit to the spinning unit and that the provisions of Section 80-I(8) and (9) were not attracted in the present case. In view of the aforesaid findings of fact recorded by the Tribunal, which has not been shown to be perverse in any manner by the learned counsel for the petitioner-Revenue so as to persuade this Court to hold that the Tribunal had erroneously decided the issue in favour of the assessee. The first question noted above is accordingly answered against the Revenue and in favour of the assessee. In the light of the above, the second question being consequential also stands decided in the same terms. Reference stands disposed of. (AJAY KUMAR MITTAL) JUDGE September 9, 2010 *rkmalik/gbs (ADARSH KUMAR GOEL) JUDGE