Income Tax Appeal No v. M s Punjab Tractors Ltd

Aggrieved by the order of the assessing officer , assessee filed appeal . The Commissioner of Income tax Appeals ) ( - in short “CIT A ” ( ) } disposed of appeal vide order dated

29.4.2008, { Income-tax Appeal No. 453 of 2010 3 Annexure A -2 and directed the assessing officer to admit the claims on account of expenses of capital nature and deduction under Section 80 HHC . And as regards the addition on account of disallowance of incentive paid to the dealers the same was directed , to be allowed in cases where PAN of the dealer was provided by the assessee . Regarding addition on account of apportionment of expenses under Section A the same was upheld to the extent of 14 , Rs . 25 lacs only whereas the claim of deduction under Section 80- IA arising out of mere shifting of profit from one unit to the other by making adjustments of the expenses booked i e between Swaraj . . Tractor Division and Swaraj Combine Division , ( SCD the CIT A ( ) ), partly decided the issue in favour of the assessee . However as , regards addition of Rs . 1,14,45,533/- on account of apportionment of expenses of SCD it was directed to be deleted by , holding that only some heads of expenditure had been allocated in the ratio of 90:10 and the basis of apportionment of the remaining expenses appeared to be reasonable The CIT A also directed the . ( ) assessing officer to delete the addition on account of apportionment of interest in view of the fact that factual details that higher interest had been charged to the exemption eligible unit , furnished by the Income-tax Appeal No. 453 of 2010 4 assessee had remained un controverted - . The order of the CIT A Annexure A was challenged in ( ), -2 appeal by the Revenue before the Income tax Appellate Tribunal - ( “the Tribunal” ). The Tribunal vide order dated ,

20.11.2009, Annexure A -3, 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 - HHC in accordance with the ratio laid down in the judgment of the 80 Gujarat High Court CIT v Gasketes . & Radiators Distributors , (2006) 206 CTR 209 and that of the Supreme Court in CIT v . Lakshmi Machine Works (2007) 290 ITR 667 ( SC ). As regards the addition on account of apportionment of expenses under Section 14 A which was upheld to the extent of Rs . 25 lacs was deleted by the , Tribunal whereas the addition on account of disallowance of incentive , paid to the dealers and the deduction under Section 80- IA were deleted by the Tribunal by following the orders in the case of the present assessee itself relating to the assessment years 2002-03 2003-04. Income-tax Appeal No. 453 of 2010 5 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 : 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 . 1,16,44,973/- 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 , 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 Income-tax Appeal No. 453 of 2010 6 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 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 ). Income-tax Appeal No. 453 of 2010 7 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 . 1,03,12,868/- 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 . )vii In the facts and circumstances of the case whether , the ITAT is legally justified in deleting the addition made on account of apportionment of expenses u s / A when the assessee failed to provide separate 14 , details of expenses relating to exempt income thus failing to discharge its onus that it had not incurred Income-tax Appeal No. 453 of 2010 8 operating and administrative expenses on investment made by it on which huge dividend exempt income ( ) had been earned . We have heard learned counsel for the appellant and have perused the record . Learned counsel for the appellant Revenue has very fairly - submitted that question Nos . 1 6 claimed in this appeal are the same as in Income tax Appeal No - . 451 2010, which has been disposed 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 the , Tribunal 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 45 of its order held as under : , “43. The question for adjudication is whether any , disallowance is warranted under Section A of the Act in 14 a case where the assessee claims to have made the investment in the shares of Indian Companies in the past , years and the dividend income from which is claimed as Income-tax Appeal No. 453 of 2010 9 exempt The claim of the assessee before the authorities . below is that no part of the interest expenditure is attributable to the investments made in shares of Indian companies as the said investments were made in the earlier years wherein no disallowance had been made . Further the assessee claims that during the year under consideration no expenditure is attributable to the earning , of dividend income . From the perusal of the assessment order 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 : Investment ( In lacs ) Year of Investment Shimla SEL SAL IDBI

304.50

68.65

5.83

224.44 1985 1990 1980 1995

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 :- Income-tax Appeal No. 453 of 2010 10 “ In view of finding reproduced above it is clear that , the expenditure on interest was set off against the income from interest and the investment in the share and funds were out of dividend proceeds . In view of this finding of fact disallowance u s A was not / 14 , sustainable Whether . , in a given situation , expenditure was incurred which was to be disallowed is a question of fact The contention of . , revenue directly indirectly some expenditure is always incurred which must be disallowed under section A and the impact of 14 expenditure so incurred cannot be allowed to be set off against the business income which may nullify the mandate of section 14 , A can not be accepted . Disallowance u s A requires finding of incurring of / 14 expenditure where it is found that for earning exempted income no expenditure has been incurred , disallowance under section A cannot stand In the 14 . present case finding on this aspect against , , Revenue , perverse . Income-tax Appeal No. 453 of 2010 11 Consequently disallowance is not permissible We . , have taken this view earlier also in ITA No . 504 2008 ( Commissioner of Income Tax Chandigarh II - Vs M s Winsome Textile . / . Industries Limited , Chandigarh decided on )

25.8.2009, wherein it was 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 as , held by this Court in CIT Vs Abhishek Industries Limited , (2006) 286 ITR 1 , therefore disallowance under section , A was 14 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 . Income-tax Appeal No. 453 of 2010 12 interest was permissible when loan was taken for business purpose and not for diverting the same to sister concern without having nexus with the business Observations made therein . have to be read in that contest . In the present case admittedly the assessee did not make , , any claim for exemption . In such a situation , section 14 A could have no application ” .

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 2009) ( order dated November 4, 2009 in 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 , / A of 14 the Act is warranted . Accordingly we direct the , Assessing Officer to delete the disallowance of Rs . 25 lacs made under Section 14 A of the I T Act ” . . . We have heard learned counsel for the appellant and perused the record . Income-tax Appeal No. 453 of 2010 13 From the perusal of the above we find that the Tribunal , after relying upon a judgment of this Court dated November , 4, 2009 in CIT Vs M s Hero Cycles Ltd ITA No / . ( . 331 2009) and having regard to the fact the authorities below had failed to point out any interest expenditure attributable to earning of dividend income / during the year held that no disallowance u s A of the Act was / 14 , warranted and accordingly directed the Assessing Officer to delete , the disallowance of Rs . 25 lacs made under Section 14 A of the I T . . .Act Learned counsel 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 the substantial questions of law proposed by the Revenue do not arise that may attract attention of this Court for decision The appeals are . consequently dismissed . Income-tax Appeal No. 453 of 2010 14 ( AJAY KUMAR MITTAL ) JUDGE October 26, 2010 rkmalik * * ( ADARSH KUMAR GOEL ) JUDGE