Income Tax Appeal No v. M s Punjab Tractors Ltd

The order of the CIT A Annexure A was challenged in ( ), -2 appeal by the Revenue before the Income tax Appellate Tribunal - ( 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 - under Section 80 HHC in accordance with the ratio of law laid down in the judgment of the Gujarat High Court CIT v Gasketes . & Radiators Distributors (2006) 206 , CTR 209 and apex Court in CIT Income-tax Appeal No. 451 of 2010 4 v Lakshmi Machine Works (2007) 290 . ITR

667. The order of CIT A in respect of deduction under Section ( ) 80- 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 disallowance deduction u s / 80- 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 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 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 disallowance deduction u s / 80- IA without , appreciating that in view of the assessee s failure to ’ lead the relevant evidences the AO was justified , u s / 114 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 booked and claiming deduction u s / 80- 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 decision of the Hon ble Apex Court ’ in the case of Mc Dowell Ltd vs CTO . . (154 ITR 148) ( SC ). vi) In the facts and circumstances of the case whether , the ITAT is legally justified in confirming the order of CIT A ( ), who had deleted the addition of Rs . 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 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 - submitted that questions Nos . 1 5 claimed in this appeal above are the same as in Income tax Appeal No - . 431 2010, 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 . Adverting to question No .6 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 , profit margin The assessee claims that per cent of its 99 . 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 dealers were paid in assessment years 1997-98 1998- 99 and were allowed However no incentive was paid in . , assessment years 1999-2000 2000-01. From the perusal of details of incentive paid to the dealers , transpires that the assessee had paid the said incentive to Income-tax Appeal No. 451 of 2010 9 dealers as against 186 355 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 special incentive scheme April - 2001 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 element of advertisement . In the absence of any evidence being brought on record by the Assessing Officer 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 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 October 26, 2010 rkmalik * * ( ADARSH KUMAR GOEL ) JUDGE